This post will read like a bit of a departure for me, since it has to do with a side of my life (consumer debt and collections) about which I don’t typically blog. This piece of news, though, is hard to summarize in a tweet or a Facebook status.
As reported in the financial press a few days ago, the Office of the Comptroller of the Currency has entered into a consent order with JPMorgan Chase Bank and its affiliates regarding its debt collection activity, sworn document procedures, and related practices regarding consumer debt. A copy of the consent order (PDF) is here.
The consent order is the outcome of a regulatory probe that began sometime in 2011 as the result of whistleblowers calling attention to sloppy practices in Chase’s consumer collections division. The practices–robosigning, poor document retention, lax oversight of outside attorneys– mirrored similar problems that plagued the mortgage lending industry in the wake of the burst of the housing bubble in 2008. Chase’s own press release regarding the consent order points out that it ceased collection litigation in the second quarter of 2011 as a result of its own internal review.
The Consent Order is very noteworthy in the context of collection of consumer debt. Of special note is the fact that the OCC has obtained Chase’s agreement to increase its oversight and due diligence related to sales of consumer debt to third-party debt buyers. In my opinion, this is a huge development. Sales of defaulted consumer debt to debt buyers shunt consumer debt away from banks, who are regulated (although probably not enough) into a far more loosely regulated realm that increases the risk of abuses. The economic meltdown of 2008 in particular led to a cascading waterfall of consumer debt getting unloaded onto the third-party debt buyer marketplace. It has taken regulators (including the FTC and Consumer Financial Protection Bureau, who have oversight over debt collection, but lack rule-making authority) a while to catch up to this state of affairs. (Chase may have suspended much of its collections and collection litigation in 2011, but to my knowledge they did not stop selling defaulted debt to debt buyers, who are only too happy to file suit on their own behalf.)
Today’s consent order with follows on the heels of the OCC’s publication this July of best practices (not formal rules) regarding such sales of consumer debt. The OCC, who regulates the largest national banks and credit issuers in the United States, has not previously paid a lot of attention to banks’ sales of consumer debt.
As someone who used to work in debt collection and still keeps a close eye on that world, I think the OCC’s moves here are a positive sign. I have thought for a long time that many of the problems with debt buyers and their collection activities go back to the ability of banks to offload their defaulted credit portfolios so easily– and, to date, with little oversight. More developments are sure to come; stay tuned.