Federal Register / Vol. 65, No. 113 / Monday, June 12, 2000 / Notices 36903

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 00–14610 Filed 6–9–00; 8:45 am]

BILLING CODE 6712–01–P

FEDERAL FINANCIAL INSTITUTIONS

EXAMINATION COUNCIL

Uniform Retail Credit Classification

and Account Management Policy

AGENCY: Federal Financial Institutions

Examination Council.

ACTION: Final notice.

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

revisions to the Uniform Retail Credit

Classification and Account Management

Policy, to clarify certain provisions,

especially regarding the re-aging of

open-end accounts and extensions,

deferrals, renewals, and rewrites of

closed-end loans. The National Credit

Union Administration (NCUA), also a

member of FFIEC, does not plan to

adopt the Uniform Policy at this time.

This Policy is a supervisory policy used

by the Agencies for uniform

classification and treatment of retail

credit loans in financial institutions.

DATES: Any changes to an institution’s

policies and procedures as a result of

the Uniform Retail Credit Classification

and Account Management Policy issued

on February 10, 1999, as modified by

these revisions, should be implemented

for reporting in the December 31, 2000,

Call Report or Thrift Financial Report,

as appropriate.

FOR FURTHER INFORMATION CONTACT:

FRB: David Adkins, Supervisory

Financial Analyst, (202) 452–5259, or

Anna Lee Hewko, Financial Analyst,

(202) 530–6260, 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), Diane Jenkins, (202) 452–3544,

Board of Governors of the Federal

Reserve System, 20th and C Streets,

N.W., Washington, D.C. 20551.

OCC: Daniel L. Pearson, National

Bank Examiner, (202) 874–5170, Credit

Risk Division, or Ron Shimabukuro,

Senior Attorney, (202) 874–5090,

Legislative and Regulatory Activities

Division, Chief Counsel’s Office, Office

of the Comptroller of the Currency, 250

E Street, SW., Washington, DC 20219.

FDIC: James Leitner, Examination

Specialist, (202) 898–6790, Division of

Supervision, or Michael Phillips,

Counsel, (202) 898–3581, Supervision

and Legislation Branch, Legal Division,

Federal Deposit Insurance Corporation,

550 17th Street, N.W., Washington, D.C.

20429.

OTS: William J. Magrini, Senior

Project Manager, (202) 906–5744, Donna

M. Deale, Manager, Supervision Policy,

(202) 906–7488, Supervision Policy, or

Ellen J. Sazzman, Counsel (Banking and

Finance), (202) 906–7133, Regulations

and Legislation Division, Chief

Counsel’s Office, Office of Thrift

Supervision, 1700 G Street, N.W.,

Washington, D.C. 20552.

SUPPLEMENTARY INFORMATION:

Background Information

On June 30, 1980, the FRB, FDIC, and

OCC adopted the Uniform Policy for

Classification of Consumer Installment

Credit Based on Delinquency Status

(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 the classification of retail

installment credit based on delinquency

status and provided charge-off time

frames for open-end and closed-end

credit.

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. As a result of

this review, on February 10, 1999 (64 FR

6655), the Agencies issued the Uniform

Retail Credit Classification and Account

Management Policy (Uniform Policy). In

general, the Uniform Policy:

• Established a charge-off policy for

open-end credit at 180 days

delinquency and closed-end credit at

120 days delinquency.

• Provided guidance for loans

affected by bankruptcy, fraud, and

death.

• Established guidelines for re-aging,

extending, deferring, or rewriting past

due accounts.

• Provided for classification of certain

delinquent residential mortgage and

home equity loans.

• Provided an alternative method of

recognizing partial payments.

As issued on February 10, 1999, the

Uniform Policy was effective for manual

adjustments to an institution’s policies

and procedures as of the June 30, 1999,

Call Report or Thrift Financial Report,

as appropriate. In addition, the Uniform

Policy allowed institutions until the

December 31, 2000, Reports to make

changes involving computer

programming resources. In a

modification issued on November 23,

1999 (64 FR 65712), the implementation

date for manual changes was extended

to the December 31, 2000, Reports.

Following the issuance of the Uniform

Policy, the Agencies received numerous

inquiries for clarifications of the

standards contained in the Policy,

especially with respect to the re-aging of

open-end accounts and extensions,

deferrals, renewals, or rewrites of

closed-end loans. In response to these

inquiries for clarification, the Agencies

have decided to publish this revised

Uniform Policy. In addition to various

editorial changes, the Agencies have

changed the Uniform Policy to clarify

various items in the Uniform Policy

with respect to (1) the re-aging of openend accounts; (2) extensions, deferrals,

renewals, and rewrites of closed-end

loans; (3) examiner considerations; and

(4) the treatment of specific categories of

retail loans.

1. Re-aging of open-end accounts. The

Uniform Policy provided that open-end

accounts should not be re-aged more

than once within any twelve-month

period and no more than twice within

any five-year period. The Agencies have

decided to clarify the Uniform Policy by

stating that institutions may adopt a

more conservative re-aging standard

(e.g., some institutions allow only one

re-aging in the lifetime of an open-end

account). In addition, this modification

of the Uniform Policy recognizes the

importance of formal workout programs

and provides guidance on the handling

of open-end accounts that enter into this

type of program.

Specifically, the Agencies have

modified the Uniform Policy to provide

that institutions may re-age an account

after it enters a workout program,

including internal and third-party debt

counseling services, but only after

receipt of at least three consecutive

minimum monthly payments or the

equivalent cumulative amount. Re-aging

for workout program purposes is limited

to once in a five-year period and is in

addition to the once-in-twelve-months/

twice-in-five-years limitation. The term

‘‘re-age’’ is defined in the document (in

footnote 3) to mean ‘‘returning a

delinquent, open-end account to current

status without collecting the total

amount of principal, interest, and fees

that are contractually due.’’ In the

Agencies’ view, management

information systems should track the

principal reductions and charge-off

history of loans in workout programs by

type of program.

36904 Federal Register / Vol. 65, No. 113 / Monday, June 12, 2000 / Notices

1The agencies’ 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.

2For operational purposes, whenever a charge-off

is necessary under this policy, it should be taken

no later than the end of the month in which the

applicable time period elapses. Any full payment

received after the 120- or 180-day charge-off

threshold, but before month-end charge-off, may be

considered in determining whether the charge-off

remains appropriate.

OTS regulation 12 CFR 560.160(b) allows savings

institutions to establish adequate (specific)

valuation allowances for assets classified Loss in

lieu of charge-offs.

Open-end retail accounts that are placed on a

fixed repayment schedule should follow the chargeoff time frame for closed-end loans.

2. Extensions, deferrals, renewals, and

rewrites of closed-end loans. The

Agencies have modified the Uniform

Policy to provide that institutions

should adopt and adhere to explicit

standards that control the use of

extensions, deferrals, renewals, and

rewrites of closed-end loans. Such

standards would be based on the

borrower’s willingness and ability to

repay the loan and would limit number

and frequency of such treatment of

closed-end loans. The Agencies have

also defined the terms ‘‘extension,’’

‘‘deferral,’’ ‘‘renewal,’’ and ‘‘rewrite.’’

This modification of the Uniform

Policy states that institutions should

adopt standards that prohibit additional

advances that finance the unpaid

interest and fees. The Agencies have

added guidance that comprehensive and

effective risk management, reporting,

and internal controls be established and

maintained to support the collection

process and to ensure timely recognition

of losses.

3. Examination considerations. The

Agencies have added guidance that an

examiner may classify retail portfolios,

or segments thereof, where underwriting

standards are weak and present

unreasonable credit risk and may

criticize account management practices

that are deficient.

Adoption of the Uniform Policy may

affect an institution’s timing and

measurement of probable loan losses

that have been incurred. As a result of

changes the Uniform Policy made to the

1980 policy, an institution may need to

adjust its loan loss allowance to reflect

any shortening in its time frame for

recording charge-offs. Moreover, a larger

allowance may be necessary if an

institution’s charge-off practices are

different than the new guidelines for

accounts of deceased persons and

accounts of borrowers in bankruptcy.

4. Treatment of specific categories of

retail loans. These modifications to the

Uniform Policy clarified the Policy’s

treatment of various categories of retail

loans:

• Regarding retail loans that are due

to be charged off, in lieu of charging off

the entire loan balance, loans with nonreal estate collateral may be written

down to the value of the collateral, less

cost to sell, if repossession of collateral

is assured and in process.

• For open- and closed-end loans

secured by one-to four-family

residential real estate, a current

assessment of value should be made no

later than 180 days past due, and any

outstanding loan balance in excess of

the value of the property, less cost to

sell, should be charged off. The

Agencies removed the condition in the

Uniform Policy that such assessment

would be required when a residential or

home equity loan is 120 days past due.

• Loans in bankruptcy with collateral

may be written down to the value of the

collateral, less cost to sell.

As modified, the Uniform Policy now

reads as follows:

Uniform Retail Credit Classification

and Account Management Policy 1

The Uniform Retail Credit

Classification and Account Management

Policy establishes standards for the

classification and treatment of retail

credit in financial institutions. Retail

credit consists of open- and closed-end

credit extended to individuals for

household, family, and other personal

expenditures, and includes consumer

loans and credit cards. For purposes of

this policy, retail credit also includes

loans to individuals secured by their

personal residence, including first

mortgage, home equity, and home

improvement loans. Because a retail

credit portfolio generally consists 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 for

examiners.

Actual credit losses on individual

retail credits should be recorded when

the institution becomes aware of the

loss, but in no case should the chargeoff exceed the time frames stated in this

policy. This policy does not preclude an

institution from adopting a more

conservative internal policy. Based on

collection experience, when a

portfolio’s history reflects high losses

and low recoveries, more conservative

standards are appropriate and

necessary.

The quality of retail credit is best

indicated by the repayment performance

of individual borrowers. Therefore, in

general, retail credit should be classified

based on the following criteria:

• Open- 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 openend retail loans that become past due

180 cumulative days from the

contractual due date should be

classified Loss and charged off.2 In lieu

of charging off the entire loan balance,

loans with non-real estate collateral may

be written down to the value of the

collateral, less cost to sell, if

repossession of collateral is assured and

in process.

• One- to four-family residential real

estate loans and home equity loans that

are past due 90 days or more with loanto-value ratios greater than 60 percent

should be classified Substandard.

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 need not be classified.

However, home equity loans where the

institution does not hold the senior

mortgage, that are past due 90 days or

more should be classified Substandard,

even if the loan-to-value ratio is equal

to, or less than, 60 percent.

For open- and closed-end loans

secured by residential real estate, a

current assessment of value should be

made no later than 180 days past due.

Any outstanding loan balance in excess

of the value of the property, less cost to

sell, should be classified Loss and

charged off.

• Loans in bankruptcy should be

classified Loss and charged off within

Federal Register / Vol. 65, No. 113 / Monday, June 12, 2000 / Notices 36905

3These terms are defined as follows. Reage:

Returning a delinquent, open-end account to

current status without collecting the total amount

of principal, interest, and fees that are contractually

due. Extension: Extending monthly payments on a

closed-end loan and rolling back the maturity by

the number of months extended. The account is

shown current upon granting the extension. If

extension fees are assessed, they should be

collected at the time of the extension and not added

to the balance of the loan. Deferral: Deferring a

contractually due payment on a closed-end loan

without affecting the other terms, including

maturity, of the loan. The account is shown current

upon granting the deferral. Renewal: Underwriting

a matured, closed-end loan generally at its

outstanding principal amount and on similar terms.

Rewrite: Underwriting an existing loan by

significantly changing its terms, including payment

amounts, interest rates, amortization schedules, or

its final maturity.

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, unless the institution can

clearly demonstrate and document that

repayment is likely to occur. Loans with

collateral may be written down to the

value of the collateral, less cost to sell.

Any loan balance not charged off should

be classified Substandard until the

borrower re-establishes the ability and

willingness to repay for a period of at

least six months.

• Fraudulent loans should be

classified Loss and charged off no later

than 90 days of discovery or within the

time frames adopted in this

classification policy, whichever is

shorter.

• Loans of deceased persons should

be classified Loss and charged off when

the loss is determined or within the

time frames adopted in this

classification policy, whichever is

shorter.

Other Considerations for Classification

If an institution can clearly document

that a past due 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 estimable 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.

Partial Payments on Open-and ClosedEnd 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

past due status. 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 past due. An institution may

use either or both methods in its

portfolio, but may not use both methods

simultaneously with a single loan.

Re-Aging, Extensions, Deferrals,

Renewals, and Rewrites 3

Re-aging of open-end accounts, and

extensions, deferrals, renewals, and

rewrites of closed-end loans can 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 reagings, extensions, deferrals, renewals,

or rewrites can cloud the true

performance and delinquency status of

the portfolio. However, prudent use is

acceptable when it is based on a

renewed willingness and ability to

repay the loan, and when it is structured

and controlled in accordance with

sound internal policies.

Management should ensure that

comprehensive and effective risk

management and internal controls are

established and maintained so that reages, extensions, deferrals, renewals,

and rewrites can be adequately

controlled and monitored by

management and verified by examiners.

The decision to re-age, extend, defer,

renew, or rewrite 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 re-aged, extended,

deferred, renewed, or rewritten,

including the number of times such

action has been taken. Documentation

normally shows that the institution’s

personnel communicated with the

borrower, the borrower agreed to pay

the loan in full, and the borrower has

the ability to repay the loan. To be

effective, management information

systems should also monitor and track

the volume and performance of loans

that have been re-aged, extended,

deferred, renewed, or rewritten and/or

placed in a workout program.

Open-End Accounts

Institutions that re-age open-end

accounts should establish a reasonable

written policy and adhere to it. To be

considered for re-aging, an account

should exhibit the following:

• The borrower has demonstrated a

renewed willingness and ability to

repay the loan.

• The account has existed for at least

nine months.

• The borrower has made at least

three consecutive minimum monthly

payments or the equivalent cumulative

amount. Funds may not be advanced by

the institution for this purpose.

Open-end accounts should not be reaged more than once within any twelvemonth period and no more than twice

within any five-year period. Institutions

may adopt a more conservative re-aging

standard; for example, some institutions

allow only one re-aging in the lifetime

of an open-end account. Additionally,

an over-limit account may be re-aged at

its outstanding balance (including the

over-limit balance, interest, and fees),

provided that no new credit is extended

to the borrower until the balance falls

below the predelinquency credit limit.

Institutions may re-age an account

after it enters a workout program,

including internal and third-party debt

counseling services, but only after

receipt of at least three consecutive

minimum monthly payments or the

equivalent cumulative amount, as

agreed upon under the workout or debt

management program. Re-aging for

workout purposes is limited to once in

a five-year period and is in addition to

the once in twelve-months/twice in fiveyear limitation described above. To be

effective, management information

systems should track the principal

reductions and charge-off history of

loans in workout programs by type of

program.

Closed-End Loans

Institutions should adopt and adhere

to explicit standards that control the use

of extensions, deferrals, renewals, and

rewrites of closed-end loans. The

standards should exhibit the following:

• The borrower should show a

renewed willingness and ability to

repay the loan.

• The standards should limit the

number and frequency of extensions,

deferrals, renewals, and rewrites.

• Additional advances to finance

unpaid interest and fees should be

prohibited.

Management should ensure that

comprehensive and effective risk

management, reporting, and internal

controls are established and maintained

36906 Federal Register / Vol. 65, No. 113 / Monday, June 12, 2000 / Notices

to support the collection process and to

ensure timely recognition of losses. To

be effective, management information

systems should track the subsequent

principal reductions and charge-off

history of loans that have been granted

an extension, deferral, renewal, or

rewrite.

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 classifying

individual retail credit loans that

exhibit signs of credit weakness

regardless of delinquency status.

Similarly, an examiner may also classify

retail portfolios, or segments thereof,

where underwriting standards are weak

and present unreasonable credit risk,

and may criticize account management

practices that are deficient.

In addition to reviewing loan

classifications, the examiner should

ensure that the institution’s allowance

for loan and lease losses provides

adequate coverage for probable losses

inherent in the portfolio. 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 that lack sound

policies or fail to implement or

effectively adhere to established policies

will be subject to criticism.

Implementation

This policy should be fully

implemented for reporting in the

December 31, 2000 Call Report or Thrift

Financial Report, as appropriate.

Dated: June 6, 2000.

Keith J. Todd,

Executive Secretary, Federal Financial

Institutions Examination Council.

[FR Doc. 00–14704 Filed 6–9–00; 8:45 am]

BILLING CODE 6210–01–P (25%) 6714–01–P (25%) 6720–

01–P (25%) 4810–33–P (25%)

FEDERAL RESERVE SYSTEM

Change in Bank Control Notices;

Acquisitions of Shares of Banks or

Bank Holding Companies

The notificants listed below have

applied under the Change in Bank

Control Act (12 U.S.C. 1817(j)) and

§ 225.41 of the Board’s Regulation Y (12

CFR 225.41) to acquire a bank or bank

holding company. The factors that are

considered in acting on the notices are

set forth in paragraph 7 of the Act (12

U.S.C. 1817(j)(7)).

The notices are available for

immediate inspection at the Federal

Reserve Bank indicated. The notices

also will be available for inspection at

the offices of the Board of Governors.

Interested persons may express their

views in writing to the Reserve Bank

indicated for that notice or to the offices

of the Board of Governors. Comments

must be received not later than June 26,

2000.

A. Federal Reserve Bank of Kansas

City (D. Michael Manies, Assistant Vice

President) 925 Grand Avenue, Kansas

City, Missouri 64198–0001:

1. Robert M. Alexander, Calhan,

Colorado; Sean A. Gooding, Cherry Hills

Village, Colorado; Alexander R.

Gooding, Cherry Hills Village, Colorado;

Leslie A. Melzer, Denver, Colorado;

Robert J. Breidenthal, Bonner Springs,

Kansas; Arcadia Partners, Ltd.(Dan &

Patricia League), Colorado Springs,

Colorado; Michael S. League, Colorado

Springs, Colorado; and Joe F. Jenkins,

Tonganoxie, Kansas; to acquire voting

shares of Financial Services of the

Rockies, Inc., Colorado Springs,

Colorado, and thereby indirectly acquire

voting shares of First National Bank of

Colorado Springs, Colorado.

Board of Governors of the Federal Reserve

System, June 6, 2000.

Robert deV. Frierson,

Associate Secretary of the Board.

[FR Doc. 00–14733 Filed 6–9–00; 8:45 am]

BILLING CODE 6210–01–P

FEDERAL RETIREMENT THRIFT

INVESTMENT BOARD

Employee Thrift Advisory Council;

Open Meeting

In accordance with section 10(a)(2) of

the Federal Advisory Committee Act

(Pub. L. 92–463), a notice is hereby

given of the following committee

meeting:

NAME: Employee Thrift Advisory

Council.

TIME: 10 a.m.

DATE: June 27, 2000.

PLACE: 4th Floor, Conference Room,

Federal Retirement Thrift Investment

Board, 1250 H Street, NW., Washington,

DC

STATUS: Open.

MATTERS TO BE CONSIDERED: 

1. Approve minutes of the May 19,

1999, meeting.

2. Report of the Executive Director on

Thrift Savings Plan status.

3. November 15, 1999–January 31,

2000, Thrift Savings Plan Open Season.

4. Legislation.

5. New TSP record keeping system/

investment funds.

6. New Business.

Any interested person may attend,

appear before, or file statements with

the Council. For further information

contact Elizabeth S. Woodruff,

Committee Management Officer, on

(202) 942–1660.

Dated: June 6, 2000.

Elizabeth S. Woodruff,

General Counsel, Federal Retirement Thrift

Investment Board.

[FR Doc. 00–14739 Filed 6–9–00; 8:45 am]

BILLING CODE 6760–01–M