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By Nel Lafitte

Question: What is the best procedure for handling the charge-off of a loan?

Answer: There are three options for entering a charge-off transaction using our system.

Option #1: You may pay off the principal balance, and accrue interest to the date of charge-off;
Option #2: You may pay off the principal balance, and forgive all interest, leaving accrued interest at zero; or
Option #3: You may pay the principal balance PLUS interest due.

(Note: Be sure to consult your credit union's policy when selecting a transaction option.)

Option #1 is the most commonly implemented among users of our system. To perform this transaction, perform JV and type CG. Enter the transaction code LP and the member's number, account-ID and loan-ID. The system will perform the following functions of the charge-off automatically:

The full principal balance will be automatically entered in the transaction-amount field;
The interest due will be accrued;
The GL account you have designated as the offset for charge-off will be debited for the amount of the principal balance; and
The full loan number and the member's name will be entered as description for the G/L entry.

Option #2: To implement this option, perform JV and type CG. Enter the transaction code LPI and the member's number, account ID and loan ID.

The cursor will automatically move to the "Interest" field. Enter "zero" for the amount of interest to be collected (or press ).
The full principal balance will be automatically entered in the transaction-amount field.
No interest will be accrued.
The principal balance will be debited to the G/L offset account.

Option #3: To implement this option, perform JV and type CG. Enter the transaction code LPI and the member's number, account ID and loan ID.

The cursor will move to the "Interest" field, enabling you to enter the amount of interest you want to collect.
The full principal balance will be automatically entered in the transaction amount field.
The total amount of principal plus interest collected will be debited to the G/L offset account.

When the transaction is updated using any of the three options:

The transaction will be written in the member's history, but the principal balance of the loan will not be reduced.
The loan will be listed as an "Out of Balance" item on the Daily Update Report at End-of-Day. ·
The charged-off amount will be recorded in the "Original Charged-off Amount" field of the loan. ·
The date of the transaction will be recorded in the "Charged- off Date" field of the loan.
The "Loan Status" will change to "C".
The G/L account numbers to be used in future transactions (principal and interest) will be changed to the accounts you selected in the Loan Parameters for the loan type.

Notes:

Future activity on the loan entered through the teller screens will identify the loan number and the member's name in the G/L entry. If activity is performed through a batch process, which may contain activity for more than one loan, the G/L entry will not contain this information.
Because the charge-off date is the critical factor in classify- ing the loan for statistical purposes, the loan status field may be modified to "B" in the event of a bankruptcy.
To control teller access to the charge-off function, mark Teller Privilege #13,10 as "N".
To reverse a charge-off transaction, simply void it out as any normal transaction and all changed fields will be restored. After the day of entry, if a charge-off must be reversed, all fields which were automatically changed by the process must be restored manually. This can only be done with a database change. Contact your CSR for assistance if this situation occurs.