Published: January 2014

Better records needed for banks selling consumer debt

Unlawful debt buyer practices have caused great harm to Americans and present significant risks for banks' reputations. In a letter to the Office of the Comptroller of the Currency (OCC), Consumer Action and coalition advocates address many of the problems seen with respect to debt collection by debt buyers, and detail the harmful impact on lower-income people and communities.

In a letter to the Office of the Comptroller of the Currency (OCC), Consumer Action and coalition advocates recommend the agency requires those who buy debts to do basic things like keep accurate records, transfer information about the debt when selling it, and ban sale of certain types of debts.

The coalition outlines the many problems with debt collection by debt buyers, and detail the harmful impact on lower-income people and communities. Through its legal hotline, New Economy Project has heard from numerous low-income New York City residents being pursued by debt buyers for debts that they do not owe, that were grossly inflated by unauthorized interest, fees or other charges; that were past the statute of limitations; or that they simply did not recognize because the debt buyers failed to provide sufficient information about the debt. When they dispute the debts and request verification, too often debt buyers fail to respond with adequate verification, if they respond at all, and instead continue collection attempts in violation of the Fair Debt Collection Practices Act and state and local laws. This is not unique to New York City; it is happening across the country.

State courts have been overwhelmed by debt collection lawsuits, many of which are brought by debt buyers. These debt collection lawsuits are problematic for numerous reasons. Many of the underlying debts are not valid. Even in cases where a person may owe some money, debt buyers often sue for amounts grossly inflated by unauthorized fees and interest. Also, many defendants do not receive notice that they have been sued. Without notice, they cannot and do not appear in court. Debt buyers then easily  obtain  “default”  judgments,  without  having  to produce legitimate proof that they own the debts or that the amount claimed is in fact owed by the defendant.

Debt buyers enforce judgments by placing liens on property, freezing people’s bank accounts, and garnishing their wages, making it difficult for people to pay for their basic needs, such as housing, utilities, food or medication. These judgments also appear on credit reports, blocking people from obtaining housing, jobs, or affordable credit. A study by New Economy Project found that in New York these debt collection judgments are disproportionally concentrated in communities of color.

The coalition's recommendations would achieve the following improvements to the debt-buying system:

a. Require banks to improve their document retention policies and practices;
b. Require increased and accurate documentation and information for each debt sold, at the time of sale;
c. Prohibit banks from selling those accounts for which they are unable to provide the documentation and fact witness necessary to substantiate the debts in litigation;
d. Prohibit banks from selling certain accounts;
e. Require banks to retain liability for the debts sold; and
f. Require banks to include a strong limitation on the resale of debts in their purchase and resale agreements with debt buyers.

Lead Organization

New Economy Project

Other Organizations

Americans for Financial Reform | Center for Responsible Lending | Consumer Action | Consumer Federation of America | National Association of Consumer Advocates | National Consumer Law Center (on behalf of its low-income clients) | New Economy Project

More Information

For more information, please visit the New Economy Project's website.

Download PDF

Better records needed for banks selling consumer debt   (LettertoOCCredebtsales.pdf)