OCC bulletin on loan purchases focuses on risk management, replaces 1984 circular

A bulletin that details sound risk management principles on loan purchase activities was issued to banks Thursday by the Office of the Comptroller of the Currency (OCC) and rescinds a circular issued nearly four decades ago.

The bulletin covers strategic plan and risk appetite; lending policies and procedures; and credit administration, including due diligence and independent credit analysis, additional considerations for loan portfolio and pool purchases, and recourse arrangements.

“The OCC expects banks to engage in loan purchase activities in a safe and sound manner and in compliance with applicable accounting standards, laws, and regulations. Loan purchase activities should align with banks’ strategic plans and be supported by sound risk management systems,” the agency said in Thursday’s bulletin (2020-81).

“Failure to engage in sound risk management of loan purchase activities can subject banks to unwarranted risks such as elevated loan losses, increased legal expenses, and noncompliance with safety and soundness standards,” it said.

The new bulletin, “Credit Risk: Risk Management of Loan Purchase Activities,” rescinds Banking Circular 181 (REV), “Purchases of Loans in Whole or in Part – Participations,” issued Aug. 2, 1984.