OCC Issues Guidance Regarding Secured Consumer Debt Discharged In Bankruptcy

OCC Bank Supervision Agency Rule-Making & Guidance

On February 14, the OCC issued Bulletin 2014-02, which clarifies supervisory expectations for national banks and federal savings associations regarding secured consumer debt discharged in Chapter 7 bankruptcy proceedings. The guidance describes (i) the analysis necessary to “clearly demonstrate and document that repayment is likely to occur,” which would preclude any charge-off as required by the Uniform Retail Credit Classification and Account Management Policy; and (ii) when a bank may consider post-discharge payment performance as evidence of collectability and when this performance demonstrates both capacity and willingness to repay the full amounts due. The OCC states that the repayment analysis should document (i) the existence of orderly repayment terms for structured collection of the debt without the existence of undue payment shock or the need to refinance the balloon amount; (ii) a history of payment performance that demonstrates the borrower’s ongoing commitment to satisfy the debt; and (iii) the consideration of post-discharge capacity to make future required payments. The guidance provides standards for post-discharge repayment capacity. Further, the guidance allows a bank to consider post-discharge payment performance as evidence of collectability, and states that the analysis can be conducted at a pool or individual level provided the bank considers whether (i) monthly payment includes both principal and interest that fully amortizes the remaining debt; (ii) sustained performance demonstrates ongoing capacity and willingness to repay post-discharge; and (iii) collateral levels indicate the bank is likely to recover the full amount due even if payments cease.