Charge-Offs: Not Fun, But At Least They’re Not Hard

This feels like a very cliché way to start a blog post lately, but this past year has been rough. There are very few aspects of everyday life that haven’t been impacted by the Covid-19 pandemic. As a result, certain employees may unfortunately need to become more familiar with some of the less enjoyable procedures in their company’s repertoire.

One such procedure is the charge-off. A charge-off occurs when a lender has determined that a customer account has been too delinquent for too long. After a certain length of time (usually six months) without payment or contact from the customer, the lender decides that the likelihood of recovering their money is too low to be worth their efforts (although the debt does remain legally valid). They close the account and write off the loss while the customer deals with a brutal blow to their credit report.

Basically, it’s a move nobody wants to make, because nobody wins.

However…ready to hear some good news? The odds of dealing with a charge-off these days aren’t actually much higher than during non-Covid times. According to the Federal Reserve, charge-off rates are sitting at around .5% lately, which is only slightly higher than general trends over the last six years.

Still, as unpleasant and hopefully unnecessary as charge-offs are, it always helps to be prepared and know the tools at your disposal. CIM GOLD, GOLDPoint Systems’ loan servicing software, provides an entire screen for the purpose of manually* processing charge-offs quickly and easily. The user interface of this screen couldn’t be simpler: Four short fields, click <OK>, and boom. The account is charged off.

Under the hood, however, the system processing the charge-off is a little more complicated. Each state has different regulations regarding charge-offs (such as whether interest or fees can keep accruing, for example), so each institution will be configured differently to meet their needs. Depending on your institution’s setup, processing a charge-off can kickstart the following adjustments:

• Canceling insurance policies, along with canceling/refunding premiums, finance charges, and commissions.
• Debiting/crediting your institution’s General Ledger account to properly adjust for unearned fees, costs, and interest.
• Locking the account against further payments, changes, advertising, or statements.
• Changing the account’s categorization in your institution’s records.

As always, your institution is welcome to discuss its charge-off infrastructure with GOLDPoint. We want to ensure that our system is meeting your needs, and if it isn’t, we are happy to implement whatever additional functionality is necessary. We are committed to products that are user-friendly and dependable…and this commitment extends to ALL parts of your job, not just the fun stuff.

*Options are available for automatically charging off accounts once they meet certain criteria. If your institution is not using these options, or would like to adjust/refine them, contact your GOLDPoint account manager to learn more.