Section 13-03-28-02 - Loan workout policy and monitoring requirements1. The board and management shall adopt and adhere to an explicit written policy and standards that control the use of loan workouts, and establish controls to ensure the policy is consistently applied. These policies must: a. Be commensurate with the size and complexity of the credit union;b. Define eligibility requirements, under what conditions the credit union will consider a loan workout, including establishing limits on the number of times an individual loan may be modified;c. Ensure credit union makes loan workout decisions based on the borrower's renewed willingness and ability to repay the loan;d. Establish sound controls to ensure loan workout actions are appropriately structured;e. Prohibit additional advances to finance credit union fees or commissions. Advances to cover third party fees such as appraisals or property taxes are permissible;f. Either prohibit the financing of accrued interest into the loan principal also referred to as capitalizing interest or require a policy allowing for the capitalization of interest only if it is in the best interest of both the borrower and the credit union. If capitalizing of interest is allowed, the policy must require: (1) Compliance with all consumer compliance laws and regulations.(2) Documentation showing the borrower's ability to repay the debt.(3) Provide written and accurate disclosures consistent with consumer compliance laws.(4) Appropriate accounting and reporting of the loans accrual and delinquency status.(5) Consideration on how to apply modifications consistently.(6) Consideration for options to allow missed payments to be made at the end of a loan to limit delinquency.(7) Safeguards, such as additional board reporting to avoid masking risk in the loan portfolio.(8) Procedures to avoid delaying loss recognition resulting in an inaccurate allowance for loan and lease losses account or loan valuations.(9) Procedures to avoid overstating income or credit union net worth.(10) Effective internal controls.g. Require documentation that demonstrates the borrower is willing and able to repay the loan; andh. Require workout loans to be accurately classified; for commercial loans be risk rated with the credit union's credit grading system; be consistent with accepted industry and regulatory guidance, including federal financial institutions examination council's uniform retail classification and account management policy; and accurately identify loans for impairment testing consistent with generally accepted accounting principles. 2. Loan policy must require documented workout arrangements that consider and balance the best interests of both the borrower and the credit union.3. Management and the board of directors shall implement comprehensive and effective risk management and internal controls. This must include: a. Thresholds based on aggregate volume of loan workout activity which trigger enhanced reporting to the board of directors;b. Monitoring of total loan classifications in relation to the credit union's total reserves;c. A written charge-off policy that it is consistently applied and consistent with industry standards; andd. A process capable of identifying, documenting, and aggregating any loan that is re-aged, extended, deferred, renewed, or rewritten, including the frequency and extent such action has been taken, and aggregate these loans by loan type.N.D. Admin Code 13-03-28-02
Adopted by Administrative Rules Supplement 371, January 2019, effective 1/1/2019.Amended by Administrative Rules Supplement 2022-384, April 2022, effective 4/1/2022.General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06