[Federal Register Volume 64, Number 27 (Wednesday, February 10, 1999)]
[Notices]
[Pages 6655-6659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3181]


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FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL


Uniform Retail Credit Classification and Account Management 
Policy

AGENCY: Federal Financial Institutions Examination Council.

ACTION: Final notice.

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SUMMARY: The Federal Financial Institutions Examination Council 
(FFIEC), on behalf of the Board of Governors of the Federal Reserve 
System (FRB), the Federal Deposit Insurance Corporation (FDIC), the 
Office of the Comptroller of the Currency (OCC), and the Office of 
Thrift Supervision (OTS), collectively referred to as the Agencies, is 
publishing its revisions to the Uniform Policy for Classification of 
Consumer Installment Credit Based on Delinquency Status (Uniform Retail 
Credit Classification Policy). The National Credit Union Administration 
(NCUA), also a member of FFIEC, does not plan to adopt the policy at 
this time.
    The Uniform Retail Credit Classification and Account Management 
Policy is a supervisory policy used by the Agencies for uniform 
classification and treatment of retail credit loans in financial 
institutions.

DATES: Changes in this policy that involve manual adjustments to the 
institutions' policies and procedures should be implemented for 
reporting in the June 30, 1999 Call Report or Thrift Financial Report, 
as appropriate. Any policy changes involving programming resources, 
should be implemented for reporting in the December 31, 2000 Call 
Report or Thrift Financial Report, as appropriate.

FOR FURTHER INFORMATION CONTACT: FRB: William Coen, Supervisory 
Financial Analyst, (202) 452-5219, Division of Banking Supervision and 
Regulation, Board of Governors of the Federal Reserve System. For the 
hearing impaired only, Telecommunication Device for the Deaf (TDD), 
Dorothea Thompson, (202) 452-3544, Board of Governors of the Federal 
Reserve System, 20th and C Streets NW, Washington, DC 20551.
    FDIC: James Leitner, Examination Specialist, (202) 898-6790, 
Division of Supervision. For legal issues, Michael Phillips, Counsel, 
(202) 898-3581, Supervision and Legislation Branch, Federal Deposit 
Insurance Corporation, 550 17th Street NW, Washington, DC 20429.
    OCC: Stephen Jackson, National Bank Examiner, Credit Risk Division, 
(202) 874-4473, or Ron Shimabukuro, Senior Attorney, Legislative and 
Regulatory Activities Division (202) 874-5090, Office of the 
Comptroller of the Currency, 250 E Street SW, Washington, DC 20219.
    OTS: William J. Magrini, Senior Project Manager, (202) 906-5744, 
Supervision Policy; or Vern McKinley, Senior Attorney, (202) 906-6241, 
Regulations and Legislation Division, Chief Counsel's Office, Office of 
Thrift Supervision, 1700 G Street NW, Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

Background Information

    On June 30, 1980, the FRB, FDIC, and OCC adopted the FFIEC uniform 
policy for classification of open-end and closed-end credit (1980 
policy). The Federal Home Loan Bank Board, the predecessor of the OTS, 
adopted the 1980 policy in 1987. The 1980 policy established uniform 
guidelines for classification of installment credit based on 
delinquency status and provided different charge-off time frames for 
open-end and closed-end credit. The 1980 policy recognized the 
statistical validity of determining losses based on past due status.
    The Agencies undertook a review of the 1980 policy as part of their 
review of all written policies mandated by Section 303(a) of the Riegle 
Community Development and Regulatory Improvement Act of 1994 (CDRI). As 
noted in their September 23, 1996 Joint Report to Congress on CDRI 
review efforts,1 the Agencies believe that the 1980 policy 
should be revised due to changes that have taken place within the 
industry.
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    \1\ Joint Report: Streamlining of Regulatory Requirements--
Section 303(a)(3) of the Riegle Community Development and Regulatory 
Improvement Act of 1994, page I-41.
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    In 1980, open-end credit consisted largely of credit card accounts 
with small lines of credit to the most creditworthy borrowers. Today, 
open-end credit generally includes accounts with much larger lines of 
credit to diverse borrowers with a variety of risk profiles. The change 
in those accounts and inconsistencies in reporting and charge-off 
practices of open-end accounts by financial institutions prompted the 
Agencies to consider several revisions to the 1980 policy. 
Specifically, the FFIEC had concerns

[[Page 6656]]

that a number of institutions were not following existing policy 
guidance for charging off open-end accounts based on past due status. 
Charge-off practices ranged from 120 days to 240 days. This range 
reflected, in part, differing interpretations by some institutions with 
regard to the policy's guidance to charge off open-end loans by the 
seventh zero billing cycle. In addition, the 1980 policy did not 
establish guidance for charging off fraudulent accounts, accounts of 
deceased persons, or accounts of borrowers in bankruptcy (accounts in 
bankruptcy), which currently account for a large portion of total 
charge-offs. Moreover, no classification guidance existed for 
residential and home equity loans--a significant amount of consumer 
credit. Finally, no uniform guidance existed for handling re-aging of 
open-end credit, or extensions, deferrals, renewals, or re-writes of 
closed-end credit.
    As a result of these concerns, the FFIEC published two notices in 
the Federal Register on September 12, 1997 (1997 Notice) (62 FR 48089) 
and on July 6, 1998 (1998 Notice) (63 FR 36403) requesting comment on 
various proposed revisions to the 1980 policy. Comments received during 
both periods provided extremely useful guidance to the FFIEC. After 
careful consideration, the FFIEC has made several changes to its 
earlier proposals and adopted those changes in this final policy 
statement. While the comments proved extremely helpful, the FFIEC is 
mindful of the Agencies' missions to promote safety and soundness of 
the financial industry and to recommend regulatory policies and 
standards that further those missions. In keeping with the Agencies' 
goals of promoting safety and soundness, certain aspects of the final 
notice are a departure from what the majority of commenters suggested.

Comments Received

    The FFIEC received a total of 128 comments in response to the 1998 
Notice. They came from 25 banks and thrifts, 19 bank holding companies, 
8 regulatory agencies, 13 trade groups, 33 consumer credit counseling 
services, and 30 other companies and individuals. The following is a 
summary.
    1a. Charge-off Policy for Open-End and Closed-End Credit. The 1998 
Notice proposed two options for charging off delinquent accounts. The 
first proposed that both closed-end and open-end credit be charged off 
at 150 days delinquency. The second option proposed to retain, but 
clarify existing policy; charge off closed-end credit at 120 days 
delinquency and charge off open-end credit at 180 days delinquency. 
Commenters were overwhelmingly in favor of retaining the existing 120/
180 charge-off time frames. Commenters representing the credit card 
industry stated that shortening time frames to 150 days would cause a 
$2 billion dollar write-off initially, with further impact during 
implementation. Moreover, credit card companies and community groups 
and counseling services stated that they needed those extra 30 days in 
the period from 150 days delinquency to 180 days delinquency to work 
with troubled borrowers. Several lenders indicated that they can 
collect ten percent or more of accounts during that time period. After 
careful consideration, the FFIEC has decided not to pursue uniform 
charge-off time frames for open-end and closed-end credit at this time. 
Moreover, since the revision to the 1980 policy was initiated, the 
majority of institutions whose open-end charge-off policy exceeded 180 
days have brought themselves into compliance. However, because of 
confusion over the terminology of ``seven zero billing cycles,'' the 
FFIEC decided to eliminate that language in the final policy. 
Additionally, the FFIEC is adopting re-aging guidance so that greater 
consistency and clarity in reporting among retail credit lenders will 
be achieved.
    1b. Substandard classification policy.--The majority of the 
comments received in response to the 1997 Notice supported retention of 
classifying open-end and closed-end consumer credit at 90 days 
delinquency. No objections were received in response to the 1998 
Notice. The FFIEC agrees with the commenters. It believes that when an 
account is 90 days past due, it displays weakness warranting 
classification. Therefore, open-end and closed-end accounts will 
continue to be classified Substandard at 90 days past due.
    2. Bankruptcy, fraud and deceased accounts. Bankruptcy.--The 1998 
Notice requested comment on two proposals relating to treatment of 
accounts in bankruptcy. First, the 1998 Notice asked whether unsecured 
loans in bankruptcy should be charged off by the end of the month in 
which a creditor is notified of the bankruptcy filing. Second, the 1998 
Notice proposed that for secured and partially secured accounts in 
bankruptcy, the collateral should be evaluated and any deficiency 
balance charged off within 30 days of notification.
    The majority of the commenters believed that revised bankruptcy 
legislation would pass in the second session of the 105th Congress and 
asked the FFIEC to defer a decision on this issue pending new 
legislation. The FFIEC was prepared to conform the final policy 
statement to any new legislation; however, no legislation was enacted. 
Because widespread inconsistencies in charge-off practices on accounts 
in bankruptcy continue to exist, the FFIEC is adopting guidance at this 
time. If and when bankruptcy legislation is enacted, the FFIEC will 
review the policy statement to determine if any revisions are needed.
    Commenters objected to both of the proposed time frames on bankrupt 
accounts. Fifty commenters opposed the proposal for unsecured accounts 
in bankruptcy versus only ten who supported it. Twenty-two commenters 
opposed the proposed handling of secured and unsecured accounts in 
bankruptcy, while only 11 supported it. A number of creditors noted 
that an accurate determination of loss on accounts in bankruptcy 
realistically cannot be made until after the meeting with creditors. 
This may be anywhere from 10 to 45 days or more after the bankruptcy 
filing, depending upon the case load of the bankruptcy court. The FFIEC 
shares the concerns of these commenters. Consequently, the final policy 
statement has been revised, for unsecured, partially secured, and fully 
secured accounts in bankruptcy, to allow creditors up to 60 days from 
their receipt of the bankruptcy notice filing to charge off those 
amounts deemed unrecoverable. However, accounts should be charged off 
no later than the respective 120-day or 180-day time frames for closed-
end and open-end credit.
    Fraud.--The 1998 Notice proposed that accounts affected by fraud be 
charged off within 90 days of discovery of the fraud or within the 
general charge-off time frames established by this final policy 
statement, whichever is shorter. The majority of the commenters 
supported this proposal. While the FFIEC recognizes that a fraud 
investigation may last more than 30 days, it believes that 90 days 
provides an institution sufficient time to charge off an account 
affected by fraud. Therefore, this final policy statement adopts this 
provision as proposed.
    Accounts of deceased persons.--The 1998 Notice proposed that 
accounts of deceased persons should be charged off when loss is 
determined or within the classification time frames adopted by this 
final policy statement. A majority of the commenters supported this 
proposal. As discussed in the 1998 Notice, the FFIEC agrees that 
determination of repayment potential on an account of a deceased person 
may

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take months when working through a trustee or the family. However, the 
FFIEC believes the time frames established by this final policy 
statement provide adequate time to determine the amount of the loss and 
charge off that amount. For this reason, the final policy statement 
adopts this provision as proposed.
    3. Partial payments.--The 1998 Notice proposed that in addition to 
the existing guidance that 90 percent of a contractual payment may be 
considered a full payment in computing delinquency, the FFIEC allows an 
institution to aggregate payments to give a borrower credit for partial 
payments. The proposal stated that only one method should be allowed 
throughout a loan portfolio. Some institutions stated that they were 
already using both methods. One recommendation made by the commenters 
and supported by the FFIEC was to eliminate the guidance that one 
method be used consistently throughout the portfolio. These commenters 
noted that these methods are used for different reasons. For instance, 
the 90 percent method may handle errors in check writing while the 
aggregate method enables institutions to work flexibly with troubled 
borrowers. The FFIEC agrees with these commenters. Therefore, this 
final policy statement has been revised to allow an institution to use 
both methods in dealing with partial payments.
    4. Re-aging, extension, renewal, deferral, or rewrite policy.--The 
1998 Notice proposed a number of criteria be established before a re-
aging, extension, renewal, deferral, or rewrite of an account. A 
majority of commenters supported the criteria that the borrower should 
show a renewed willingness and ability to pay and that the account 
should meet agency and bank guidelines. However, many commenters 
generally opposed the following criteria:
     The borrower should make three minimum consecutive 
payments or lump sum equivalent before being re-aged.
     An account should not be re-aged, extended, renewed, 
deferred, or rewritten more than once within any twelve-month period.
     An account should be in existence for at least twelve 
months before it can be re-aged, extended, deferred, or rewritten.
     No more than two re-agings, extensions, renewals, 
deferrals, or rewrites should occur during the lifetime of the account.
     The re-aged balance should not exceed the predelinquency 
credit limit.
    While the FFIEC appreciates concerns of these commenters that 
flexibility is required to work with troubled borrowers, it also 
recognizes this has the greatest potential for masking the delinquency 
status of accounts. Consistent guidelines are needed to ensure the 
integrity of financial records and prevent abuses (such as automated 
re-aging programs). In addition, the FFIEC believes that an account 
should show some performance before a re-aging is allowed. In response 
to commenters' concerns, the Agencies modified the proposed guidelines. 
For example, to provide flexibility for lenders to work with borrowers, 
but still maintain the integrity of asset quality reports, the Agencies 
changed the proposed re-aging guidelines to allow accounts to be re-
aged not more than twice in a five-year period. Therefore, in 
considering the commenters' views and the Agencies' missions of 
ensuring safety and soundness of institutions' loan assets, the 
following criteria are being adopted:
     The borrower should show a renewed willingness and ability 
to repay.
     The account should meet agency and bank policy standards.
     The borrower should make three minimum consecutive monthly 
payments or the lump sum equivalent before an account is re-aged.
     The account should be in existence at least nine months.
     An account should not be re-aged, deferred, extended, 
renewed or rewritten more than once within any twelve-month period, and 
not more than twice in a five-year period.
     An over limit account may be re-aged at its outstanding 
balance (including the over limit balance, interest, and fees) but new 
credit should not be extended until the account balance is below its 
designated credit limit.
    5. Residential and home equity loans.--The 1998 Notice proposed 
that institutions holding both one- to four-family and home equity 
loans to the same borrower that are delinquent 90 days or more with 
loan-to-value ratios greater than 60 percent be classified Substandard. 
In addition, the FFIEC proposed that a current evaluation of collateral 
be made by the time the loan is 120 or 180 days past due for a closed-
end or open-end account, respectively.
    Commenters were almost equally divided on this proposal during the 
1998 Notice. However, in response to the 1997 Notice, the majority of 
the commenters supported classifying the loans Substandard when they 
are 90 days delinquent. Some commenters supported a different loan-to-
value ratio. Exposure to loss increases as the loan-to-value ratio of a 
real estate loan increases. The agencies believe, however, that for 
one- to four-family residential loans with loan-to-value ratios of 60 
percent or less, ample collateral support exists to satisfy the loan. 
Therefore the FFIEC believes that the classification of such loans is 
not necessary. This final policy statement adopts the provision as 
proposed.
    In response to the 1998 Notice, the commenters opposed the 
collateral evaluation. In response to the 1997 Notice, the majority of 
the commenters supported the proposal that a collateral evaluation be 
obtained. However, from the comments it appears that the proposal was 
not clear because many commenters believed that a ``full'' appraisal 
was required. The FFIEC agrees that the policy indicating that a 
collateral evaluation be obtained was not intended to be burdensome and 
that a full appraisal is not required. The policy reaffirms the need to 
determine the amount of loss in the loan when delinquency reaches the 
time frames for charge-off for non-real estate loans.

Implementation Period

    In the 1998 Notice, it said that if the Agencies retained the 120/
180-day charge off time frames, the implementation period would begin 
January 1, 1999. However, the Agencies recognize that for some 
institutions, this may involve programming changes. The Agencies expect 
institutions to begin implementation of this policy upon publication. 
Manual changes should be implemented for reporting in the June 30, 1999 
Call Report or Thrift Financial Report, as appropriate. Changes 
involving programming resources should be implemented for reporting in 
the December 31, 2000 Reports.

Final Policy Statement

    After careful consideration of all the comments, the FFIEC adopts 
this final policy statement. In general, this final policy statement:
     Establishes a uniform charge-off policy for open-end 
credit at 180 days delinquency and closed-end credit at 120 days 
delinquency.
     Provides uniform guidance for loans affected by 
bankruptcy, fraud, and death.
     Establishes guidelines for re-aging, extending, deferring, 
or rewriting past due accounts.
     Classifies certain delinquent residential mortgage and 
home equity loans.
     Broadens recognition of partial payments that qualify as 
full payments.
    The FFIEC considered the effect of generally accepted accounting

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principles (GAAP) on this statement. GAAP requires prompt recognition 
of loss for assets or portions of assets deemed uncollectible. The 
FFIEC believes that because this final policy statement provides for 
prompt recognition of losses, it is fully consistent with GAAP.
    The final statement is:

Uniform Retail Credit Classification and Account Management Policy 
2
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    \2\ Retail Credit includes open-end and closed-end credit 
extended to individuals for household, family, and other personal 
expenditures. It includes consumer loans and credit cards. For the 
purpose of this policy, retail credit also includes loans to 
individuals secured by their personal residence, including home 
equity and home improvement loans.
    The regulatory 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.
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    Evidence of the quality of consumer credit soundness is indicated 
best by the repayment performance demonstrated by the borrower. Because 
retail credit generally is comprised of a large number of relatively 
small balance loans, evaluating the quality of the retail credit 
portfolio on a loan-by-loan basis is inefficient and burdensome for the 
institution being examined and examiners. Therefore, in general, retail 
credit should be classified based on the following criteria:
     Open-end and closed-end retail loans past due 90 
cumulative days from the contractual due date should be classified 
Substandard.
     Closed-end retail loans that become past due 120 
cumulative days and open-end retail loans that become past due 180 
cumulative days from the contractual due date should be charged off. 
The charge-off should be taken by the end of the month in which the 
120-or 180-day time period elapses.3
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    \3\ Fixed payment open-end retail accounts that are placed on a 
closed-end repayment schedule should follow the closed-end charge-
off time frames.
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     Unless the institution can clearly demonstrate and 
document that repayment on accounts in bankruptcy is likely to occur, 
accounts in bankruptcy should be charged off within 60 days of receipt 
of notification of filing from the bankruptcy court or within the time 
frames specified in this classification policy, whichever is shorter. 
The charge off should be taken by the end of the month in which the 
applicable time period elapses. Any loan balance not charged off should 
be classified Substandard until the borrower re-establishes the ability 
and willingness to repay (with demonstrated payment performance for six 
months at a minimum) or there is a receipt of proceeds from liquidation 
of collateral.
     Fraudulent loans should be charged off within 90 days of 
discovery or within the time frames specified in this classification 
policy, whichever is shorter. The charge-off should be taken by the end 
of the month in which the applicable time period elapses.
     Loans of deceased persons should be charged off when the 
loss is determined or within the time frames adopted in this 
classification policy, whichever is shorter. The charge-off should be 
taken by the end of the month in which the applicable time period 
elapses.
     One- to four-family residential real estate loans and home 
equity loans that are delinquent 90 days or more with loan-to-value 
ratios greater than 60 percent, should be classified Substandard.
     When a residential or home equity loan is 120 days past 
due for closed-end credit and 180 days past due for open-end credit, a 
current assessment of value 4 should be made and any 
outstanding loan balance in excess of the fair value of the property, 
less cost to sell, should be classified Loss.
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    \4\ Additional information about content requirements of 
evaluations can be found in the ``Interagency Appraisal and 
Evaluation Guidelines'', October 27, 1994. For example, under 
certain circumstances, evaluations could be derived from an 
automated collateral evaluation model, drive-by inspection by bank 
employee or contracted employee, and real estate market comparable 
sales similar to the institution's collateral.
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    Properly secured residential real estate loans with loan-to-value 
ratios equal to or less than 60 percent are generally not classified 
based solely on delinquency status. Home equity loans to the same 
borrower at the same institution as the senior mortgage loan with a 
combined loan-to-value ratio equal to or less than 60 percent, should 
not be classified. However, home equity loans where the institution 
does not hold the senior mortgage, that are delinquent 90 days or more 
should be classified Substandard, even if the loan-to-value ratio is 
equal to, or less than, 60 percent.

Other Considerations for Classification

    If an institution can clearly document that the delinquent loan is 
well secured and in the process of collection, such that collection 
will occur regardless of delinquency status, then the loan need not be 
classified. A well secured loan is collateralized by a perfected 
security interest in, or pledges of, real or personal property, 
including securities, with an estimated fair value, less cost to sell, 
sufficient to recover the recorded investment in the loan, as well as a 
reasonable return on that amount. In the process of collection means 
that either a collection effort or legal action is proceeding and is 
reasonably expected to result in recovery of the loan balance or its 
restoration to a current status, generally within the next 90 days.
    This policy does not preclude an institution from adopting an 
internal classification policy more conservative than the one detailed 
above. It also does not preclude a regulatory agency from using the 
Doubtful or Loss classification in certain situations if a rating more 
severe than Substandard is justified. Loss in retail credit should be 
recognized when the institution becomes aware of the loss, but in no 
case should the charge off exceed the time frames stated in this 
policy.

Partial Payments on Open-End and Closed-End Credit

    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 delinquency. 
Alternatively, the institution may aggregate payments and give credit 
for any partial payment received. For example, if a regular installment 
payment is $300 and the borrower makes payments of only $150 per month 
for a six-month period, the loan would be $900 ($150 shortage times six 
payments), or three full months delinquent. An institution may use 
either or both methods in its portfolio, but may not use both methods 
simultaneously with a single loan.

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Re-aging, Extensions, Deferrals, Renewals, or Rewrites 5
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    \5\ Certain advertising and marketing programs, like ``skip-a-
payment'' and holiday payment deferral programs are not subject to 
this portion of the policy.
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    Re-aging is the practice of bringing a delinquent account current 
after the borrower has demonstrated a renewed willingness and ability 
to repay the loan by making some, but not all, past due payments. Re-
aging of open-end accounts, or extensions, deferrals, renewals, or 
rewrites of closed-end accounts should only 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 of a policy is acceptable 
when it is based on recent, satisfactory performance and the true 
improvement in a borrower's other credit factors, and when it is 
structured in accordance with the institution's internal policies.
    The decision to re-age 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 extended, deferred, renewed, or 
rewritten, including the number of times such action has been taken. 
Documentation normally shows that institution personnel communicated 
with the borrower, the borrower agreed to pay the loan in full, and the 
borrower shows the ability to repay the loan.
    Institutions that re-age open-end accounts should establish a 
reasonable written policy and adhere to it. An account eligible for re-
aging, extension, deferral, renewal, or rewrite should exhibit the 
following:
     The borrower should show a renewed willingness and ability 
to repay the loan.
     The account should exist for at least nine months before 
allowing a re-aging, extension, renewal, referral, or rewrite.
     The borrower should make at least three minimum 
consecutive monthly payments or the equivalent lump sum payment before 
an account is re-aged. Funds may not be advanced by the institution for 
this purpose.
     No loan should be re-aged, extended, deferred, renewed, or 
rewritten more than once within any twelve month period; that is, at 
least twelve months must have elapsed since a prior re-aging. In 
addition, no loan should be re-aged, extended, deferred, renewed, or 
rewritten more than two times within any five-year period.
     For open-end credit, an over limit account may be re-aged 
at its outstanding balance (including the over limit balance, interest, 
and fees). No new credit may be extended to the borrower until the 
balance falls below the designated predelinquency credit limit.

Examination Considerations

    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 reviewing and classifying individual large 
dollar retail credit loans that exhibit signs of credit weakness 
regardless of delinquency status.
    In addition to reviewing loan classifications, the examiner should 
ensure that the institution's allowance for loan and lease loss 
provides adequate coverage for inherent losses. 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 
lacking sound policies or failing to implement or effectively follow 
established policies will be subject to criticism.

Implementation

    Changes in this policy that involve manual adjustments to an 
institution's policies and procedures should be implemented for 
reporting in the June 30, 1999 Call Report or Thrift Financial Report, 
as appropriate. Any policy changes requiring programming resources 
should be implemented for reporting in the December 31, 2000 Call 
Report or Thrift Financial Report, as appropriate.

    Dated: February 4, 1999.
Keith J. Todd,
Executive Secretary, Federal Financial Institutions Examination 
Council.
[FR Doc. 99-3181 Filed 2-9-99; 8:45 am]
BILLING CODES FRB: 6210-01-P (25%); FDIC: 6714-01-P (25%); OTS: 6720-
01-P (25%); OCC: 4810-33-P (25%)