Federal Financial Institutions Examination Council
|For Immediate Release||August 16, 2002|
Comments for the Draft Account Management and Loss Allowance Guidance for Credit Card Lending
On July 22, 2002, the Federal Financial Institutions Examination Council (Agencies) released draft account management and loss allowance guidance for credit card lending to allow the opportunity for review by the industry. On August 8, 2002, the Agencies extended the deadline for review to September 23, 2002. This extension was granted in response to requests from industry representatives to provide affected institutions and other interested parties additional time to review the guidance and to submit comments to the Agencies. The Agencies intend to issue final guidance shortly after September 23, 2002.
The Agencies developed the guidance in response to issues identified during recent examinations of credit card lending institutions. The Agencies found disparities in the quality of account management practices and inconsistencies in the application of existing guidance. The practices can increase institutions' credit risk profiles to imprudent levels. Further, inconsistent application of accounting and regulatory guidance can affect the transparency and comparability of financial reporting for all institutions engaged in credit card lending. The Agencies' objective is to provide institutions with clear expectations for prudent risk management, income recognition, and loss allowance practices. Thus, the guidance is intended to assist institutions in conducting credit card lending activities in a safe and sound manner while meeting their customers' needs.
With respect to income recognition and loss allowance practices for credit card lending, the guidance reflects generally accepted accounting principles (GAAP), existing interagency policies on loss allowances, and current Call Report and Thrift Financial Report instructions 1. The Agencies expect continued and ongoing compliance with GAAP and these reporting instructions. Institutions should file their third quarter 2002 and subsequent regulatory reports accordingly. Institutions also are reminded of the longstanding requirement that an authorized officer must sign each Call Report and Thrift Financial Report and declare that it has been prepared in accordance with the reporting instructions. In addition, a specified number of directors must examine the report and sign a similar declaration concerning its preparation.
1Relevant GAAP guidance is provided in Financial Accounting Standards Board (FASB) Statement No. 5, Accounting for Contingencies, which provides the basic guidance on accounting for loss allowances for the collectibility of receivables. Additional GAAP guidance is within Chapter 7 of the American Institute of Certified Public Accountants' Audit and Accounting Guide Banks and Savings Institutions. Banking and thrift regulatory guidance is included in the Call Report and Thrift Financial Report instructions as well as in the July 2001 Interagency Policy Statement on Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and Savings Institutions and the Interagency Policy Statement on the Allowance for Loan and Lease Losses issued December 21, 1993.
The FFIEC was established in March 1979 to prescribe uniform principles, standards, and report forms and to promote uniformity in the supervision of financial institutions. The Council has five member agencies: the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision. The Council's activities are supported by interagency task forces and by an advisory State Liaison Committee, comprised of five representatives of state agencies that supervise financial institutions.