The Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision, under the auspices of the Federal Financial Institutions Examination Council (FFIEC), have jointly issued the attached Account Management and Loss Allowance Guidance for Credit Card Lending . The agencies developed the guidance in response to recent examinations that disclosed a number of inappropriate account management, risk management and loss allowance practices.

The objective of the guidance is to assist financial institutions in conducting credit card lending activities in a safe and sound manner, while meeting the needs of their customers. The guidelines outline the supervisory agencies' expectations for prudent risk management, income recognition and loss allowance practices.

The agencies carefully reviewed and considered the comments received from individuals, institutions, community groups and trade associations following publication of a draft of the guidance on July 22, 2002. In response to the comments, the agencies made changes to:

• Clarify documentation expectations for line increase programs.
• Clarify expectations for over-limit practices.
• Provide guidance for minimum payments and negative amortization.
• Revise the repayment period for workout accounts.

With respect to income recognition and loss allowance practices for credit card lending, the guidance reflects generally accepted accounting principles (GAAP), existing interagency policies on loss allowances, and current Call Report and Thrift Financial Report instructions. The agencies expect continued and ongoing compliance with GAAP and these reporting instructions.

The FDIC recognizes that some institutions may require time to implement changes in policies, practices and systems in order to achieve full consistency with the credit card guidance. Such institutions should work with their FDIC Regional Offices to ensure implementation of needed changes as promptly as possible.

For your reference, FDIC Financial Institution Letters may be accessed from the FDIC's Web site at www.fdic.gov/news/financial-institution-letters/2003/index.html .

For further information, please contact your FDIC Regional Office or Steven D. Fritts, Associate Director, at (202) 898-3723.

Michael J. Zamorski

Director

Attachment: Account Management and Loss Allowance Guidance for Credit Card Lending 

Distribution: FDIC-Supervised Banks (Commercial and Savings)

NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (1-877-275-3342, option 5, or (703) 562-2200).