Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Item 1A of our Form 10-K for the fiscal year ended December 31, 2022, other than as described below. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition and/or results of operations.
We are involved in investigations, lawsuits and other proceedings that are expensive, time-consuming and could seriously harm to our business.
We are involved in lawsuits, including class-action lawsuits, and government investigations relating to the conduct of our business. For example, in April 2021, ACH files associated with one of our mortgage servicing customers were inadvertently transmitted into the ACH network during a test of our payment processing system. We took immediate corrective action and issued reversing ACH files, restoring affected accounts. Private plaintiffs initiated seven class action lawsuits, the Consumer Financial Protection Bureau, state regulators and state attorneys general initiated investigations and our customer commenced an action for damages as a result of this event. We have settled the class action lawsuits and the investigations by federal and state regulatory authorities and state attorneys general arising out of the event. The customer action remains pending and we presently intend to vigorously defend it. We expect that insurance will fund substantially all of the payments and costs associated with these settlements, including lawyers’ fees as well as the defense of the customer action, and any other claims that may be asserted against it or that it may assert arising from the event, subject to the retained limits and other terms of the applicable policies. See Legal Proceedings in Note 12, Commitments and Contingencies, to our Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a discussion of these matters.
Damage claims in lawsuits, and fines and penalties imposed by governmental agencies, can be substantial, and injunctive or other remedies imposed by governmental agencies can be costly to implement. Any litigation may result in an onerous or unfavorable judgment that might not be reversed on appeal, or we may decide to settle lawsuits or resolve government investigations on adverse terms. Any such negative outcomes could result in the payment of substantial monetary damages or penalties that are not funded by insurance or require changes to our products or business practices that materially affect us. Even where the ultimate outcome of any such litigation or regulatory proceeding may be favorable, defending against claims and responding to regulatory proceedings is costly and can impose a significant burden on us.
The existence of lawsuits and investigations, and any adverse outcome, may create negative publicity for the Company and undermine our goodwill with customers. Competitors may use these lawsuits and investigations against us in the marketplace, making it difficult for us to attract new customers and retain our existing customers.
We are subject to consent orders and other compliance agreements (the “Consent Orders and Compliance Agreements ”) entered into in connection with the settlement of state and federal regulators’ investigations. Failure to comply with the Consent Orders and Compliance Agreements could result in further, and more significant, enforcement actions against us.
We are required to conduct our operations in compliance with the Consent Orders and Compliance Agreements. While we have complied with the Consent Orders and Compliance Agreements, and have implemented processes by which we believe we will maintain compliance with the Consent Orders and Compliance Agreements going forward, we cannot be certain that we will maintain compliance with the Consent Orders and Compliance Agreements in all instances. In the event that we are deemed to be non-compliant with the terms of the Consent Orders and/or Compliance Agreements, the state and/or federal regulators have the authority to subject us to additional, and potentially more significant, corrective actions and could seek to initiate further enforcement actions against us, including seeking civil money penalties. Any failure by us to comply with the terms of the Consent Orders and Compliance Agreements or additional actions could adversely affect our business, financial condition and results of operations. In addition, our competitors may not be subject to similar actions, which could limit our ability to compete effectively.
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