Published: August 2014

New guidelines for banks selling old consumer debt to debt collectors

Banks have come under increasing public and regulatory scrutiny for the central role they play in perpetuating unfair, deceptive, and abusive debt collection practices, which pervade the debt collections industry. Banks’ most harmful practices include selling debts without adequate documentation, setting the stage for rampant abuse by collectors. In a letter to the Office of the Comptroller of the Currency (OCC), consumer advocates praised the agency's move toward stronger debt collection regulations that will ultimately protect thousands of consumers.

According to the Ceneter for Responsible Lending, almost 30 million Americans are currently being pursued by debt collectors, usually for amounts around $1,500. Many debt collectors use illegal tactics such as threatening consumers, refusing to verify disputed debts, etc. In fact, debt collectors generate more complaints to the Federal Trade Commission than any other industry.

After The Office of the Comptroller of the Currency (OCC) conducted a three-year investigation of large banks' debt collections and sales activities, it issued guidance to banks regarding the process of selling charged-off consumer debts to debt buyers. This guidance outlines what the regulator expects during these types of transactions and will also apply to sales of other types of debt. While previous OCC best practices focused on large banks, the latest recommendations focus on all the financial institutions supervised by the OCC.

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.

Consumer Action joins coalition advocates in praising the OCC for these positive first steps in protecting consumers from predatory debt collection practices. We urge the agency to push for even stronger documentation retention procedures and also hope the Federal Reserve Board, the FDIC, and the Consumer Financial Protection Bureau will follow in the OCC's footsteps and take regulatory actions thats specifically target the debt collection industry.

Lead Organization

Center for Responsible Lending (CRL)

Other Organizations

Center for Responsible Lending | Americans for Financial Reform | The Leadership Conference | National Association of Consumer Advocates | Consumer Action | New Economy Project | National Consumer Law Center | Consumer Federation of America

More Information

For more information, please visit the Center for Responsible Lending.

Download PDF

New guidelines for banks selling old consumer debt to debt collectors   (OCC_guidance_FINAL_8-11-2014.pdf)