Default Policy Charge Off Process
A major function of LoanPro software is to make standard company processes as streamline and effective as possible, in order to save users on time and manpower. This article will cover how this is generally accomplished for the Loan Charge Off process. The Charge off process is the process by which companies close out extremely past due accounts that are expected to be a total loss.
Here is a flow chart outlining the processes that will be explained in this article:
Automated Charge Off
The automated charge off process, as implied by the name, is entirely automated. In this process, actions are performed on an account based off of how many days past due the account is. No user intervention is required. Also, please note that the loan statuses and amounts mentioned in this article are the default loan statuses and amounts available. These statuses and amounts may be changed and customized for your individual company.
In general, customer accounts in LoanPro are classified using statuses. An active current account will generally be put in an "Open - Repaying" status. With "Open" being the status and "Repaying" being the sub-status of the account. If the Automated Charge Off process has been set up in a company, then once a loan becomes 120+ days past due, the account will automatically be put in an "Open - Charged Off Collectible" status. Putting loans in this status allows agent users to search the loan's more easily throughout the software. This allows for collections attempts to be managed more effectively. In addition to the loan status being updated, the Collectible Charge Off Date will be recorded. This is a Loan Settings custom field that will record the date that a loan was put into the "Open - Charged Off Collectible" status.
Once a Loan has been put in the "Open - Charged Off Collectible" status, LoanPro will check to see if there is interest accruing daily on an account, if the answer is yes, LoanPro will then automatically place a Suspend Interest Accrual date on the account. This will be set to the same date as the Collectible Charge Off Date.
Phase two will be triggered once an account has reached 180+ days past due. First, LoanPro will check the account to see if the loan currently has a balance greater than zero. Then LoanPro checks to see if the account is currently in an "Open" status. If the answer to both of these questions is yes, LoanPro will automatically charge off the remaining balance on the account.
Once a loan has been charged off, so the remaining balance on the account is zero, and the account is in an "Open" status, LoanPro will then assign the account to a "Closed - Charged Off" status. LoanPro will also set the Charged Off Date to the current date. Then the last action taken by LoanPro will be to assign the loan a Credit Status of 97 - Unpaid balance reported as a loss(charged off)
After a loan has gone through this charge off process, that is the end of the Automated Charge Off process. Generally, once a loan has gone through this process, companies will then take legal action to attempt to collect on an account. Any payments that are logged on an account after it has been charged off will need to be logged as Recovery Payments. Recovery Payments will bring down the Net Charge Off amount on an account.
Here is an even shorter version of what is going on in the automated charge off process based off of the amount of days past due on an account:
120 Days Past Due
180 Days Past Due
Status Assigned: Open - Charged Off Collectible
Status Assigned: Closed - Charged Off
Actions: Record Collectible Charge Off date; Add Suspend Interest Accrual date
Actions: Record Charged Off date; Charge Off Remaining Balance; Update Credit Status to 97
Manual Charge Off
The Manual Charge Off process described here is recommended for lenders with large loans that do now generally charge off large volumes of accounts. This process requires much more human decisions and also as implied by the name, is a guided manual process.
In this process, a company will first need to assess an account and determine that the account will need to be charged off based on the account's performance. Once this decision has been made, an agent user will enter the account and select the Wizards tab. The user will then open and start the "Charge Off" wizard. In the first step of the wizard, the user is thoroughly instructed on how to correctly post a charge off on the account based on the company's charge off decision (instructions are also fully customizable). In the second step of the wizard, the user is then instructed to leave a note documenting any necessary information regarding the charge off.
If the balance on the account has now been charged off to zero and the account is in an "Open" status, LoanPro will automatically change the loan status to "Closed - Charged Off", record a Charged Off Date, and assign the account a credit status of 97 - Unpaid balance reported as a loss(charged off).
That is the end of the Manual Charge of Process, and similarly to the automated charge off process, payments that are made on an account that has gone through this process will now need to be logged as Recovery Payments.
For more information on this or other generalized standard processes please email firstname.lastname@example.org.