Transferring Regulatory Liability

For General Counsel at Fintechs and Banks, the calculation has changed. A non-performing loan (NPL) portfolio is no longer just a financial loss; it is a regulatory landmine.

With the aggressive enforcement of Reg F and the Consumer Financial Protection Bureau (CFPB) scrutiny on digital collections, holding onto charged-off debt creates an "Operating Liability." Every day that debt sits on your books, your internal recovery teams (or third-party agencies) create exposure to class-action litigation.

The strategic move for 2026 is not to collect, but to divest. Strategic Asset Divestiture is the only mechanism that effectively transfers the regulatory burden off the balance sheet.

1. The "Vicarious Liability" Trap

Many lenders believe that outsourcing to a contingency agency insulates them from risk. This is false. Under current CFPB debt selling guidelines, the original creditor retains significant liability for the actions of their vendors.

However, when you execute a Fintech Debt Sale via a Purchase and Sale Agreement (PSA), the legal ownership—and the primary compliance burden—transfers to the buyer.

2. Reg F Debt Sale Compliance: The New Standard

Selling debt is no longer a handshake deal. To ensure a clean break, the transaction must meet the "Data Integrity" standards of Reg F. Before a sale can close, we mandate a forensic audit of:

• Itemization Dates: Verifying the exact date of default to prevent statute of limitation violations.
• Dispute History: flagging any accounts with active disputes to prevent "Debt Parking."
• Digital Consent: For BNPL portfolios, verifying the E-Sign act compliance of the original loan docs.

3. The "RMAI Certified" Firewall

Not all buyers are equal. Selling to an unvetted "street buyer" is negligence. At Fitzgerald Advisors, we enforce a strict Compliance Firewall.

We restrict access to your data room to RMAI Certified Buyers (Receivables Management Association International). These institutional funds carry their own insurance, compliance officers, and audit protocols. By selling to the "White Hats" of the industry, you protect your brand equity post-transaction.

4. Specific Sector Risks

Healthcare & 501(r)

For hospitals, the risk is reputational. Medical Debt Divestiture requires adherence to IRS 501(r) charity care screening. We ensure buyers contractually agree to "No Suit" clauses for sensitive patient populations.

Commercial Piercing

In Commercial Debt Liquidation, the risk involves piercing the corporate veil. We ensure buyers understand the distinction between commercial guarantors and consumer protections to avoid UDAAP violations.

The Verdict: Divestiture as Risk Management

The most efficient way to eliminate regulatory risk is to eliminate the asset generating it. By selling the portfolio, you convert a liability into cash and transfer the operational burden to a specialized counterparty.