Leave Chargeoff Rules Alone, Banks Tell Federal Regulators

Bankers are urging the government to leave rules governing loan chargeoffs alone, arguing that proposed changes would be costly and burdensome.

"Changes could present enormous economic costs to consumer lenders, while providing little added value to risk management at affected institutions," according to Martha Pampel, senior counsel, Household Credit Services Inc., Prospect Heights, Ill.

A Sept. 12 Federal Financial Institutions Examination Council proposal asked the industry for recommendations on how to modernize rules that govern how and when delinquent loans are charged off. The current guidelines, written more than 17 years ago, have become outdated, the exam council said.

However, most of the 47 comment letters filed with the exam council last week argued against wholesale changes. The suggestion that drew the most opposition from bankers: reducing the current 180-day chargeoff period on open-end credit such as credit card loans.

In its request for comments, the exam council hinted that a shorter period would be more consistent with the increased risks and larger credit lines posed by credit card loans today.

But several bankers said they need the full 180 days to collect these loans.

"It is paramount to our business and to our cardmembers that the policy of charging off open-end credit card loans at 180 days delinquent not be changed," wrote Robert L. Wieseneck, president of Hurley State Bank, Sioux Falls, S.D. Forty-seven percent of the bank's credit card loans are collected between 120 and 180 days after they are made, Mr. Wieseneck wrote.

The exam council also said it wants to augment the rules with guidance on bankruptcies. While several bankers agreed that the recent rise in personal bankruptcies warrants further guidance, others rejected the idea, saying it would reduce the their flexibility when they deal with borrowers.

"So many variables exist with the bankruptcy process that we believe specific guidance would hinder our ability to best serve the interests of the bank," wrote William J. Patient, assistant vice president of Midway National Bank, St. Paul.

Several commenters said that the costs involved with broad changes to the loan chargeoff rules could run into the millions.

Susan M. Walker, senior vice president of consumer credit policy at First Union, estimated that an overhaul of the bank's chargeoff procedures could entail computer reprogramming costs of as much as $1.2 million.

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