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Comp Blog

OCC Issues Guidance on Bank Debt Sales

By: Danielle Wright

CommentFriday - August 8, 2014

 

MH910217227While we have previously made note of increasing CFPB scrutiny in the debt collection sphere, its also worth discussing increasing agency oversight of the ways that financial institutions fully charge-off and sell debt to third party collection agencies. Just this week, the Office of the Comptroller of the Currency (OCC), the prudential regulator for nationally chartered banks, issued a formal guidance for these debt sales. This guidance document outlines steps and best practices for banks to take before, during, and after consumer debt sales. To be clear, the OCC has no jurisdiction over credit unions, but this guidance may serve as a blueprint for anything that NCUA comes up with.

 

The OCC has been studying this issue for three years prior to releasing its guidance, since many consumer groups, state attorney’s general, and whistle-blowers have been revealing chronic errors in the debt collection market, such as missing account information and customer payment histories. The new guidance therefore requires banks to provide their debt buyers with signed customer contracts, account numbers, and other information. It also asks banks to refrain from selling debt that poses potential legal/compliance risk, especially under the Fair Debt Collection Practices Act (FDCPA) and Servicemembers Civil Relief Act.

 

While financial institutions can benefit from debt-sale arrangements that turn nonperforming loans into immediate cash proceeds and can minimize resources devoted to collections, these charge-offs are not without risk. The guidance breaks down this risk into operational, compliance, reputation, and strategic risk. That said, the overriding message of this guidance is that the OCC now expects banks to perform due diligence on their counterparties before a debt sale occurs, especially for consumer protection laws. In the past, banks were generally not held responsible for abusive or illegal collection practices of their debt buyers. This guidance suggest that this status quo is changing.

 

While we know that credit unions are not-for-profit organizations that exist to solely to serve their members, , it’s important to keep in mind that this may not necessarily be the case with the debt buying organization that you do business with. For credit unions to maintain our hard-earned reputation, its important for us to carefully choose a debt buyer/collection agency that understands and shares the values of the credit union movement. This is especially important given the history and notoriety of debt collection practices, which are now under the close eye of CFPB.

 






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