�౦��Ϸ����

SARC-95-07 (November 8, 1995)

The Supervision Appeals Review Committee of the Federal Deposit Insurance Corporation (“�౦��Ϸ����”), on November 6, 1995, considered your appeal and concludes that the examiners' application of the formula approach to classification of credit card receivables is appropriate. It is noted that you have abandoned the portion of the appeal relative to the other real estate … property).

Pursuant to your interpretation of the �౦��Ϸ���� Statement of Policy titled “Uniform Policy for Classification of Consumer Installment Credit based on Delinquency Status", only those accounts for which there are seven consecutive zero billing cycles would be charged off. This would appear to exclude from chargeoff any account on which a partial payment has been received during the last seven billing cycles even though the cumulative zero billing cycles for the account may be seven or greater.

The policy statement notes that open-end credit delinquent 180 days or more (seven zero billing cycles) will be classified loss unless well secured and in the process of collection. The policy is not explicit as to whether delinquencies are cumulative or must be consecutive; however, it does note that a payment must be equivalent to ninety percent or more of the contractual payment to be considered a full payment. (The Statement of Policy is currently being reviewed and the matter relative to the use of “consecutive” or “cumulative” billing cycles in determining delinquency status will be clarified.)

It is important to review the policy statement in conjunction with other relevant �౦��Ϸ���� policies. The DOS Manual of Examination Policies, in addressing credit “curing,” sets forth when a credit can be considered no longer delinquent, stating

Some banks consider a credit “cured” and no longer delinquent when a borrower resumes monthly payments, even if delinquent principal is not repaid. This practice is generally not objectionable provided the delinquency is not more than 90 days, resumed payments have occurred for a minimum of 3 consecutive months, another curing has not taken place within the preceding 12 months, and the loan balance does not exceed the pre-delinquency credit limit.

This would appear to indicate that periodic payments or partial payments do not cure a delinquency and that delinquencies are considered on a cumulative basis.

Furthermore, since the Office of the Comptroller of the Currency is also a party to this Statement of Policy, it is worth noting the explicit comment in the introduction of Section 212.1 of the “Comptroller’s Handbook for National Bank Examiners”, which states

Since the cardholder has a grace period to make the payment, the phrase “delinquent seven zero billings” means, in effect, those contracts that have had no full payments by the cardholder for a cumulative total of seven billings. This policy does not preclude the classification of assets delinquent for a lesser period when classification is warranted.

The Policy, as applied by the examiners at the July 31, 1995 examination, is considered appropriate. The consideration of cumulative delinquencies as opposed to only those accounts exhibiting seven consecutive zero billing cycles more accurately reflects the delinquent status of the portfolio and identifies accounts which appropriately should be charged off.

Pursuant to our guidelines, the scope of our review was limited to the facts and circumstances that existed at the time of the examination.

This determination is considered a final supervisory decision of the �౦��Ϸ����.

By direction of the Supervision Appeals Review Committee of the �౦��Ϸ����.