As noted in our recent Alert, the Office of the Comptroller of the Currency (OCC) has issued Bulletin 2014-37 on Consumer Debt Sales (the “Bulletin”). The Bulletin addresses the application of consumer protection requirements and safe and sound banking practices to debt sales by OCC-supervised institutions (national banks and federal thrifts) of all sizes, including community banks. The OCC’s guidance on consumer protection may well prove influential when it comes to CFPB examinations of banks within its jurisdiction — and possibly of nonbank entities as well — in the debt sales area, as well as further action by the CFPB on this subject.

These are areas in which the CFPB is keenly interested. Already, as we have previously noted, the Bureau’s Spring 2014 Supervisory Highlights Report has identified as serious problems both the failure of a debt seller to assess a debt buyer’s compliance with federal consumer laws and the alleged frequency of sales of previously cancelled debts. Moreover, since last Fall, the CFPB has been engaged in a rulemaking proceeding dealing, inter alia, with third-party debt collection practices.

OCC has identified in the Bulletin a laundry list of items that OCC-supervised institutions are required to provide (apparently at the time of sale) to debt buyers:

• A copy of the signed contract or other documents that provide evidence of the relevant consumer’s liability for the debt in question.
• Copies of all, or the last 12 (whichever is fewer), account statements.
• All account numbers used by the bank (and, if appropriate, its predecessors) to identify the debt at issue.
• An itemized account of all amounts claimed to be owed in connection with the debt to be sold, including loan principal, interest, and all fees.
• The name of the issuing bank and, if appropriate, the store or brand name.
• The date, source, and amount of the debtor’s last payment and the dates of default and amount owed.
• Information about all unresolved disputes and fraud claims made by the debtor.
• Information about collection efforts (both internal and third-party efforts, such as by law firms) made through the date of sale.
• The debtor’s name, address, and Social Security number.

While the OCC advises that minimum service level agreements should also be incorporated into debt sale agreements, no specific standards for inclusion are identified in the Bulletin.

The CFPB may well seek to impose enhanced or additional requirements.

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:

o debts that are in litigation;
o debts that have been settled or are in the process of settlement;
o debts of deceased debtors; and
o accounts “lacking clear evidence of ownership.”

In addition, the Bulletin instructs that banks should “refrain” from selling—

o accounts in disaster areas,
o SCRA accounts,
o accounts of minors, and
o accounts “close to the statute of limitations.”

In this last category, however, the OCC provides no further direction on how “close” an account must be to the expiry of the statute of limitations in order for the sale to a debt buyer to be considered improper.

We would not be surprised to see the Bureau, by order or regulation, endorse these items and perhaps add some of its own.

Moreover, we note that, in the Bulletin, the OCC was careful to note that its new guidance 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. It will be important, should the CFPB issue orders or engage in rulemaking in this area, for that agency to include a similarly explicit limitation.

Finally, at the very end of the Bulletin, the OCC observes, “When the OCC becomes aware of concerns with nonbank debt buyers, the agency refers those issues to the CFPB, which has jurisdiction over these entities.” This may be a harbinger of increased numbers of CFPB investigations of nonbank debt collectors growing out of the OCC’s now heightened scrutiny of debt sales by national banks and federal thrifts.

Ballard Spahr will host a webinar on the Bulletin on September 24, 2014, from 12 – 1 p.m. EST.