Department of the Treasury
Office of Thrift Supervision
September 24,1997 Number: 178
This rescission does not change the applicability of the conveyed document. To determine the
applicability of the conveyed document, refer to the original issuer of the document.
In the attached notice and request for comment, historical experience with collecting similar loans,
the Federal Financial Institutions Examination and classify the loans accordingly.
Council (FFIEC) requests comment on its planned
7: _ While OTS expects
revisions to the Uniform Retail Credit Classification
institutions to follow their own prudent policies,
Policy. This policy statement was originally issued
generally, past due loans should only be re-aged
in 1980 and is still in effect.
when the borrower has demonstrated a renewed
The FFIEC requests comment on a series of ques- willingness and ability to repay the loan.
tions concerning retail credit, including a clas-
Partial Paympnts: OTS for several years has al-
sification policy for open-end and closed-end
lowed institutions to count any amounts remitted
credit, residential and home equity loans, loans af-
toward past due payments in the calculation of a
fected by bankruptcy, fraudulent activity and/or
death of a borrower, re-aging of accounts, and loan’s total delinquency, even if the payment was
partial payments. less than 90 percent. Until the revised interagency
policy is rz.ued, thrift institutions may continue to
The notice and request for comments highlights give borrowers pro-rata credit for partial payments
several areas where no definitive interagency pol- that are less than 90 percent, consistent with the
icy currently exists. This raises a question as to example used in the request for comment.
what standards thrifts should use to classify their
retail credits. Until a revised policy is issued, thrifts The notice and request for comment was pub-
should use their own prudent classification pol- lished in the September 12, 1997, edition of the
icies, following OTS’ classification guidelines and Federal Register, Vol. 62, No. 177, pp. 48089.
definitions in Thrift Activities Handbook Section 48092. Comments should be sent to Joe M. Cleav-
260. er, Executive Secretary, FFIEC, 2100 Pennsylvania
Avenue N.W., Suite 200, Washington D. C. 20037.
Thrifts also should use the following guidance: Comments are requested by November 12, 1997.
Loans Where a Loss 1s L&&: Institutions should For further information contact:
classify such loans in conformance with OTS pol- William J. Magrini 202/906-5744
icy and record the loss in accordance with gener- Semor Project Manager,
ally accepted accounting principles. For example, OTS Supervision Policy
with respect to loans where the borrower is de-
ceased or files for bankruptcy protection, thrifts Vem McKinley 202/906-6241
should determine the likelihood of repayment, Attorney.
based on the facts of the case and the institution’s OTS Chief Counsel’s Office
Federal Register Attachment to Transmittal 178
Federal Register 1 Vol. 62, No. 177 I Friday. September 12. 1997 ! Notices 49099
!ZDERAL FINANCIAL lNSllTUllONS
Unlfoml Retail credit Clasalflcatlon
AoENtX Federal Financial lnstth~tiona
ACtlOM:Notice and reauest for comment.
s”YMAIW The Board of Govemon of the
Federal Reserve System (FRB). the
Federal Deposit lnsurence Corporation
(FDICI. tbe office of the comptmller of
the Currency (OCC). end the Office of
Thrift Supervision (OTS) (collectively
referred to es the agencies), under the
auspicea of the Fed& Finandel
Inetitutions Exnmtnetion ColJnctl
IFnEc). are requesting comment on
changes to the 1960 Uniform Policy for
Clessi5cetion of Consumer Instalment
Credit Based on Delinquency Status
(1980 policy). The 1980 policy is used
by the agencies for classifying retail
credit loans of financial institutions on
a uniform besis.
The FTIEC is currently reviewing tbe
1980 policy to determine where
revisions may be necessary to more
sccuratsly reflect the chenging nature of
risk in today’s retail credit envimmnent.
The preltt results of tbis review
indicate that revtaicms should include: a
cberge-off policy for &n-end and
closed-end aedit: e cksrificetion policy
for loans effected by bankruptcy.
freudulent activtty. and/or death of e
bormwer. e prudent reaping policy for
peat due ecccnm~ and a classification
policy for delinquent residential
mortgage end home equity loans.
Before developing e revised policy
statement foi public comment. the
FFJEC is tirst solidting comment8 on:
rune8 in the existing policy statement
thet msy need to be revised: specific
recommendations for changing the
policy statement: date that would help
quantify the financial or business
impact on financial institutions if the
existing policy wee revised: and en
estimate oftbe time fremes necessary for
48090 Federal Register I Vol. 62. No. 177 I Friday, September 12. 1997 I Notices
an in.stitutio” to succassfully inlplemeni due status, the 1980 policy also (l)(a) Should a uniform time frame be
the revisions. Aher reviewing the input permitted exceptions to the used to charge-off both open-end end
received. the FFl??Zwill issue e revised classification policy in situations where closed-end eccounts?
policy stetement for public comment significant amounts were involved or Mb1 If so, what should that time
that estebliabes clear guidance for the when e loan wes well secured end in frame be?
industry: is based on an informed end the process of collection. f~llcl If e uniform time frame for both
reasonable analysis of all available data: A fundamental objective of the 1980 types of credit is not considered
and satisfies the principles of sound end policy Is the timely recognition of losses appropriate. what time fxemes ere
effective super&ion. es required by generally accepted reasonable for charging off open-end
DATE% Comments must be received by accounting principles (CAAPJ. While credit end closed-end credit? Please
November 12.1997. ex lain.
the 1960 policy provides general l)(d) If there was a change in tbe time
guidance for a large segment of the retail P
frames for charging-off delinquent
Joe hf. Cleever.Executive Secretary. credit pmtfcdlo. it does not provide
eccounts, whetis e ressonable time
Federel Financial lnstitutionr supervisory guidance on loen cbexga
frame to allow institutions to comply
Rxeminetion councu. 2100 offs related to censumer benkruptcy.
with such a chmge?
Pennsylvania Avenue NW, Suite 200. fraudulent activities. and accounts of (l)(e) Should Ibe currsnt regulatory
Weshingmn. DC 20037 or by faceimlle decedents. Furthermore. no guidance is prectice be continued of classifying
mnemiealon to (202) 634-SSS8. pmvided on the cle~siffcation of open-end end closed-end credit
delinquent resldentlel mortgages and Substendard when the eccmmt is 90
home equity loans. in light of the days or mere delinquent? If not. what
FRB: wi11iern coen. supslvlsory questionable esset quality of many of
Financial Anelysl. (202) 452-5219. alternetive would you suggest? Pleese
these eccounts end the inconsistent wey explain the benefits of e suggested
Division of Banking Supervision and in which financial institutions report __
Reguletion. Board of Governors otlhe
end charge& these eccounts. the FFIEX [l)(fJ Should e stenderd for the
Federal Reserve System. For the hearing believes that additional supervisory Doubtful clessifrcetion be adopted and.
impeirsd only. Telecommerdcation yidence is necessery. if so, whet should be the standard and
Device for the Deaf ITDDJ. Dorotbea
Request for Crmunents in the Following why?
Thompson, (202) 452-3544, Board of (l)(g) Currently. no requirement exists
Governors of the Fedeml Reserve Anu
to place retail credit loans on
System, 20th end C Streets NW. (1) Ch.gs-o~PoIicy for Open-End and nonaccrue status. Should nuidence for
Washington. DC 20551. Closed-End Credit placing loans one nonecc&l stetus be
FDK: James Leitner. Bxambmtion
The agencies recognize the adopted and. if so. et how meny days
Specielist. (202) 0986790. Division of delinquent should open-end credit end
Supervlsioa For legal issues. Micheel inconsistency between the level of risk
essociated with openad end closed- closed-end credit be placed one
Phillips. Counsel. 1202) 890-3581.
end credit end Ihe policy for cherging- nonaccmal stetus?
Supervision end L+letion Branch. (l)(h) An alternative toe requirement
Federal Deposit Inswence Corporation. off delinquent eccounts. Under the 1980
that eccouts be cherged-off after e
550 17th Street NW, Washington. DC policy. open-end credit. which ls
designated delinquency is tbe creation
20429. generally unsecured. should be chuged.
of 811 allocated or specific reserve.
OCC: Cethy Young. National Benk off when an eccount is 130 days
Should the FFISC require an allocated
Examiner. Credit R&k Division, (202) delinquent. Conversely. closed-end
or specific reserve. and if so, when
0X-4474: Ron Shlmebukum. Senior credit. which is normally secured by
should it be established? Please discuss
Attorney, Legislative end Reguletory soxne type of collsterel. is subject toe
La edventeges end disedventeges of
Activities Division, Office of the more stringent policy of 120 days
such e proposal.
comptroller of the currency (202) 874- delinquent before e loan is charged off.
5090.250 E Street SW. Washington. DC Over the years this inconsistency bes (2) Bonkmptcy, Fmud, and JJeceused
20219. become more apparent es the market for Accounts
OTS: William J. Megrfni. Senior open-end credit evolved. No FFlEC guidance exists for
Project Manager. [2021906-5744. In lOSO. open-end credit generally benkmptcy. fraud. end deceased
Supervision Policy: Vern McKinley. consisted of credit cerd eccounts with accounts. Tbe FFISC believes guidance
Attorney. (202) 900-0241. Regulationr smell credit lines that limited the on these eccounts is needed to ensure
end Legislation Division. chief exposure en institution had to en recognition of loss among regulated
cknmsel’s office, OffICEof Thrfft individual bmmwer. In today’s institutions is timely end consistent
Supervision. 1700 G Street NW, envimnment. open-end credit generelly Comment is requested on the need to
Wesbington. DC 20552. includes eccounts with much larger provide such guidance end on the
IwFowlloNz lines of credit end higher risk levels.
The change in the nature of these ~~~&jzx;~;~~&
Beckground Infermetien accounts. combined with the variety of
On June 30.19eO. the FRB. FDIC. and charge-off practices examiners recenUy account should be charged-off for
OCC adopted the FFIEC uniform policy encountered. reised the concern of the Chapter 7 bankruptcies end Chapter 13
for classification of open-end and agencies. To address this concern. the benknmtciss? If so. what should thet
closed-end credit. The OTS adopted tbe FFIFC is seeking public comment on guide&e be?
policy in 1987. The policy was issued whether e charge-off policy that is more (z)(b) What event in the bankruptcy
to establish uniform guidelines for the consistent with the risk associated with process should trigger loss recognition:
classification of instelment credit based open-end and closed-er,d accounts tbe Sling date. the date of notificat
on delinquency status. While tbe 1980 should be adopted end if so, what that to tbe creditor by the bankruptcy court
policy recognized the statistical validity policy should be. Specifically. the that a borrower has filed for bankruotcv.
of measuring losses predicated on past FFJEC requests comment on: the date that the bankruptcy trustee*
49092 Federal Register I Vol. 62, No. 177 I Friday. September 12, 1997 I Notices