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Bank in Check Fraud Case Settles for $500K

(CN) - First Bank of Delaware can pay $527,750 to settle claims that it participated in an electronic check scheme, a federal judge ruled.

The 2011 federal class action filed by lead plaintiffs Amber Kristi Marsh and Stacie Evans alleged that ZaaZoom Solutions and a slew of other companies conspired to deposit remotely created checks (RCCs) into accounts at First Bank of Delaware (FBD) and First National Bank of Central Texas.

Marsh and Evans said ZaaZoom used the RCCs "to pay for monthly membership fees for coupon services using their personal and banking information entered on websites for the purpose of obtaining payday loans," according to a summary of the complaint in San Francisco. "Plaintiffs allege that they did not consent to the sharing or use of their personal and banking information to sign up for the coupon memberships, and that the creation of RCC's was done without their knowledge or authorization."

Marsh and Evans accused each defendant of conversion, unfair business practices under California law, consumer fraud under Arizona law and violation of the Wiretap Act.

U.S. District Judge William Orrick preliminarily approved the settlement with the bank Wednesday.

Class counsel Karl Kronenberger said in an interview that the scheme forced FBD out of business and that there is "still a case out against" First National Bank of Texas.

"The bank isn't even operating anymore," he said of FBD. "They agreed to a big settlement with the government, and insurance money is what is funding this current settlement."

The Justice Department announced in late 2012 that the FBD paid a $15 million civil money penalty to the U.S. Treasury. It said the bank violated the Financial Institutions Reform, Recovery and Enforcement Act by "originating withdrawal transactions on behalf of fraudulent merchants and causing money to be taken from the bank accounts of consumer victims," according to the press release. "The government alleges that the bank knew - or turned a blind eye to the fact - that consumer authorization for the withdrawals had been obtained by fraud."

The $527,750 fund in the latest settlement provides each class member with $60.

Kronenberger noted that ZaaZoom, one of the masterminds behind the scheme, failed to defend itself in court, leading Orrick to grant the plaintiffs default judgment on Dec. 2, 2013.

"ZaaZoom has defaulted; they have failed to defend the case, which just means they are probably broke," he said.

How much Zaazoom will have to pay "depends on how we go about enforcing the default," Kronenberger added.

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