OCC Continues to Emphasize Compliance with Servicemembers Civil Relief Act

In prepared remarks to the Association of Military Banks, the OCC re-emphasized its focus on bank compliance with the Servicemembers Civil Relief Act (the “SCRA”) and its ramp up to enforce the Military Lending Act regulations which were recently passed.  Deputy Comptroller Grovetta Gardineer noted that the “OCC has seen deficiencies in the practices and procedures at some banks related to their SCRA-compliance programs.”  The OCC’s remarks set forth the following expectations:

• Banks improve their SCRA-compliance policies and procedures for determining whether servicemembers are eligible for requested SCRA-related benefits in all accounts the borrower may have, not just the account that is subject of the request;
• Banks calculate SCRA benefits correctly
• Banks have policies and procedures in place for verifying the status of a servicemember’s eligibility for SCRA protections before seeking default judgments on extensions of credit or initiating foreclosure repossession processes

Inadequate compliance with the SCRA has been a component of several recent enforcement actions, including those against JP Morgan Chase and Bank of America.  The OCC remarks also serve as a reminder that banks should be ramping up for the new Military Lending Act rules which will begin to take effect in October 2015.

Federal Regulators and State AGs “Pile On” Chase Entities with Consent Orders

 

 

In an orchestrated fashion, the OCC, CFPB, 47 states and the District of Columbia have entered into consent orders with JP Morgan Chase and related entities.

The OCC Consent Order: Today’s OCC Consent Order resolved an enforcement action that was taken against J.P. Morgan Chase Bank and two of its affiliates in 2013. At that time, a Consent Order was entered into which required corrective action to address deficiencies with Chase’s debt collection practices, as well as its compliance with the Servicemembers Civil Relief Act (the "SCRA"). The Consent Order entered today requires an additional $30 million civil money penalty which comes on top of the $50 million already paid out in restitution pursuant to the 2013 Consent Order. According to the Statement released by the OCC, today’s consent order comes after the OCC has had a "time to assess the full extent of the deficiencies." Like the prior consent order, the OCC Consent Order includes the following findings:

The bank filed or caused to be filed affidavits which were not based upon the affiant’s personal knowledge or review of the bank’s relevant books and records;


The bank filed or caused to be filed inaccurate sworn documents, resulting in judgments which contained financial errors favorable to the bank;


The bank filed or caused to filed affidavits which were not properly notarized;


The bank did not have effective policies or procedures in place to ensure compliance with the SCRA;


The bank inadequately staffed its sworn documents and collections litigation processes;


The bank failed to provide adequate internal controls, policies and procedures, compliance risk management, internal audit, third party vendor management and training as to its sworn document and collection litigation processes; and


The bank failed to properly oversee its outside counsel and other third party vendors responsible for the sworn document and collection litigation services.

 

The CFPB Consent Order: The bigger news is the draconian CFPB Consent Order which is directed to Chase Bank, USA N.A. and its subsidiary Chase BankCard Services, Inc., focuses on the bank’s consumer credit card business line, and places onerous restrictions on Chase’s ability to sell accounts to debt buyers. The order includes findings that Chase violated the unfair and deceptive prohibitions of Dodd Frank by:

Selling accounts to debt buyers containing inaccurate information. Specifically, the Order finds that Chase sold:


accounts without adequate documentation;


accounts that previously had been settled by agreement;


accounts that had been paid in full;


accounts that were no longer owned by Chase;


accounts that had been identified as fraudulent;


accounts that were stayed in bankruptcy;


accounts that were subject to payment plans; and


accounts where the account holder was dead.


By using affidavits in lawsuits and providing affidavits to debt buyers that were "robo signed."

Not only does the Order require Chase to pay an additional $30 million in civil penalties to the CFPB, a minimum of $50 million to consumers, and $136 million in penalties to the states, it also:

Requires Chase to implement effective processes, systems and controls to provide accurate information to debt buyers and consumers in connection with debt sales after the effective date of the order:


including providing the debt buyer with account level documentation confirming the debts are accurate and enforceable, including the first date of delinquency for purposes of credit reporting, the date and amount of the last payment, the date the account was charged off, the unpaid balance due on the account with details of the post charge off balance;


making certain account information available to the debt buyer for a minimum of three years after the sale, including the effective contract agreement and statements;


providing notice of the sale to the consumer, including the identity of the purchase, the amount owed at the time of sale and making further information regarding the account available to the consumer at no charge;


Prohibits Chase from selling certain accounts, including any account:


• In which the debt has been discharged in a no asset Chapter 7 bankruptcy;
In which the consumer has notified Chase of a dispute, identity theft or unauthorized use and Chase has not been able to determine the consumer owes the debt;


In which the account holder is deceased;


In which the account is more than three years past charge off or the date of last payment;


In which the account holder is a serviceman;


Involved in litigation; or


Which is currently under a payment plan.


Requires Chase to Do Due Diligence Regarding their Relationships with Debt Buyers. The Order:


Requires that the Bank properly vet new relationships with debt buyers;


Requires periodic due diligence reviews of current forward flow contracts;


Prohibits the sale of accounts to debt buyers who cannot certify they or their vendors are not properly licensed or authorized to collect in the states where consumers reside;


Requires Chase to include provisions in their sale agreements prohibiting the resale of accounts, and expressly prohibiting certain specified unlawful conduct by debt buyers;


Specifies the contents and other requirements for Chase affidavits relative to collection accounts moving forward including a requirement that all affidavits be signed by hand and based upon the direct knowledge of the person signing based upon their review of Chase’s business records;


Specifies how Chase is to conduct any collections litigation moving forward;


Requires withdrawal, dismissal or termination of all prejudgment collections litigation pending at any time between January 1, 2009 and June 30, 2014; and


Requires Chase to cease all post judgment enforcement actions and request that the consumer reporting agencies delete/amend/suppress any reporting of the judgments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.