issued the Uniform Retail Credit Classification and Account Management Policy (Uniform Policy). In general, the Uniform Policy: ־ Established a charge-off policy for open-end credit at days delinquency and closed-end credit at days delinquency. ־ Provided guidance for loans affected by bankruptcy, fraud, and karacto.xyz Size: KB. Classification Definitions (continued) Doubtful – Loans classified Doubtful have all of the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. Unsecured retail loans to borrowers who declare bankruptcy should generally be charged off within 60 days of receipt of notification of filing from the bankruptcy court, or within the charge-off time frames adopted in the classification policy, whichever is shorter. This policy will be reviewed if Congress enacts revised bankruptcy legislation.
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The policy also details criteria that should be met before banks may consider a delinquent open-end account current, such as the process of account re-aging, extension, and deferral. For an account to be eligible for re-aging, it should meet the following conditions:. The borrower should make at least 3 minimum consecutive monthly payments or an equivalent lump sum payment.
A loan should not be re-aged more than once in any month period or more than twice within a 5-year period. New credit should not be extended to the borrower until the balance falls below the designated pre-delinquency credit limit.
Changes in these policies and practices that do not require programming resources should be implemented for reporting in the June 30, Call Report. Changes requiring programming resources should be implemented for reporting in the December 31, Call Report. The revised policy statement, as published in the Federal Register of February 10, is available as a file pdf - 42kb.
If you have any questions, please contact a member of the Financial Examinations portfolio management team responsible for your organization. In addition, the revised policy adopts the following guidance: Unsecured retail loans to borrowers who declare bankruptcy should generally be charged off within 60 days of receipt of notification of filing from the bankruptcy court, or within the charge-off time frames adopted in the classification policy, whichever is shorter.
Fraudulent loans should be charged off within 90 days of discovery. Institutions should use one of two methods to recognize partial payments. A payment equivalent to 90 percent or more of the contractual payment may be considered a full payment in computing past due status. Alternatively, the institution may aggregate payments and give credit for any partial payment received. An institution may use either or both methods in its portfolio, but may not use both methods simultaneously with a single loan.
Re-aging of open-end accounts, and extensions, deferrals, renewals, and rewrites of closed-end loans can be used to help borrowers overcome temporary financial difficulties, such as loss of job, medical emergency, or change in family circumstances like loss of a family member. A permissive policy on re-agings, extensions, deferrals, renewals, or rewrites can cloud the true performance and delinquency status of the portfolio. However, prudent use is acceptable when it is based on a renewed willingness and ability to repay the loan, and when it is structured and controlled in accordance with sound internal policies.
Management should ensure that comprehensive and effective risk management and internal controls are established and maintained so that re-ages, extensions, deferrals, renewals, and rewrites can be adequately controlled and monitored by management and verified by examiners. The decision to re-age, extend, defer, renew, or rewrite a loan, like any other modification of contractual terms, should be supported in the institution's management information systems.
Adequate management information systems usually identify and document any loan that is re-aged, extended, deferred, renewed, or rewritten, including the number of times such action has been taken. Documentation normally shows that the institution's personnel communicated with the borrower, the borrower agreed to pay the loan in full, and the borrower has the ability to repay the loan.
Institutions that re-age open-end accounts should establish a reasonable written policy and adhere to it. To be considered for re-aging, an account should exhibit the following:. Open-end accounts should not be re-aged more than once within any twelve-month period and no more than twice within any five-year period. Institutions may adopt a more conservative re-aging standard; for example, some institutions allow only one re-aging in the lifetime of an open-end account.
Additionally, an over-limit account may be re-aged at its outstanding balance including the over-limit balance, interest, and fees , provided that no new credit is extended to the borrower until the balance falls below the predelinquency credit limit.
Institutions may re-age an account after it enters a workout program, including internal and third-party debt counseling services, but only after receipt of at least three consecutive minimum monthly payments or the equivalent cumulative amount, as agreed upon under the workout or debt management program.
To be effective, management information systems should track the principal reductions and charge-off history of loans in workout programs by type of program. Institutions should adopt and adhere to explicit standards that control the use of extensions, deferrals, renewals, and rewrites of closed-end loans.
The standards should exhibit the following:. Management should ensure that comprehensive and effective risk management, reporting, and internal controls are established and maintained Start Printed Page to support the collection process and to ensure timely recognition of losses. To be effective, management information systems should track the subsequent principal reductions and charge-off history of loans that have been granted an extension, deferral, renewal, or rewrite.
Examiners should ensure that institutions adhere to this policy. Nevertheless, there may be instances that warrant exceptions to the general classification policy.
Loans need not be classified if the institution can document clearly that repayment will occur irrespective of delinquency status. Examples might include loans well secured by marketable collateral and in the process of collection, loans for which claims are filed against solvent estates, and loans supported by valid insurance claims.
The Uniform Classification and Account Management policy does not preclude examiners from classifying individual retail credit loans that exhibit signs of credit weakness regardless of delinquency status. Similarly, an examiner may also classify retail portfolios, or segments thereof, where underwriting standards are weak and present unreasonable credit risk, and may criticize account management practices that are deficient.
In addition to reviewing loan classifications, the examiner should ensure that the institution's allowance for loan and lease losses provides adequate coverage for probable losses inherent in the portfolio.
Sound risk and account management systems, including a prudent retail credit lending policy, measures to ensure and monitor adherence to stated policy, and detailed operating procedures, should also be implemented. Internal controls should be in place to ensure that the policy is followed. Institutions that lack sound policies or fail to implement or effectively adhere to established policies will be subject to criticism.
This policy should be fully implemented for reporting in the December 31, Call Report or Thrift Financial Report, as appropriate. The agencies' classifications used for retail credit are Substandard, Doubtful, and Loss. These are defined as follows: Substandard: An asset classified Substandard is protected inadequately by the current net worth and paying capacity of the obligor, or by the collateral pledged, if any.
Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful: An asset classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss: An asset, or portion thereof, classified Loss is considered uncollectible, and of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value; rather, it is not practical or desirable to defer writing off an essentially worthless asset or portion thereof , even though partial recovery may occur in the future.
Although the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision do not require institutions to adopt identical classification definitions, institutions should classify their assets using a system that can be easily reconciled with the regulatory classification system. For operational purposes, whenever a charge-off is necessary under this policy, it should be taken no later than the end of the month in which the applicable time period elapses.
Any full payment received after the or day charge-off threshold, but before month-end charge-off, may be considered in determining whether the charge-off remains appropriate. Open-end retail accounts that are placed on a fixed repayment schedule should follow the charge-off time frame for closed-end loans. These terms are defined as follows. Reage: Returning a delinquent, open-end account to current status without collecting the total amount of principal, interest, and fees that are contractually due.
Extension: Extending monthly payments on a closed-end loan and rolling back the maturity by the number of months extended. The account is shown current upon granting the extension. If extension fees are assessed, they should be collected at the time of the extension and not added to the balance of the loan. Deferral: Deferring a contractually due payment on a closed-end loan without affecting the other terms, including maturity, of the loan.
The account is shown current upon granting the deferral. Renewal: Underwriting a matured, closed-end loan generally at its outstanding principal amount and on similar terms. Rewrite: Underwriting an existing loan by significantly changing its terms, including payment amounts, interest rates, amortization schedules, or its final maturity. Dodd-Frank Wall Street Reform documents in the last year. Government Contracts 50 documents in the last year. Fishery Management documents in the last year.
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