WASHINGTON - Federal regulators issued guidance to banks and thrifts Wednesday on how they should account for certain assets that stem from credit card securitizations.
At issue is the way banks and thrifts record an asset commonly referred to as accrued interest receivable, or AIR, after credit card debt has been packaged into securities and sold.
Securitizations, which pool loans such as credit card debt and mortgages, have become big business for many banks.
In a typical credit card securitization, a bank transfers a pool of receivables and the right to receive future collections of principal, finance charges, and fees on this debt to a trust.
Through the securitization process, "the seller's right to the cash flows from the collection of the accrued fees and finance charges generally is subordinated to the rights of the other beneficial interest holders," the regulators said in the interagency advisory.
But banks and thrifts commonly record more of a gain from the accrued interest receivable than they should after the credit card debt has been sold, regulators said.
"Many credit card securitizers recognize accrued fee and finance charge income on the investors' portion of the transferred credit card receivables" - the AIR - "as a receivable due from customers, even though the right to receive this income, if and when collected, has been transferred to the trust," regulators said.
The advisory was issued by the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corp., and the Office of Thrift Supervision.
Banks should treat AIR as a subordinated retained interest, account for it separately from loans, and report it under "other assets" in its regulatory reports, regulators say.
