A significant misstep by payment processor company, ACI Worldwide, has culminated in a costly $10 million settlement, spearheaded by New York Attorney General Letitia James, along with a powerful coalition of 48 state attorneys general, Puerto Rico, and the District of Columbia.
The penalty stems from a 2021 testing error where ACI inadvertently withdrew an eye-watering $2.3 billion unauthorized from the bank accounts of unsuspecting mortgage holders. This blunder affected almost 27,000 New Yorkers to the tune of nearly $172 million, James said. Investigations revealed gaping defects in ACI's data security and privacy measures.
“Companies must be more diligent when handling consumers’ data and payment information to not cause worry and panic among consumers. I thank my fellow attorneys general for their partnership to hold ACI accountable for the harm and stress it caused homeowners," James said.
The glitch occurred on April 23, 2021, when ACI, while testing its Speedpay platform, erroneously processed live consumer data of Mr. Cooper customers, leading to unauthorized mortgage payment withdrawals. The result? An alarming 1.4 million processed transactions, impacting 477,000 customers.
The aftermath saw numerous consumers grappling with multiple unauthorized payment withdrawals. While many of these transactions were either halted or reversed, a lot of customers found their accounts overdrawn, with some slapped with overdraft or insufficient fund fees.
It's worth noting that ACI did initiate corrective measures after the debacle. Impacted consumers received restitution, both directly from ACI and through related settlements.
To ensure such a mishap doesn't reoccur, the settlement demands that ACI incorporate stringent testing protocols, including using artificial data during system tests and isolating testing from actual consumer payment platforms.
Last month, Dallas-based servicer Mr. Cooper, formerly Nationstar Mortgage, sought additional compensation from ACI Payments. The lawsuit filed in a Texas federal court demands unspecified damages.
In June, ACI Worldwide's subsidiary was slapped with a $25 million fine by the Consumer Financial Protection Bureau for unauthorized charges made to borrowers in April 2021.
Mr. Cooper's legal team argued that ACI's misuse of confidential data went against the terms of their "Speedpay Agreement" with ACI's predecessor, Speedpay Inc.
In an attempt to placate affected customers, ACI had set up a $5 million fund to settle seven class-action lawsuits related to the 2021 mishap. As stated in a recent SEC 10-Q filing, insurance is expected to cover the majority of the settlement amounts and legal fees.
ACI has assured that the error did not lead to any compromise of customer funds or personal data.
In the lawsuit, Mr. Cooper highlighted the reputational damage and public outcry caused by the incident. The company has faced 10 federal class-action lawsuits and two individual state claims and has had to bear legal fees, compensations, and other related expenses.
"Although Nationstar and ACI both acted quickly to limit the impact of the [i]ncident on Nationstar’s customers, even with those efforts, the [i]ncident impacted many Nationstar customers, leading to widespread negative consequences for Nationstar," the complaint states.