The Office of the Comptroller of the Currency’s (OCC’s) new Bulletin 2014-37 on Consumer Debt Sales represents the agency’s latest guidance on this topic since providing a written statement a year ago to the Senate Subcommittee on Financial Institutions and Consumer Protection describing “best practices” gleaned from supervision of the largest national banks. Unlike the OCC’s statement, the Bulletin addresses the application of consumer protection requirements and safe and sound banking practices to debt sales by all OCC-supervised institutions (national banks and federal thrifts), including community banks.

After summarizing the operational, reputation, compliance, and strategic risks associated with consumer debt sales by financial institutions, the Bulletin discusses the OCC’s supervisory concerns from both a safety and soundness and a consumer protection point of view. These include: 

• Selling debt without knowing enough about the debt buyer’s collection practices
• Providing customer information without appropriate customer disclosure or in violation of applicable internal privacy policies or applicable laws and regulations
• Transferring inadequate customer account information to the buyer
• Failing to institute appropriate internal oversight of debt sale arrangements to ensure that they are governed consistently across the organizations

The Bulletin is careful to note that it does not create any new legal rights against a bank that sells debt, either for a consumer whose debt is sold or for any other third party.

Safety and Soundness Viewpoint

The Bulletin sets forth specific expectations regarding what internal policies and procedures should contain and guidance on what constitutes appropriate due diligence in selecting debt buyers. While the OCC’s statement suggested that a file should be maintained on approved debt buyers to meet the expectations of the then-current OCC Bulletin on third-party relationships, the Bulletin advises institutions to follow the risk-assessment and risk-management guidance in OCC Bulletin 2013-29. This focus emphasizes the importance of assuring that agreements with debt buyers cover all important considerations, including confidentiality and IT concerns, risks inherent in resales of debt (if permitted) by the debt buyer, and adequate handling of customer information once debt collection activities have ceased.

Consumer Protection Viewpoint

The Bulletin also addresses OCC’s newer, more specific expectations regarding debt sale agreements. Whereas the OCC’s statement generally evidenced a requirement that sufficient account information be provided to a buyer to allow ordinary course collection and that the contract deal with requests for additional information, the Bulletin requires an institution to provide (apparently at the time of sale) the buyer with copies of the underlying account documents and related information. These documents and information include, for each debt, key identifying information about the debtor (including all identifying account numbers used by the institution and, as appropriate, its predecessors), copies of all pertinent agreements, recent (within the prior 12 months) account statements, certain last payment information, and information about all collection efforts and any unresolved disputes or fraud claims by the debtor.

Under the Bulletin, certain kinds of debt are deemed “clearly not appropriate for sale” for their failure to meet the basic requirements to constitute an ongoing legal debt. These include debts that have been settled or are in the process of settlement, debts of decedents, and accounts “lacking clear evidence of ownership.” In addition, the Bulletin instructs that banks should “refrain” from selling accounts in disaster areas, accounts “close to the statute of limitations,” Servicemembers Civil Relief Act accounts, and accounts of minors. No further guidance is provided as to how “close” an account must be to its statute of limitations for its sale to be frowned upon by the OCC.