On January 8, 2003, the Federal Reserve, along with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision, under the auspices of the Federal Financial Institutions Examination Council, issued the attached supervisory account management and loss allowance guidance for credit card lending. The agencies developed the guidance to clarify expectations regarding account management, risk management, and loss allowance practices with respect to this activity.
In addition to setting forth supervisory expectations with regard to credit line management, over-limit practices, minimum payments and negative amortization, and workout and forbearance practices, the guidance clarifies various reporting requirements related to income recognition and loss allowance practices.
The final guidance differs in some respects from the draft guidance issued on July 22, 2002, for informal industry review. In particular, the final guidance notes that workout programs should generally strive to have borrowers repay credit card debt within 60 months. The draft guidance noted that workout programs should be generally consistent with certain debt management plans typically structured to result in repayment within 48 months. While the draft guidance combined the discussion of over-limit practices and negative amortization, the final guidance separately addresses these two issues. The final guidance discussion of line increase programs, as well as income recognition and loss allowance practices, remains substantively unchanged from the July draft guidance.
Reserve Banks are asked to distribute this SR letter to the banking organizations supervised by the Federal Reserve that engage in credit card lending as well as to supervisory staff. Questions may be directed to Arleen Lustig, Supervisory Financial Analyst (202) 452-2987; Barbara Bouchard, Assistant Director (202) 452-3072; or Norah Barger, Deputy Associate Director (202) 452-2402.