It may not be permanent, but Wells Fargo’s recent suspension of sales of defaulted credit card debt to third-party collectors is good news for consumers who deserve responsible debt collection practices. The bank’s decision comes at a time when regulators are tightening scrutiny of how banks deal with unpaid debt. And Wells Fargo is not alone. Chase too has frozen its sales to third-party collectors and other banks have pulled back on the practice.
As reported by American Banker, “Consumer advocates have long expressed concerns that banks ‘robo-sign’ collections documents, lack complete records or fail to provide them to outside debt buyers.” To help ensure consumers are getting a fair shake, regulators are cracking down, and big banks know it.
The Office of the Comptroller of the Currency (OCC) has created a list of best practices that third-party collectors are expected to follow. While this may not directly affect banks that sell their debts to these collectors, a newly-announced enforcement action by the Consumer Financial Protection Bureau has a big impact on banks, indeed. The CFPB will now hold banks responsible for violations of the third-party collectors to whom they sell their debts.
Wells Fargo’s decision to halt sales of unpaid credit card debt to third-party collectors comes on the heels of JPMorgan Chase’s freezing of the practice. Of course, this action by Chase is in response to pending federal enforcement action taken against the bank, by the attorney general of California, for alleged illegal collection practices.
What does all of this mean for consumers? In the short-term, it means fewer defaulted accounts will be sold to third-party collectors. In the long-term, let’s hope third-party collectors, and the banks who sell accounts to them, will be held to the higher standard of debt collection that consumers deserve.