The OCC has published guidance for national banks and federal savings associations on the application of consumer protection requirements and other rules when selling certain consumer debt to third parties (debt buyers) that intend to collect on the underlying obligations. According to OCC Bulletin 2014-37 issued on August 4, OCC-regulated banks should develop and implement appropriate internal policies and procedures to govern debt sale arrangements consistently before entering into transactions with debt buyers. Such procedures should include appropriate due diligence when selecting debt buyers, providing accurate and comprehensive information at the time of sale regarding each debt sold, and ensuring compliance with applicable consumer protection laws and regulations. The OCC said that it recognizes that debt sale arrangements benefit banks by “turning nonperforming assets into immediate cash proceeds and reducing the use of internal resources to collect delinquent accounts,” but that banks must consider and manage significant risks associated with debt sale arrangements, including operational, compliance, reputation and strategic risks. Among the OCC’s supervisory concerns with debt sale arrangements are whether banks understand debt buyers’ collection practices and whether customer information is transferred to debt buyers in violation of the banks’ internal privacy policies and applicable laws and regulations.
Nutter Notes: The OCC’s guidance on consumer debt sale arrangements also describes the OCC’s expectations for the structure of contracts between banks and the debt buyers. According to the guidance, contracts with debt buyers should clearly delineate the obligations of the parties for confidentiality and information security, and responsibility for compliance with applicable consumer protection laws. Federal consumer protection laws applicable to debt sales include the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, Title V of the Gramm-Leach Bliley Act, the Equal Credit Opportunity Act and the FTC Act. According to the guidance, the OCC expects that contracts with debt buyers include a termination plan to ensure that customer information is returned to the bank or destroyed, minimum service-level agreements to promote fair and consistent treatment of customers, and provisions obligating the debt buyer to maintain the accuracy of consumer information provided by banks. Debt sale contracts should also address the extent to which the debt buyer can resell debt, according to the guidance. The guidance advises that any such debt sale contract should obligate the initial debt buyer to conduct thorough due diligence on the proposed purchaser and to pass on all account information and documentation in its possession to a subsequent buyer. The guidance also says that the OCC expects banks to ensure that contracts with debt buyers do not include compensation provisions that provide incentives for debt buyers to act improperly.