Federal Financial Institutions Examination Council	Press Release
For Immediate Release	February 10, 1999

Federal Financial Institution Regulators Issue
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:

• Unsecured retail loans to borrowers who subsequently 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 bankruptcy legislation.
• Fraudulent loans should be charged off within 90 days of discovery, or within the charge-off time frames, whichever is shorter.
• In cases where the borrower dies, loans should generally be charged off when the bank determines the amount of loss or within the charge-off time frames, whichever is shorter.
• One-to-four-family residential real estate loans and home equity loans that are delinquent 90 days or more and with loan-to-value ratios greater than 60 percent should be classified "substandard." If delinquency exceeds the general charge-off time frames for open-end and closed-end loans, the institution should evaluate its collateral position and classify as "loss" any loan amount that exceeds the value of the collateral.

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 borrower should show a renewed willingness and ability to repay the loan.
• The account should exist for at least nine months.
• The borrower should make at least three minimum consecutive monthly payments or an equivalent lump sum payment.
• A loan should not be re-aged more than once within any 12-month period, nor more than two times within a five-year period.
• New credit should not be extended to the borrower until the balance falls below the designated predelinquency credit limit.

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.