With many COVID-19-related accommodations for loans nearing their initial expiration dates, the Federal Financial Institutions Examination Council today issued a joint statement outlining prudent risk management and consumer protection principles for financial institutions to consider while working with affected borrowers.
“The FFIEC members encourage financial institutions to consider prudent accommodation options that are based on an understanding of the credit risk of the borrower; are consistent with applicable laws and regulations; and, that can ease cash flow pressures on affected borrowers, improve their capacity to service debt, and facilitate a financial institution’s ability to collect on its loans,” the statement said. “Such arrangements may mitigate the long-term impact of a financial challenge on borrowers by avoiding delinquencies or other adverse consequences.”
When executing an additional accommodation, the agencies noted that institutions should provide “clear, accurate and timely information” to borrowers and guarantors and ensure that the accommodation offered is “well-structured and sustainable.” The statement also addresses the accounting and regulatory reporting requirements for COVID-19-related loan modifications, as well as expectations for internal control systems.
