In conjunction with its recent $389 million joint enforcement action with the CFPB against a national bank (the Bank), the Office of the Comptroller of the Currency (OCC) issued a sweeping, 58-page consent order that may serve as a potential template for future regulation of certain debt-collection practices throughout the debt collection-agency, debt-buying, and first-party creditor industries.

On September 19, 2013, the OCC announced its enforcement action for “unsafe or unsound practices in connection with (i) the Bank’s sworn document and collections litigation practices and (ii) the Bank’s efforts to comply with the Servicemembers Civil Relief Act (SCRA).” The consent order lays out a detailed series of requirements that the Bank must follow when it works with collection agencies and outside law firms to collect on delinquent accounts. It also requires the Bank to provide remediation to affected consumers in addition to correcting deficiencies in its practices and procedures related to the preparation and notarization of affidavits and other sworn documents.

Among other things, the consent order requires the Bank to:

  • Create an Action Plan that outlines the financial and managerial resources, both existing and projected, to develop and support future sworn document and collections litigation and SCRA compliance activities, as well as identify staffing metrics to ensure proper implementation of those projections;

  • Improve its debt collection litigation policies, procedures, and practices to ensure that affidavits and other sworn documents used in connection with non-home loan debt collection litigation are accurate, based on the personal knowledge of the Bank employee signing the documents, or other applicable standards, and are notarized in accordance with all applicable legal requirements;

  • Institute processes to ensure (a) notification to customers regarding the sale of their debt to a debt buyer, (b) that credit bureau reporting is up to date and accurate in reflecting the sale or transfer of debt, and (c) that information provided to debt buyers is in compliance with federal and state laws and regulations;

  • Conduct a review of all non-home lending debt collection litigation at the Bank from January 1, 2009, until present, and all non-home lending SCRA accounts at the Bank from January 2005 until present, to identify consumers eligible for remediation as a result of the deficiencies and unsafe or unsound practices cited by the OCC; the Bank must submit a plan to the OCC detailing how remediation will be made to affected consumers;

  • Create SCRA Reports every three months that details the number of denials of SCRA benefit requests received, the trends in the level of denials of SCRA requests, and the volume of SCRA benefits and consumer complaints; and

  • Subject itself to continual oversight by a Compliance Committee, which shall draft written progress reports every three months setting forth the actions taken to comply with the consent order.

Practical Effect

All types of companies in the banking and debt-collection industries – from original creditors to debt buyers to debt collectors – should pay close attention to the OCC consent order. For one, it highlights certain specialized areas of interest – such as proper affidavit processes and SCRA compliance – that will likely remain significant areas of focus for banking regulators, the CFPB, and the FTC going forward. Moreover, it is tangible evidence of a continuing priority focus by federal regulators on debt collection practices. Combined with the CFPB’s bulletin making clear that first-party creditors’ debt-collection practices are subject to Dodd-Frank’s UDAAP prohibitions, it is amply clear that debt collection has become subject to comprehensive federal regulations.

The editors and contributors of this update, include; David N. AnthonyJohn C. LynchAlan D. WingfieldScott Kelly.