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CECL implementation for consumer-based receivables - your questions answered

During our latest CECL Tuesday talk-through we answered submitted questions on CECL implementation for consumer-based receivables. This informative article reviews the questions we answered in our session.

Be sure to check back as we will be updating this article with more submitted questions.

Key takeaways:

  • Duration of the receivable is a key factor in methodology selection
  • Segmentation is based on a group of assets with similar risk characteristics (by category, by age, by credit rating, etc.)
  • Typically higher percentage of losses come from this segment, so documentation surrounding calculation and elections are important

Pros

  • Often on the “simpler” side of the acceptable method scale
  • Requires less historical data then longer-term counterparts
  • Loss history is more readily available as more losses have typically occurred in these buckets

Cons

  • Variety of products that have different risk levels
  • Typically low balance categories thus calculation is often time consuming
  • Challenge to incorporate forecasting into more basic models (aging, roll-rate, etc.)

Key takeaways:

  • It is appropriate to group assets in a small pool with those in a larger pool if they still share similar risk characteristics
  • Could they be assessed individually if they do not share any similar risk characteristics?

Key takeaways:

  • Segmentation is key. Identify differentiating characteristics of credit cards: revolving vs transactors, new vs existing, credit score, etc.
  • Hard to model term as no stated maturity date and expected renewals typically aren’t considered as agreement can be unconditionally cancellable by lender
  • Look at historical data to determine balance attrition and timing of average life

Watch our webinar recording

Ivan Cilik
Partner
Matt J. Nitka
Partner
Mandatory deemed repatriation under Sec. 965
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