Appeals of Material Supervisory Determinations: Guidelines
(November 8, 1995)
The Supervision Appeals Review Committee of the Federal Deposit Insurance
Corporation (“FDIC”), 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 FDIC 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 FDIC 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
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 FDIC.
By direction of the Supervision Appeals Review Committee of the FDIC.