A federal judge approved a settlement between the Department of Justice and a small North Carolina bank that was sued as part of the Operation Choke Point probe.

Four Oaks Bank, in Four Oaks, N.C., will pay a $1.2 million penalty over claims it failed to protect consumers' bank accounts, according to U.S. District Judge Terrence Boyle's decision. The ruling ends months of uncertainty about the fate of the settlement agreement between the DOJ and Four Oaks, an $820 million-asset institution.

The move is considered a win for the DOJ and federal prosecutors investigating banks doing business with payday lenders.

The penalty is a result of a complaint that said the bank had been "deliberately ignorant" when dealing with merchants who were defrauding customers. Four Oaks said in a statement in January that as part of the deal it did not admit to the allegations or to any liability.

U.S. prosecutors alleged in the complaint that Four Oaks allowed a privately owned third-party payment processor in Texas to illegally process around $2.4 billion in return for more than $850,000 in fees.

The case is the only suit filed so far as part of Operation Choke Point, the DOJ's year-long investigation into how fraudulent merchants, including some online payday lenders, access the bank payment system. In recent months, as Boyle expressed concern about some of the proposed deal's terms, questions arose about the DOJ's ability to reach settlements with other banks.

The settlement's approval also allows Four Oaks to move beyond an investigation that brought the bank unwanted publicity and likely hurt its ability to raise needed capital. The bank did announce an agreement in March with investor Kenneth Lehman that should allow it to raise as much as $26.5 million in a rights offering.

"The bank is pleased with the court's decision to approve the settlement," Jeffrey Knowles, a lawyer at Venable LLP who represents Four Oaks, said in an email Friday. “This resolves the matter and enables the bank to continue to focus on serving its customers and the greater Four Oaks community."

The DOJ's case against Four Oaks involved the bank's relationship with an unnamed Texas-based third-party payment processor, which stood between Four Oaks and more than 20 online lenders. Almost all of the Texas processor's business was with Internet payday lenders, the complaint stated.  

The complaint portrayed Four Oaks employees as willfully ignoring violations of the law in order to preserve a lucrative revenue stream.

Four Oaks made no admission of wrongdoing as part of the settlement. But the bank did agree to tight restrictions on its ability to do business with online payday lenders and the companies that process their payments.

For example, if a particular online lender has seen more than 0.5% of its electronic customer debits returned because they were unauthorized, Four Oaks is permanently barred from providing banking services to that company.

Of the $1.2 million fine to be paid by Four Oaks, $1 million will go to the U.S. Treasury, while the remainder will go to a consumer protection fund that's administered by the U.S. Postal Inspection Service.

During a court hearing in January, Boyle expressed dismay that none of the money would go to individuals who were harmed in the Four Oaks case.

The judge also suggested at that time that he might not sign the settlement, at one point asking a Justice Department official what next steps would be taken if he refused to approve the deal.

More than 50 banks and payment processing companies have received subpoenas as part of Choke Point, according to the Justice Department.

The probe, which is part of a broader regulatory crackdown on access to the mainstream payment system, has sparked a backlash across the banking industry, the online payday loan industry, and the payment processing industry.

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