This letter is intended to provide guidance on the systematic charge off of uncollectible loans. NCUA recommends the board ratify all delegated charge offs. The manager should refer loans not meeting the established criteria in the charge-off policy to the board for their consideration. The board should periodically review management and staff compliance with the charge-off policy. 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 credit union’s charge-off policy should address loans presenting a high probability of loss. Many examples are included in this letter.
As part of on-going quality control, management may want to consider developing a “watch list” for reviewing and tracking loans that meet certain criteria to ensure that policies and underwriting, especially for new programs and systems, are safe and sound. Enclosure A, Guidance on On-going Quality Control Procedures, contains information on developing watch lists, which credit unions may find beneficial.