1.5.3 The Nature of Debt Sales to Debt Buyers
A debt buyer purchases thousands of accounts from a creditor or another debt buyer in one bulk sale. Usually the actual assignment of ownership will be accomplished by the creation of three separate documents. First is a signed “forward flow” agreement—a lengthy document that will set out the terms of the debt sales between the creditor and debt buyer. Typically the seller will make representations and limited warranties setting out the level of accuracy promised by the seller as to the information provided and the extent to which the seller will give the buyer access to additional information about any individual debtor’s account. A forward flow agreement sets out the terms for multiple sales of debt portfolios between a creditor and a specific debt buyer.
When a particular portfolio of thousands of accounts is sold, the parties execute a second document—a bill of sale or other short assignment document. This short assignment document simply references the portfolio and the forward flow agreement, and is accompanied by a third file—the “sale data file” or “final data file,” which is an electronic spreadsheet that lists the thousands of specific consumer accounts being transferred.
The sale data file will have information on each account. According to the CFPB:
Documentation that issuers provide to sellers includes account statements, the account number, the account holder’s identifying information (such as their Social Security number), written applications, affidavits, cease and desist indicators, attorney representation indicators, and outstanding principal, interest, and fees at charge-off. The OCC expects that national banks and federal savings associations provide buyers with at least 12 monthly statements, or all statements if the account is less than a year old. At least some issuers followed the OCC’s bulletin through a policy requiring the most recent 12 statements to be provided to the buyer at time of sale. Some issuers only required that the last transaction statement be provided as well as a “charge-off statement” detailing the final payment made, the remaining balance, and the date of charge-off.31
The CFPB has found that only 14% of debt buyers always receive the credit agreements and, again, only 14% of debt buyers always receive billing statements.32
The forward flow agreement will spell out what, if any, right the debt buyer has to obtain additional information about an account from the debt seller. There may be a limit on what account information will be provided, or the seller may limit the number of accounts for which it is obligated to provide information. The debt buyer may also have to pay for such additional information.
The information contained in the sale data file is typically all the debt buyer will utilize in bringing a collection action. The CFPB has found that, apart from the process of checking incoming data against external databases, very few debt buyers perform additional checks for accuracy or adequacy of the data.33 Unless they are being sued for violations of the federal Fair Debt Collection Practices Act, debt buyers and their attorneys often will not ask for additional documentation from the originating creditor.34
The forward flow agreement often makes certain disclaimers as to the accuracy of the information in the sales data file. For example, a major credit card issuer in selling over 35,000 consumer accounts to Encore Capital Group stated in the agreement that “current balance means the approximate unpaid balance. . . . [I]t is possible that the figure provided as the current balance for any loan may not reflect credits for payments made.”35 Another agreement with Encore states that “[s]ellers believe but have not verified that the statutes of limitations may have run on some but not all of the accounts. . . . [S]ome accounts . . . may be subject to actual or potential claims or disputes by obligors.”36
31 Consumer Fin. Prot. Bureau, The Consumer Credit Card Market 261 (Dec. 2015), available at www.consumerfinance.gov (footnote omitted).
32 Consumer Fin. Prot. Bureau, Study of Third-Party Debt Collection Operations 23 (July 2016), available at www.consumerfinance.gov.
33 Consumer Fin. Prot. Bureau, Study of Third-Party Debt Collection Operations 22 (July 2016), available at www.consumerfinance.gov.
34 Id. at 24.