Run: Loan Charge-Off Processing SOP

The loan servicing specialist verifies the account type and days past due using the delinquency aging report. - Closed-end loans: confirm the account is 120 or more days past due. - Open-end loans: confirm the account is 180 or more days past due. - Confirm the account is eligible for charge-off under the institution's policy and any applicable exceptions. If the account does not meet the threshold, stop and route the account back to collections monitoring.

The collections manager reviews the account history, collateral status, bankruptcy flags, legal holds, and recent recovery activity. - Confirm whether any approved exception applies. - Document any recoveries, collateral liquidation proceeds, or pending payments that affect the charge-off amount. - Identify any non-conformance with policy and escalate unresolved exceptions to the credit risk owner.

The credit risk analyst prepares the charge-off recommendation for each eligible account. - Record the borrower account number, product type, delinquency status, principal balance, accrued interest, fees, and recoveries. - Calculate the proposed charge-off amount in accordance with the institution's policy. - Note the reason for charge-off and any supporting comments. - Attach supporting reports or system screenshots as required by the institution's documented information controls.

The accounting manager or designated credit officer reviews the charge-off recommendation for accuracy and policy compliance. - Confirm the threshold, amount, and supporting documentation. - Approve the recommendation or return it for correction. - Record the approver name, date, and any conditions attached to the approval.

The chief credit officer or delegated officer submits the approved charge-off package for board ratification in accordance with governance requirements. - Include the account list, charge-off amounts, and approval summary. - Present the item at the next board meeting or through the approved interim ratification process. - Record the ratification reference number or meeting date.

The accounting specialist posts the approved charge-off to the general ledger and updates the loan servicing system. - Debit the appropriate charge-off expense or allowance account. - Credit the loan receivable balance and related accrued items as required by policy. - Confirm the posting date, amount, and account mapping. - Reconcile the servicing system balance to the general ledger entry.

The loan servicing specialist archives the complete charge-off record in the document management system. - Store the aging report, recommendation, approvals, board ratification record, and posting confirmation. - Apply the retention label required by the institution's records policy. - Ensure the record is searchable and linked to the account file.

The collections manager monitors the charged-off account for recoveries, settlements, or legal collections activity. - Record any recovered amounts according to accounting policy. - Escalate material recoveries or disputes to accounting and credit risk management. - Maintain the recovery log until the account is closed or written off under the institution's policy.