Federal regulators on Wednesday dumped plans to require banks to write off all loans that are more than 150 days past due.
Rather, the Federal Financial Institutions Examination Council said lenders must continue to charge off open-ended loans such as credit cards at 180 days past due and closed-end loans like mortgages at 120 days past due.
David D. Gibbons, deputy comptroller for credit risk at the Office of the Comptroller of the Currency, said adopting a uniform chargeoff period would be too costly and would not give delinquent borrowers enough time to work out repayment arrangements with consumer lenders.
Industry officials applauded the decision. "The idea of uniformity was appealing," said Robert G. Rowe, regulatory council at the Independent Bankers Association of America. "But having to make extensive computer changes now while everyone is looking at the year-2000 computer bug outweighed the desire for simplification."
Though regulators dropped the most controversial provision, they did implement several changes involving bankruptcy, death of the borrower, fraud, and loan re-aging.
Lenders will have up to 60 days to charge off amounts deemed unrecoverable from bankrupt borrowers. That is twice as long as originally proposed. Banks also must write off fraudulent loans within 90 days of discovery.
When a borrower dies, the lender should charge off the loan as soon as it determines how much is uncollectible. But this time frame cannot exceed the regular chargeoff deadlines.
The agencies also made it more difficult to re-age loans, which occurs when a delinquent borrower resumes making monthly loan payments without paying the arrears.
Loans may be re-aged only if the borrower shows a renewed willingness and ability to pay and has made three consecutive monthly payments or a lump-sum equivalent. Also, the loan must be at least nine months old, and re-aging of a credit may occur only once every 12 months and only twice every five years, the exam council said.
The changes are effective with June 30 call reports and apply to all banks and thrifts. The National Credit Union Administration, which has its own chargeoff rules, declined to adopt the policy.