Federal Financial Institutions Examination Council
|For Immediate Release||February 10, 1999|
Federal Financial Institution Regulators
Revised Policy For Classifying Retail Credits
Federal financial institution regulators today announced they have updated and expanded policies for classifying delinquent retail credits.
The Uniform Retail Credit Classification and Account Management Policy published in today's Federal Register updates and expands the classification policy for retail credit loans that was issued in 1980. The policy is being adopted by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the Office of Thrift Supervision -- working together as members of the Federal Financial Institutions Examination Council (FFIEC).
The revised policy retains and clarifies a requirement that open-end loans, such as credit card balances, that are 180 days or more overdue should be charged off. Closed-end loans, such as installment loans, should be charged off after they are 120 days delinquent. Previous policy guidance had been interpreted and applied inconsistently.
In addition, the federal financial institution regulators adopted the following new guidance:
The policy also details criteria that must be met before banks and thrifts 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 must meet the following conditions:
The revised policy also continues the practice of classifying open-end and closed-end loans that are 90 days past due as "substandard." This policy also applies to residential and home equity loans when the loan-to-value ratio is greater than 60 percent. The "substandard" classification means that there is a distinct possibility that the financial institution will sustain some loss if the deficiencies in the loan are not corrected. A delinquent loan need not be classified, however, if an institution can clearly document that the loan is well-secured and in the process of collection.
The FFIEC said changes in these policies and practices that do not require programming resources should be implemented for reporting in the June 30, 1999, Call Report or Thrift Financial Report. Changes requiring programming resources should be implemented for reporting in the December 31, 2000, Call Report or Thrift Financial Report.