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From Banking and Finance Law Daily, August 4, 2014

OCC provides guidance on consumer debt sales

By John M. Pachkowski, J.D.

The Office of the Comptroller of the Currency has provided guidance to national banks and federal savings associations (banks) advising them about the OCC’s supervisory expectations for structuring debt-sale arrangements in a manner that is consistent with safety and soundness and promotes fair treatment of customers.

Scope of guidance. The guidance, OCC 2014-37, applies to all outright legal sales of charged-off debt by banks and does not apply when a bank has a residual interest in the debt that is sold, such as when a bank continues to receive income from the debt, or the bank receives a percentage of any recovery by the debt buyer.

Development of guidance. The OCC developed the guidance based on work begun in 2011 when the agency conducted a review of debt collection and sales activities across the large banks it regulates. Through this work, the OCC identified a number of best practices that its large bank examiners have incorporated into their supervision of debt sales activities. In July 2013, the OCC provided a copy of this best practices document to the Senate Subcommittee on Financial Institutions and Consumer Protection and in an accompanying statement, the OCC announced that the agency was using these best practices and insights gained from its on-site supervisory activities to inform the development of policy guidance applicable to a broader range of financial institutions. Since that time, the OCC has received comments and input from a wide variety of interested parties, including financial institutions, debt buyers and collectors, consumer and community advocates, and other governmental entities.

Supervisory concerns. Following its ground work, the OCC identified a number of instances in which banks agreed to sell debt to debt buyers without full understanding of the debt buyers’ collection practices. The agency noted that banks should know what resources debt buyers use to manage and pursue collections and consider the debt buyers’ past performance with consumer protection laws and regulations.

Supervisory expectations. The guidance further provides that banks are expected to structure their debt-sale arrangements in a prudent and safe and sound manner to promote the fair treatment of customers. Under the guidance, the OCC considers the following practices to be consistent with safety and soundness:

  • ensuring appropriate internal policies and procedures are developed and implemented to govern debt-sale arrangements consistently across the bank;

  • performing appropriate due diligence when selecting a debt buyer;

  • ensuring debt-sale arrangements with debt buyers cover all important considerations, such as the parties’ duties and obligations as they pertain to confidentiality and information security;

  • providing accurate and comprehensive information regarding each debt sold which may involve the use of “data scrubs” and transactional sampling to ensure that account data are complete and accurate before accounts are transferred to the buyer;

  • identifying types of debt that are not appropriate for sale and refrain from the sale of certain additional types of debt because these types of accounts may pose greater potential compliance and reputational risk; and

  • compliance with applicable laws and regulations which include the Fair Debt Collection Practices Act, Fair Credit Reporting Act, and Equal Credit Opportunity Act.

Supervisory action. Finally, the OCC stresses that if examiners find unsafe or unsound practices or practices that fail to comply with applicable laws or regulations, it will take appropriate supervisory action, including enforcement actions, when warranted. In addition, when the agency becomes aware of concerns with nonbank debt buyers, it will refer those issues to the Consumer Financial Protection Bureau, which has jurisdiction over these entities.

MainStory: TopStory BankingOperations ConsumerCredit CFPB DebtCollection EnforcementActions EqualCreditOpportunity FairCreditReporting Privacy UDAAP

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