Best Practice for Handling Loan Write-Offs & Charge-Offs

The main difference between a Write-Off and a Charge-Off is that when an account is written off the Membership is left open for recovery payments to post towards the loan. If auto payments are set up, you will notice the balance go down as there is no additional interest accruing or late fees assessed.

Charged-Off loans will not receive any recovery payments, so the Membership is closed, and the entire loan balance is Charged-Off. 

You will utilize Tool # 1006: Write Off/Charge Off Loans to Write-Off a loan, Charge-Off a loan, or change a Written-Off loan to a Charged-Off loan.

Key fields to complete when in Tool # 1006

• Change the statement mail group code (Click the lookup button to select the code you have configured for Charged-Off memberships – this should be ‘Archive Only’)
• Enter a reason code for the Write-Off (Use the lookup option to select the appropriate Write-Off code)
• There should be NO delinquency fines assessed. Change to ‘0’.
• Update the freeze code to ‘1’ so no additional funds are given to the member.
• The ‘Report to Credit Bureau’ box should always be checked
• The Status field reports the status of the loan account as it related to credit bureau reporting. (This should be Code 97: Unpaid Balance Reported As A Loss By Credit Grantor (Charge-Off) however, please use the lookup option to search other status codes to see if they may be applicable.)
• The ‘Add additional comments to tracker note’ box should be checked. The system will automatically place a tracker notation on the when, why, and the dollar amount the loan was Written-Off for but there may be other important information you need to notate internally should the member return, for disputes, examiner purposes, etc.
  • Examples: The loan balance was a deficiency re-written to an unsecured loan etc
• The ‘Add member to blocked persons list’ box should also be checked. This will record the member's name and SSNs on the Blocked persons list which is used to deny a person a membership at your credit union.

If you are Charging-Off a loan, you must first close all plastics (ATM, Debit Cards, Credit Cards) before entering Tool # 1006. Don’t worry, if you forget this step or fail to close any plastics, CU*BASE will not let you proceed until it is closed.

• For ATM/Debit Cards, you will use Tool # 11: ATM/Debit Card Maintenance
• For Credit Cards, you will use Tool # 12: Update/Order Online Credit Cards

You should also transfer any remaining funds to the loan as well.

After you have completed these steps, the process is the same as a Write-Off except you will be guided to close the loan and membership during the Charge-Off.

For a PDF document of the information above click here.