August 12, 2014

OCC sheds light on debt sales with latest guidance

The Office of the Comptroller of the Currency recently took action to clarify best practices surrounding debt sales when it issued guidelines on Aug. 4.

This guidance outlines the steps that banks should take before selling charged-off consumer debt, according to American Banker. While the government agency provided some recommendations on debt sales best practices last July, this latest OCC Bulletin formalizes the previously-released information since it is a statement of policy designed to inform banks on what the regulator expects in these transactions. The guidance in this bulletin will also apply to sales of other types of debt.

New guidelines affect all OCC-regulated banks
While the best practices released in July 2013 were for large banks, the new guidelines apply to all financial institutions supervised by the OCC, the media outlet reported. The latest guidance was released after the government agency conducted a three-year investigation of large banks' debt collections and sales activities.

Now, financial institutions must provide debt buyers with several items, such as:

  • Copies of all existing account statements, or the last 12, whichever is less
  • A copy of either a signed contract or other documents evidencing the consumer is responsible for the debt in question
  • The name, address and social security number of the debtor

In addition, the OCC has deemed certain debt types inappropriate for sale, including:

  • Debt incurred stemming from fraudulent activity
  • Debt that is already settled or in the process of being settled
  • Debt owned by individuals that are now deceased

The OCC has also suggested that banks refrain from selling certain types of debts - such as accounts involving minors or in disaster areas - since these could generate greater compliance and reputational risk.

While the aforementioned guidelines may seem substantial, the list contained in this article is not exhaustive. In addition to providing these new requirements, the OCC plans to hold banks liable for conducting proper due diligence on vendors collecting debt and debt buyers before a sale happens, according to American Banker.

"Before a bank enters into a contract with a debt buyer, the debt buyer should be able to demonstrate that it maintains tight control over its network of debt buyers and that it conducts activities in a manner that will not harm the bank's reputation," the OCC noted in a statement. "In addition, banks contemplating entering into a relationship with debt buyers should first assess the debt buyer's record of compliance with consumer protection laws and regulations."

The Garnet Process
Instead of developing a de novo process for an event that might only be utilized intermittently, financial institutions can save themselves a lot of time and energy - and likely get a better deal - by working with Garnet Capital Advisors. The loan broker has spent years developing a 42-step process to help sellers avoid issues that would concern regulators.

In addition, Garnet Capital Advisors diligently monitors the various sources that provide updates on the latest debt sales and regulations.

Financial institutions that want to know more about Garnet's debt sales process can consult the company's latest whitepaper or contact the loan broker directly.