Good News About Credit Card Debt Sales
American Banker reporters Maria Aspan and Jeff Horwitz have been sharing cutting edge news about the debt collection and debt buyer world for some time. The news they share this week is good news indeed. They report that JPMorgan Chase is pulling back even more in its credit card collections-related activities, by stopping most bad loan sales to outside debt buyers. Chase had been receiving criticism for the way in which it pursued defaulting customers, which included many procedural shortcuts, mass robo-signing, and so on. As a result, Chase stopped suing its own customers and began selling off even recent bad debts to third parties. Now, just in time to avert new OCC suggested best practices for selling bad debts, Chase says it will no longer sell the bad debt either. This leaves me scratching my head over here. Exactly what will happen to the bad debts now?
As another article explains, The OCC’s best practices are not binding on lenders but may nevertheless change how banks handle their debt sales to third-party collectors. This article cites Professor Peter Holland, whose article we blogged about here. The OCC best practices recommend/request that lenders:
• Vouch for the accuracy and completeness of all debt records they sell;
• Monitor how debt buyers collect on accounts and limit their reliance on litigation;
• Restrict debt buyers from re-selling defaulted consumer accounts;
• Establish a central debt sale oversight committee;
• Produce written justifications for selling debts instead of collecting on them internally;
• Provide debt buyers with key account information at the time of sale and make full records available at little or no charge; and
• Segregate accounts that are "near the statute of limitations" or belong to sensitive customers, such as those in bankruptcy or active-duty military service.
This article also suggests that this new scrutiny might reduce the demand for these bad debts. As they say, from your lips to G-d’s ears. Debt buying is currently big business. Encore Financial, one of the largest credit card debt buyers, paid $562 million for $18.5 billion of debt last year, or three cents per dollar of face value, according to its Securities and Exchange Commission filings.
Given that many third-party debt collectors have virtually no proof of the debt they seek to collect and sometimes even sue and harass the wrong person, these recommendations could be very useful to consumers. The OCC did its own investigation in 2011 and found (not surprisingly) that banks have people on staff whose main job is to pressures consumers to repay delinquent debt, and that if this fails, they sell the debt to third parties who sometimes extract payments from consumers who have no assets by obtaining judgments and garnishing future wages.
This semester in clinic we are seeing debt collection cases in which the collectors do not care if the debtor is judgment proof or not. We’ve even seen a case or two in which collectors are suing on time-barred debts. This is of course a bad idea, given that doing so is a violation of the Fair Debt Collection Practices Act as well and many states’ UPA statutes. In any case, we may see a sea change in the number of debt collection actions following these developments, which would certainly be nice.