Lessons to be Learned from the Bank of America Consent Orders

Last week, the OCC and Bank of America entered into two consent orders arising from the bank’s practices concerning the Servicemembers Civil Relief Act (“SCRA”) and their non-home debt collection litigation practices.   The SCRA, among other things, limits the amount of interest that can be charged on credit obligations incurred prior to military service or activation. The SCRA limits the rate of interest which can be charged on credit card debt for active duty servicemembers and protects them from the entry of default judgments.  The consent orders are intended to address deficiencies in the bank’s practices and procedures relating to its SCRA-compliance program and the preparation of sworn statements used in debt collection litigation. Two separate consent orders were entered into – one providing for a civil penalty and the second providing for remediation.  The first order requires an immediate payment of $30 million by Bank of America as a civil penalty. 

While the second order does not include any admission of wrongdoing, it provides for remediation and provides more detail of the OCC’s findings. The Order requires that the bank:

• Establish a Compliance Committee to monitor and oversee the bank’s compliance with the terms of the Consent Order, as well as provide the OCC with quarterly progress reports as to the bank’s compliance;
• Create and submit for OCC approval a comprehensive action plan describing the actions and specific timeline to be taken to achieve compliance with the Consent Order;
• Create an submit for OCC approval a compliance risk management plan which implements an enterprise-wide compliance risk management program to ensure compliance “with all applicable laws, regulations and regulatory guidance”;
• Conduct a written, comprehensive assessment of the bank’s risks in SCRA compliance operations and submit a written plan to effectively manage and mitigate the identified risks;
• Submit for OCC approval a SCRA Compliance Plan and ultimately, a SCRA written training program;
• Audit all accounts (with the exception for the home lending line of business) from January 1, 2006 forward to identify SCRA-Protected servicemembers eligible for remediation;
• Submit for OCC approval a proposed remediation plan for affected SCRA-Protected servicemembers;
• Develop a comprehensive written SCRA compliance audit program;
• Submit of OCC approval policies and procedures for outsourcing SCRA compliance functions to third party providers;
• Report quarterly to the Compliance Committee as to accounts receiving SCRA benefits and the number of denials of CRA benefits requests received;
• Submit for OCC approval its Collection Litigation compliance action plan;
• Submit for OCC approval a Collections Litigation Account Review Plan designed to identify collections litigation accounts eligible for remediation;
• Provide remediation to eligible litigation account holders.

The second order shall remain in effect indefinitely.

So what are the lessons to be learned from the Bank of America Consent Orders? The language of the Consent Order gives guidance to banks of what the OCC’s expectations are for a robust SCRA Compliance and Audit Plan.

Based upon the Consent Order, the OCC expects an SCRA Compliance Plan to include:

• Uniform standards and processes for determining whether a servicemember who requests SCRA benefits is eligible for all accounts that the borrower may have;
• Policies and procedures for notifying a servicemember of the denial of SCRA benefits or protections;
• Policies and procedures for determining whether real or personal secured property is owned by a SCRA-protected servicemember before referring a loan for foreclosure or repossession and during the foreclosure or repossession process in order to determine whether a court order is required pursuant to the SCRA prior to foreclosure or repossession;
• Processes to ensure that all factual assertions in affidavits of military service are accurate, complete and reliable;
• Procedures for searching the Department of Defense Manpower Data Center database or an equivalent database before filing an affidavit in connection with a default judgment on an account, initiating the foreclosure or repossession process, or making a determination of eligibility for SCRA benefits;
• Procedures for filing an affidavit in connection with obtaining a default judgment on an account;
• Procedures for initiating and pursing a waiver of rights;
• Procedures regarding applicable state laws which may provide more benefits or protections that the SCRA;
• A record retention policy to protect records which demonstrate compliance with the SCRA (including documentation of the calculation of benefits; assessment of eligibility for benefits; correspondence with servicemembers; and method, dates and results of military status verification);
• Policies and procedures to ensure risk management, periodic audits for quality assurance, vendor management and corporate compliance with the SCRA;
• Policies and procedures for training of employees;
• Policies and procedures for compliance of third party vendors; and
• Processes for ongoing monitoring, testing and reporting.