Detailed Table of Contents

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Section	Description			Page
I.	Introduction 32k
	About the Manual			09

II.	Credit Cards – General Overview 75k
	What is a Credit Card			10
	Industry History			10
	Card Types and Attributes			11
		General Purpose Credit Cards		12
			Standard Credit Card Programs	12
			Premium Credit Card Programs	12
			Affinity Credit Card Programs	12
			Co-branded Credit Card Programs	12
			Corporate Credit Card Programs	13
			Home Equity Credit Card Programs	13
			Cash-Secured Credit Card Programs	13
		Proprietary Credit Cards		13
		Cash-Access Credit Cards		14
		Other Types of Bankcards		14

III.	Identifying Involvement in Credit Card Activities 77k
	Credit Card Specialty Banks (CCSBs)			15
	Rent-a-BINs			15
	Acquiring Bank			16
	Agent			17
	CEBA Credit Card Banks			17
	Securitizing Bank			17
	Other			17
	Resources			17

IV.	Credit Card Program Development 83k
	Planning			19
		Risk Assessment		20
		Subprime Lending		20
		Management Expertise and Staffing Needs		20
		Laws, Regulations, and Other Guidance		20
		Committees		21
		Policies and Procedures		21
		Information System Needs		22
		Audits and Internal Controls		23
		Testing and Product Roll Out		23

V.	Marketing and Acquisition 136k
	Marketing Channels			24
		Conventional Mail Delivery		24
		Online Methods		24
		Outbound Telemarketing		25
		Television		25
		Print Ads		25
		Special Event / In-Person Promotions		25
		"Take One" Promotions		25
	Marketing and Acquisition Methods			26
		Pre-Approved Solicitations		26
		Application Strategies		27
		Portfolio Purchases		28
	Fair and Accurate Credit Transactions Act of 2003 (FACT Act)			28
	Balance Transfer and Promotional Rate Marketing			28
	Credit Availability and Card Utility			29
	Adverse Selection			29
	Product Differentiation			30
	Testing			30
	Marketing Indices			31
	Segmentation Methods			31
		Product Line		31
		Geographic Location		31
		Vintage		32
		Acquisition Method and Marketing Channel Method		32
		Other Methods and Combinations		33
	Summary of Examination Goals – Marketing and Acquisition			33

VI.	Purchased Portfolios and Relationships 87k
	Portfolio Acquisitions			34
	Purchased Credit Card Relationships			35
	Accounting			35
	Capital Limitations for PCCRs			36
		Valuation Requirements		37
		Fair Value Limitation		37
		Tier 1 Capital Limitation		37
		Tier 1 Capital Sub-limit		37
	Loan Loss Allowances for Purchased Portfolios			37
	Summary of Examination Goals – Purchased Portfolios and Relationships			39

VII.	Underwriting and Loan Approval Process 132k
	General Underwriting Considerations			40
	Program-Specific Underwriting Considerations			41
		Affinity and Co-Branding Programs		41
		Private Label Programs		42
		Corporate Card Programs		42
		Subprime Credit Card Programs		42
		Home Equity Credit Card Programs		43
		Cash Secured Credit Card Lending		44
		Purchased Portfolios		44
	Comparison of Automated and Judgmental Processes			45
	Credit Bureau Preferences			45
	Post-Screening			46
	FACT Act			46
	Multiple Accounts			46
	Initial Credit Line Assignments			47
	Policy and Underwriting Exceptions			47
	Indices and Reporting			48
	Summary of Examination Goals – Underwriting and Loan Approval Process			49

VIII.	Scoring and Modeling 173k
	Types of Scoring			52
		FICO Scores		52
		VantageScore		54
		Other Scores		54
			Application Scoring	54
			Attrition Scoring	54
			Bankruptcy Scoring	55
			Behavior Scoring	55
			Collection Scoring	55
			Fraud Detection Scoring	55
			Payment Projection Scoring	55
			Recovery Scoring	56
			Response Scoring	56
			Revenue Scoring	56
	Dual-Scoring Matrix			56
	Credit Scoring Model Development			56
	Basel Considerations Regarding Credit Scoring			58
	Validation			58
	Cut-off Score			61
	Validation Charts and Calibration			61
	Overrides			62
	Credit Scoring Model Limitations			63
	Automated Valuation Models			64
	Summary of Examination Goals – Scoring and Modeling			64

IX.	Portfolio Management 329k
	Risk Management			66
	Account Management Guidance			67
	Account Management			67
		Scoring		69
		Minimum Payments and Negative Amortization		69
		Payment Deferral Programs		72
		Pre-Payment Programs		72
		Credit Line Management		73
			Initial Credit Line Assignment	73
			Credit Limit Increases	73
			Credit Limit Decreases	74
			Multiple Credit Lines	75
		Authorizations		75
		Renewals		76
		Customer Service		76
			Consumer Complaints and Litigation	76
			Closures and Retention	76
		Collections (General)		77
		Over-limit Accounts		78
		Delinquent Accounts		80
			Partial Payments	81
			Non-Accrual	82
			Re-aging	82
		Re-pricing		84
		Repayment Plans		85
			Workout Programs	85
			Temporary Hardship Plans	86
			Consumer Credit Counseling Service (CCCS) Plans	86
		Settlement Agreements		86
		Charge-offs		87
		Post-Mortem		88
			Recoveries	88
		Fraud		89
	Reporting and Tracking			89
		Segmenting		90
		Dollars and Units		90
		Levels, Trends, and Performance		91
		Key Indices		91
		Projected Versus Actual Performance		91
		Peer Comparisons		91
		Ownership and Clarifying Information		91
		Common Reports		91
	Summary of Examination Goals – Portfolio Management			94

X.	Transaction Testing 75k
	Reasons for Conducting Transaction Testing			96
	Testing Methods			96
		Judgmental		96
		Statistical		97
	Sampling Concepts			97
		Population Selection		97
		Sample Design and Selection		98
		Sample Review		98
		Evaluation and Interpretation of Results		99
	Summary of Examination Goals – Transaction Testing			99

XI.	Adverse Classifications 66k
	Delinquency Thresholds			100
	Examiner Discretion			101
		Subprime Loans		102
		Mutually Exclusive Figures		102
	Special Mention			103
	Summary of Examination Goals – Adverse Classifications			103

XII.	Allowances for Loan Losses 209k
	Accounting Guidance			105
	Regulatory Guidance			106
	Comparison to Budgeted Losses			107
	Expectations for Written Allowance Policies			108
	Methodologies			108
		Roll-Rate Models		108
		Average Charge-Off Method		111
		Vintage Analysis		111
		Regression Analysis		112
		Portfolio Liquidation Method (or Payment Turnover Method)		112
	Considerations to Accompany the Methodology			112
		Ratio Analysis		113
		Layering		114
		Ownership Interests		114
		Settlements		114
	Purification and Allowances for Interest and Fees			114
	Unallocated Allowances			115
	Allowances for Unfunded Loan Commitments			115
	Validation			116
	Summary of Examination Goals – Allowances for Loan Losses			116

XIII.	Asset Quality Considerations 52k
	Summary of Examination Goals – Asset Quality Considerations			119

XIV.	Credit Card Issuing Rent-a-BINs 167k
	Rent-a-BIN Models and Structures			120
	Responsibilities of Bank Management			121
	Risks			122
		Legal, Compliance, and Reputation Risks		122
		Counterparty Risk		123
		Funding Risk		123
		Credit Risk		124
		Operational Risk		124
	Risk-Mitigating Controls			124
		Policies		124
		Due Diligence		125
		In-House Expertise		125
		Contracts		126
			Financial Reporting	126
			Covenants and Parameters	127
			Access to Information	127
			Materials and Program Control	127
			Settlement Exposure Reserves (Collateral Protection)	128
			Pricing	129
			Ability to Terminate Contract	129
			Audit	129
	Contingency Planning			130
	Ability to Cease Authorizations			130
	Risk Measurement Systems			131
	Partner's Other Relationships with the Bank			131
	Capital			131
	Accounting			132
	Summary of Examination Goals – Credit Card Issuing Rent-a-BINs			132

XV.	Liquidity 99k
	Similarities to Other Banks			134
	Funds Management Policies			134
	Contingency Funding Plan			135
	Cash Flows for Credit Card Lending			135
	Inter-Company Relationships			136
	Brokered and Rate Sensitive Deposits			137
	Securitization			137
	Asset Management			139
	Funding Concentrations			139
	Rent-a-BINs			139
	Summary of Examination Goals - Liquidity			140

XVI.	Earnings 115k
	Pricing			141
	Interest and Fee Income			142
	Noninterest Income			143
	Interest Expense			143
	Noninterest Expense			143
	FAS 91			144
	Competition			144
	Growth Environment			145
	Management Reporting, Budgeting, and Strategic Planning			145
	Capital Support			145
	Quality of Earnings			146
	Key Financial Indices Concerning Profitability			146
	Consideration of Securitizations and Issuing Rent-a-BINs			146
	Summary of Examination Goals - Earnings			147

XVII.	Sensitivity to Market Risk 97k
	Joint Agency Policy Statement on Interest Rate Risk			149
	IRR Considerations Specific to Credit Card Lending			149
		Consumer Behavior		151
		Minimum Payment Considerations		151
		Contractual Interest Rate Ceilings and Floors for Adjustable-Rate Items		151
		Securitization Considerations		151
		Hedging Strategies and Products		152
	Summary of Examination Goals – Sensitivity to Market Risk			152

XVIII.	Capital 149k
	Basel Capital Accords			153
		Basel II Framework		153
		IRB Systems for Retail Credit Risk		154
		Revisions to Basel I		155
	Assets			155
	Subprime Credit Card Loans			156
	Earnings and Dividends			157
	Funds Management			157
	Securitization			158
		Capital Treatment of Recourse Arrangements, Direct Credit Substitutes, and Residual Interests		158
			Low-Level Recourse Exposure Rule	159
		Implicit Recourse		159
		Accrued Interest Receivable (AIR)		159
	Contingent Liabilities			160
		Reserving for Rebate Programs		160
	Quality of Management			160
	Risk Diversification			161
	Operating Procedures and Controls			161
	Capital Models			161
	Quantitative Measurements			161
	Summary of Examination Goals – Capital			162

XIX.	Merchant Processing 278k
	Transaction Process Overview			164
	Risks Associated with Merchant Processing			166
		Credit Risk		167
		Transaction Risk		167
		Liquidity Risk		167
		Compliance Risk		168
		Strategic Risk		168
		Reputation Risk		168
	Management			168
	Capital			169
	Merchant Underwriting			170
		Merchant Review and Approval		170
			Principals	171
			MATCH	171
			On-Site Inspection	171
			Products and Marketing	171
		Merchant Agreements		173
		Periodic Review		173
		Internet Merchants		173
	Pricing			174
		Pricing Components		174
			Discount Rate	174
			Interchange Fees	175
			Processing Fees	175
			ISO/MSP Fees	175
			Agent Bank Commission	175
			Other Income	175
		Monitoring Pricing		175
		Profitability Analysis		176
	Fraud Monitoring			176
		Fraud Detection Methods		176
		Fraud Investigations		177
	Charge-back Processing			178
		Charge-back Transaction Flow		178
		Charge-back Monitoring		178
		Risk Mitigation for Charge-backs		179
		Accounting for Charge-backs		179
	Acquiring Rent-a-BINs			179
	Third Parties			180
		Contractual Considerations		182
		Association Requirements Regarding Third Parties		182
		Agent Banks		183
		Loans to Third-Party Organizations		184
		Contingency Planning		184
		Cardholder Information		184
	Correspondence with the Associations			184
	Summary of Examination Goals – Merchant Processing			185

XX.	Third-party Relationships 125k
	Outsourcing			186
	Risk Considerations			187
	Due Diligence			189
	Contracts			189
	Oversight Program			191
	Contingency Planning			191
	Information Security / Safeguarding			192
	Outsourcing to Foreign Service Providers			192
	Outsourcing to Affiliated Entities			192
	Association Requirements			192
	Examination and Investigation of Unaffiliated Third-Party Servicers			193
	Affinity, Co-branding, and Corporate Card Arrangements			193
	Retail Partners			194
	Summary of Examination Goals – Third-Party Relationships			194

XXI.	Glossary 162k

XXII.	Appendices
		A. Credit Card Pre-Examination Request List 261k		209
		B. Merchant Processing Examination Tools 137k		226

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