Circular
Uniform Retail Credit Classification and Account Management Policy
March 2, 1999
Circular No. 11141

Revision of 1980 Policy

To the Chief Executive Officers of All State Member Banks, Bank Holding
Companies, Edge Corporations, and State-Licensed Branches and
Agencies of Foreign Banks, in the Second Federal Reserve District:

On February 10, 1999, the Federal Financial Institutions Examination Council (FFIEC) issued a revised Uniform Retail Credit Classification and Account Management Policy. This policy statement updates and expands the classification policy for retail credit loans that was first issued in 1980.

The policy retains and clarifies a requirement that open-end accounts, such as credit card loans, that are 180 days or more past due should be charged off. Closed-end loans, such as installment loans, should be charged off after they are 120 days delinquent. Open-end and closed-end accounts will also continue to be classified "Substandard" at 90 days past due. In addition, the revised policy adopts the following guidance:

Unsecured retail loans to borrowers who 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 revised bankruptcy legislation.

Fraudulent loans should be charged off within 90 days of discovery.

In the case where a borrower dies and repayment within the required time frame is uncertain, the loan should generally be charged off when the loss is determined or within the classification time frame established by the policy, whichever is shorter.

One- to four-family residential real estate loans and home equity loans that are delinquent 90 days or more and have 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 should be met before banks 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 should meet the following conditions:

The borrower should show a renewed willingness and ability to repay the loan.

The account should exist for at least 9 months.

The borrower should make at least 3 minimum consecutive monthly payments or an equivalent lump sum payment.

A loan should not be re-aged more than once in any 12-month period or more than twice within a 5-year period.

New credit should not be extended to the borrower until the balance falls below the designated pre-delinquency credit limit.

Changes in these policies and practices that do not require programming resources should be implemented for reporting in the June 30, 1999 Call Report. Changes requiring programming resources should be implemented for reporting in the December 31, 2000 Call Report.

The revised policy statement, as published in the Federal Register of February 10, is available as a file (pdf - 42kb). If you have any questions, please contact a member of the Financial Examinations portfolio management team responsible for your organization.