Alert July 23, 2013

OCC Issues Statement on Oversight of Debt Collection and Debt Sales

Reflecting ongoing concern about third-party collection of debts originated by national banks and federal savings associations, the OCC issued a statement for congressional testimony, titled “Shining a Light on the Consumer Debt Industry.” The statement sets forth the policies and procedures that banks should have in place relating to the sale and collection of charged-off debt such as: identifying types of accounts that should not be sold; ensuring purchase and sale agreements clearly define all parties’ roles and responsibilities; providing detailed documentation to the debt buyer at the time of purchase and performing due diligence as to third party buyers to ensure proper licensing, good standing, and to identify regulatory or other legal action pending against them.

The statement also provides best practices, including, among other things: establishing an oversight committee for the bank’s debt-sale activities; using debt-buyer scorecards to assess legal and reputational risk; maintaining and documenting accounts accurately; providing sufficient documentation; limiting resale of debt and evaluating debt-buyers’ use of litigation as a collection tool. The OCC further notes that it is developing supervisory guidance for large banks in managing their debt management practices, though the OCC provides no timeframe for issuing such guidance. The issue of debt collection management and practices has been the recent focus of several federal agencies including the CFPB as described above, and the FTC, which issued a similar statement in its testimony before the Senate Banking Committee.