The Office of the Comptroller of the Currency (OCC) has made clear that all national banks and federal savings associations can expect increased scrutiny of their debt sales practices, as well as supervisory guidance addressing such practices. Consequently, these institutions should begin examining their debt sales practices and considering the need for changes.

In a statement provided to the Senate Committee on Banking, Housing, and Urban Affairs this week for a hearing on the debt industry, the OCC discussed its expectations for bank debt sales. It indicated that the failure to implement proper controls and governance to manage risks associated with such sales "represent[s] safety and soundness and compliance concerns for the OCC."

The OCC has already increased its scrutiny of debt sales by large banks, noting in the statement that it "has planned supervisory activities in the largest banks to assess policies, internal monitoring, and oversight of debt sales programs." The OCC also plans to collaborate with Consumer Financial Protection Bureau (CFPB) examiners to bring "both a safety and soundness and a consumer protection focus to these reviews."

Earlier this year, the OCC provided a "Debt Sales/Best Practices" document to its examiners describing debt sales risk management practices they should expect to see in large banks and providing examples of best practices. (That document was included as an attachment to the OCC's statement.) In its statement, the OCC indicated that it plans to use this document to inform its development of supervisory guidance for all national banks and federal savings associations. The agency said it is now developing guidance that will "detail the principles that OCC-supervised institutions will be expected to apply in their risk management processes, policies, and procedures regarding disposing of charged-off consumer debts."

The OCC also indicated that it considered its long-standing published guidance on risk management associated with vendors and third-party service providers to be "relevant to [banks'] relationships with buyers of their debt." The OCC expressly recognized in its statement, however, that "debt buyers generally are not third-party vendors subject to OCC jurisdiction." This raises the question of just how closely the guidance being developed will resemble the current structures and requirements for third-party vendor relationship management.

The effective management practices described in the OCC's best practices document deal with issues such as requirements for documentation to be provided to debt buyers, due diligence to be conducted on debt buyers, and topics to be addressed and terminology (such as boilerplate language) to be used in debt sales contracts. Best practices include using debt buyer scorecards to assess a debt buyer's legal and reputational risks, limiting a debt buyer's ability to resell debts, and evaluating a debt buyer's litigation strategy to determine whether the sales contract should include limits on such strategy.

OCC-supervised institutions should take note of the agency's intention to draw on the best practices document, and to some extent principles found in its published guidance on third-party risk management, in developing debt sales guidance. Such institutions should begin working with counsel to assess their debt collection practices in light of the OCC's intention and, where necessary, modifying their practices and procedures to meet the agency's likely expectations.

Debt collection, including collection practices of creditors and servicers, is also a major CFPB focus. The CFPB has authority to supervise and examine certain nonbank debt collectors and debt buyers (e.g., larger ones, those that pose significant risks to consumers, and those that act as service providers to banks and other entities supervised by the CFPB) for compliance with the Fair Debt Collection Practices Act (FDCPA) and the Dodd-Frank Act's prohibition of "unfair, deceptive or abusive" acts or practices, among other federal consumer financial services statutes. The CFPB also can investigate and bring enforcement actions against nonbank debt collectors and debt buyers, regardless of their size, for violations of those same laws.

Attorneys in Ballard Spahr's Consumer Financial Services Group regularly advise clients on debt sale transactions and debt buyer due diligence matters and compliance with the FDCPA and state debt collection laws. They also defend clients in FDCPA lawsuits and enforcement matters. The Group has also created a team of lawyers who are helping clients prepare for their first CFPB examinations.

The firm's Bank Regulation and Supervision Group includes experienced lawyers who, among other things, counsel banking clients on compliance issues and matters involving bank supervision and examination.

For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or, John L. Culhane, Jr., at 215.864.8535 or, Collection Documentation Task Force Chair Christopher J. Willis at 678.420.9436 or, or Glen P. Trudel at 302.252.4464 or

Copyright © 2013 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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