2/20/2023 0 Comments Charged off as bad debt![]() ![]() An estimated loan loss, where the credit union has repossessed, but not yet sold, collateral on hand.A "skip" where the credit union has had no contact for 90 days.A delinquent loan in the hands of an attorney or collection agency, unless there are extenuating circumstances to indicate the credit union will collect the loan.In cases of non-performing loans, transfers from shares and proceeds from the sale of collateral generally do not constitute "payments" A non-performing loan more than six months past due without a payment of at least 75 percent of a regular monthly installment within the last 90 days.The credit union’s charge-off policy should address loans presenting a high probability of loss. When the board deems the loan a loss, they must charge off the loan to the ALLL account in compliance with full and fair disclosure requirements of Part 702 of NCUA Rules and Regulations. The board should periodically review management and staff compliance with the charge-off policy. ![]() ![]() The manager should refer loans not meeting the established criteria in the charge-off policy to the board for their consideration. NCUA recommends the board ratify all delegated charge offs. Management should report loans charged off under the delegated authority to the board at the next regularly scheduled board of directors meeting. The policy should address any areas where the manager is specifically prohibited from charging off loans, e.g., when the charge off may constitute a conflict of interest, such as loans to family members. The board should approve the extent of the 2 delegation (i.e., the dollar amount and loan type), reflect the approval in board minutes, and note the parameters in the written loan charge-off policy. The board of directors may adopt a policy that delegates to the manager the authority to charge off loans. The charge-off policy should reflect current judgments about the credit quality of the loan portfolio. The board of directors should appropriately tailor a charge-off policy to the size and complexity of the credit union’s operation. The IRPS does not address or change current guidance regarding loan charge offs. It is intended to supplement, not replace, current guidance. The IRPS does not change existing accounting guidance in or modify the documentation requirements of GAAP. GAAP requires a credit union to maintain written documentation to support the amount of the ALLL and the provision for loan and lease losses reported in the financial statements. This letter is intended to provide guidance on the systematic charge off of uncollectible loans.įor financial reporting purposes, including regulatory reporting, credit unions must determine the provision for loan and lease losses and the ALLL in accordance with generally accepted accounting principles (GAAP). An essential part of a credit union’s ALLL methodology is a comprehensive, disciplined, timely, and consistently applied charge-off policy for uncollectible loans. This IRPS clarifies our expectations regarding methodologies and documentation support for the ALLL. 02-3, Allowance for Loan and Lease Losses Methodologies and Documentation for Credit Unions. 02-CU-09, Allowance for Loan and Lease Losses (ALLL), along with the Interpretive Ruling and Policy Statement (IRPS) No. In June 2002, we issued NCUA Letter to Credit Unions No. ![]()
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