At the crux of OCC’s guidance is a trio of concerns: consumer protection, accountability and accuracy.
Fair treatment of customers must now be part of the structure of debt-sales agreements.
Banks must provide timely notification to customers when their past-due debts are being sold. And these notifications must clearly identify the dollar amount of the debt that has been sold, as well as the name and address of the debt buyer. At the time of sale, banks must provide accurate and increased information for each debt.
“This guidance is one of the first actions taken by a federal regulator to address the way banks sell off their old debt,” said Lisa Stifler of the Center for Responsible Lending. “The agency sent a strong message to banks that they must no longer sell debts without proper due diligence, risk management, and attention to the fair treatment of consumers.”
OCC also identified specific types of debt that are not appropriate for sale. The list includes:
Deceased account holders;
Borrowers that have sought or are seeking bankruptcy protection;
Accounts lacking clear evidence of ownership;
Account holders currently in litigation with the institution;
Debt that has been otherwise settled or is in the process of settlement and
Debt incurred as a result of fraudulent activity.
By advising banks of the dos and don’ts of debt selling, the hope is that consumer harms stemming from these transactions will disappear.
“For years, debt collectors have gotten away with flooding the courts with frivolous debt collection lawsuits and fraudulently obtaining judgments, when they have no proof that the debts are actually owed,” said Susan Shin of New Economy Project. “The OCC’s guidance should help stop this wrongful transfer of wealth from low-income people and communities to debt buyers.”
Instead of debt buyers rushing to courts to sue consumers for debts owed, OCC’s guidelines and ongoing monitoring will stem—if not end—consumers having their paychecks surprisingly garnished, or a court finding in favor of a debt collector simply because the affected consumer never received a notice of the impending action. Unfortunately, many default judgments have been based on inaccuracies, incomplete or outdated personal information or questionable claims.
“The OCC guidance will help bring banks and debt collectors into compliance with federal and state consumer protection, as well as other laws,” said Rob Randhava of the Leadership Conference on Civil and Human Rights, a coalition of more than 200 groups.
For advocates, the hope is that this first step towards consumer protection in debt sales will not be the last.
(Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.)
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