Credit Card Lending - United States Secretary of the Treasury
Comptroller¡¯s Handbook
Safety and Soundness
Capital
Adequacy
(C)
Asset
Quality
(A)
Management
(M)
Earnings
(E)
Liquidity
(L)
Sensitivity to
Market Risk
(S)
Other
Activities
(O)
Credit Card Lending
Version 2.0, April 2021
Of?ce of the
Comptroller of the Currency
Washington, DC 20219
Version 2.0
Contents
Introduction ......................................................................................................................1
Overview ............................................................................................................... 1
Credit Card Products .............................................................................................. 3
General Purpose Cards ...................................................................................... 4
Proprietary or Private-Label Cards .................................................................... 6
Corporate or Commercial Cards ........................................................................ 7
Secured Cards................................................................................................... 7
Risks Associated With Credit Card Lending ............................................................ 8
Credit Risk ....................................................................................................... 8
Operational Risk ............................................................................................... 9
Liquidity Risk................................................................................................. 10
Strategic Risk ................................................................................................. 11
Reputation Risk .............................................................................................. 12
Interest Rate Risk............................................................................................ 12
Compliance Risk ............................................................................................ 13
Risk Management................................................................................................. 14
Information Technology.................................................................................. 16
Scoring Models............................................................................................... 17
Model Documentation ............................................................................... 22
Model Management and Tracking.............................................................. 22
Marketing and Underwriting of New Accounts ................................................ 26
Prescreened Solicitations ........................................................................... 27
Applications.............................................................................................. 30
Portfolio Acquisitions................................................................................ 32
Account Management ..................................................................................... 32
Line Increases and Decreases..................................................................... 34
Over-Limit Authorizations......................................................................... 34
Repricing of Accounts and Other Changes to Credit Terms......................... 35
Account Closures ...................................................................................... 35
Cross-Selling Initiatives............................................................................. 36
Retention Strategies................................................................................... 36
Other Account Management Tools............................................................. 36
Securitized Assets........................................................................................... 38
Collections ..................................................................................................... 38
Credit Losses ............................................................................................ 38
Re-Aging .................................................................................................. 41
Fixed Payment Programs ........................................................................... 42
Settlement Programs.................................................................................. 44
Consumer Credit Counseling ..................................................................... 44
Collections Reports ................................................................................... 45
Delinquency, Classification, and Charge-Off Policies................................. 46
Nonaccrual Status ..................................................................................... 47
Recoveries ................................................................................................ 48
Consumer Debt Sales ................................................................................ 48
Comptroller¡¯s Handbook
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Credit Card Lending
Version 2.0
Fraud Risk Management ................................................................................. 50
Purchased Credit Card Relationships ............................................................... 54
Allowance for Loan and Lease Losses or Allowance for Credit Losses ............. 54
ALLL Under the Incurred Loss Methodology............................................. 55
ACL Under the Current Expected Credit Losses Methodology.................... 56
Accounting for Rebate or Reward Programs............................................... 57
Reserving for Credit Card Partnership Programs ........................................ 58
Profit Analysis................................................................................................ 58
Ancillary Products: Debt Cancellation Contracts and Debt Suspension
Agreements............................................................................................... 60
Examination Procedures.................................................................................................65
Scope................................................................................................................... 65
Procedures ........................................................................................................... 67
Management................................................................................................... 68
Primary Examination Procedures ............................................................... 68
Supplemental Examination Procedures....................................................... 70
Risk Management ........................................................................................... 72
Primary Examination Procedures ............................................................... 73
Supplemental Examination Procedures....................................................... 77
Information Technology.................................................................................. 82
Primary Examination Procedures ............................................................... 82
Supplemental Examination Procedures....................................................... 83
Marketing and Product Development............................................................... 84
Primary Examination Procedures ............................................................... 84
Supplemental Examination Procedures....................................................... 85
Underwriting .................................................................................................. 87
Primary Examination Procedures ............................................................... 88
Supplemental Examination Procedures....................................................... 89
Account Management ..................................................................................... 92
Primary Examination Procedures ............................................................... 92
Supplemental Examination Procedures....................................................... 93
Collections ..................................................................................................... 95
Primary Examination Procedures ............................................................... 95
Supplemental Examination Procedures....................................................... 97
Profit Analysis.............................................................................................. 104
Supplemental Examination Procedures..................................................... 104
ALLL or ACL .............................................................................................. 106
Supplemental Examination Procedures..................................................... 106
Purchased Credit Card Relationships ............................................................. 107
Supplemental Examination Procedures..................................................... 107
Third-Party or Private-Label Partner Management ......................................... 109
Supplemental Examination Procedures..................................................... 109
Debt Suspension and Cancellation Programs.................................................. 114
Supplemental Examination Procedures..................................................... 115
Accounting for Rebate Programs ................................................................... 118
Comptroller¡¯s Handbook
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Credit Card Lending
Version 2.0
Supplemental Examination Procedures..................................................... 119
Program Availability and Eligibility Standards .............................................. 119
Supplemental Examination Procedures..................................................... 119
Credit Terms and Methods of Payment.......................................................... 120
Supplemental Examination Procedures..................................................... 120
Credit Reporting ........................................................................................... 121
Supplemental Examination Procedures..................................................... 121
Compliance With Consumer Protection-Related Laws and Regulations .......... 121
Conclusions........................................................................................................ 122
Internal Control Questionnaire ............................................................................ 124
Verification Procedures ...................................................................................... 127
Appendixes....................................................................................................................128
Appendix A: Transaction Testing........................................................................ 128
Appendix B: Suggested Request Items for Credit Card Lending Activities ........... 135
Appendix C: Uniform Retail Credit Classification and
Account Management Policy Checklist (RCCP Checklist) ............................. 140
Appendix D: Account Management and Loss Allowance Guidance Checklist....... 144
Appendix E: Debt Suspension Agreement and
Debt Cancellation Contract Forms and Disclosure Worksheet ........................ 148
Appendix F: Debt Suspension and Debt Cancellation
Product Information Worksheet..................................................................... 152
Appendix G: Loss Forecasting Tools................................................................... 155
Appendix H: Credit Scoring and Development of Scoring Models ....................... 159
Appendix I: Profit Analysis................................................................................. 166
Appendix J: Glossary.......................................................................................... 169
Appendix K: Abbreviations ................................................................................ 176
References.....................................................................................................................178
Comptroller¡¯s Handbook
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Credit Card Lending
Version 2.0
Introduction
The Office of the Comptroller of the Currency¡¯s (OCC) Comptroller¡¯s Handbook booklet,
¡°Credit Card Lending,¡± is prepared for use by OCC examiners in connection with their
examination and supervision of national banks, federal savings associations, and federal
branches and agencies of foreign banking organizations (collectively, banks). Each bank is
different and may present specific issues. Accordingly, examiners should apply the
information in this booklet consistent with each bank¡¯s individual circumstances. When it is
necessary to distinguish between them, national banks, federal savings associations (FSA),
and covered savings associations are referred to separately.1
Overview
The credit card is one of the most universally accepted and convenient payment methods,
used by millions of consumers and merchants worldwide as a routine means of payment for a
variety of products and services.
Because of their profitability, credit cards play a role in the strategic plans of many banks
that may function as issuers, merchant acquirers, or agent banks. There are several major
issuers, very few of them are community banks. Many community banks use referral
programs or other contracted services provided by large bank issuers to provide credit cards
to their customers. Issuing banks hold or sell credit card loans and, therefore, bear some
credit risk. Some banks are involved in an arrangement commonly known as ¡°rent-a-BIN.¡±
This arrangement allows an entity, such as a merchant processor, to conduct credit card
activities using a bank¡¯s Visa bank identification number or Mastercard Interbank Card
Association number in return for a fee paid to the bank. 2
A merchant bank, or acquiring bank, is an entity that has entered into an agreement with a
merchant to accept deposits generated by credit card transactions. Processing merchant sales
drafts may result in customer chargebacks and, therefore, create operational, reputation,
strategic, and credit risks to the merchant bank.
An agent bank is a bank that has entered into an agreement to participate in an acquiring
bank¡¯s merchant processing program. Many agent banks are community banks that offer
merchant processing as a customer service. Agent banks are exposed to reputation risk and
Generally, references to ¡°national banks¡± throughout this booklet also apply to federal branches and agencies
of foreign banking organizations unless otherwise specified. Refer to the ¡°Federal Branches and Agencies
Supervision¡± booklet of the Comptroller¡¯s Handbook for more information regarding applicability of laws,
regulations, and guidance to federal branches and agencies. Certain FSAs may make an election to operate as a
covered savings association. For more information, refer to OCC Bulletin 2019-31, ¡°Covered Savings
Associations Implementation: Covered Savings Associations,¡± and 12 CFR 101, ¡°Covered Savings
Associations.¡±
1
For more information about rent-a-BIN arrangements, refer to the ¡°Merchant Processing¡± booklet of the
Comptroller¡¯s Handbook.
2
Comptroller¡¯s Handbook
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Credit Card Lending
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