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Allowance for Finance Receivable Losses
6 Months Ended
Jun. 30, 2021
Receivables [Abstract]  
Allowance for Finance Receivable Losses
4. Allowance for Finance Receivable Losses

We establish an allowance for finance receivable losses through the provision for finance receivable losses. We evaluate our finance receivable portfolio by the level of contractual delinquency in the portfolio, specifically in the late-stage delinquency buckets and inclusive of the migration of the loans through the delinquency buckets. We estimate and record an allowance for finance receivable losses to cover the estimated lifetime expected credit losses on our finance receivables. Our allowance for finance receivable losses may fluctuate based upon changes in portfolio growth, credit quality, and economic conditions.

Our current methodology to estimate expected credit losses used the most recent macroeconomic forecasts, which incorporated the impacts and expected recovery of the global outbreak of a novel strain of coronavirus (“COVID-19”) on the U.S. economy. Our forecast leveraged economic projections from an industry leading forecast provider. We also incorporated estimated impacts from known government stimulus measures, the involuntary unemployment insurance coverage of our portfolio, and our borrower assistance efforts. At June 30, 2021, our economic forecast used a reasonable and supportable period of 12 months. The decrease in our allowance for finance receivable losses for the three and six months ended June 30, 2021 was primarily due to an improved outlook for unemployment and macroeconomic conditions. In the near-term, we may experience further changes to the macroeconomic assumptions within our forecast which could lead to further changes in our allowance for finance receivable losses, allowance ratio, and provision for finance receivable losses.

Changes in the allowance for finance receivable losses were as follows:
Three Months Ended June 30,Six Months Ended June 30,
(dollars in millions)2021202020212020
Balance at beginning of period$2,062 $2,182 $2,269 $829 
Impact of adoption of ASU 2016-13 * —  1,118 
Provision for finance receivable losses132 423 130 954 
Charge-offs(252)(321)(507)(657)
Recoveries58 40 108 80 
Balance at end of period$2,000 $2,324 $2,000 $2,324 
* As a result of the adoption of ASU 2016-13, on January 1, 2020, we recorded a one-time adjustment to the allowance for finance receivable losses and a corresponding cumulative reduction to retained earnings, net of tax. See Note 4 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our Annual Report for additional information on the adoption of ASU 2016-13.

The allowance for finance receivable losses and net finance receivables by impairment method were as follows:
(dollars in millions)June 30, 2021December 31, 2020
Allowance for finance receivable losses:
Collectively evaluated for impairment
$1,695 $1,955 
TDR finance receivables305 314 
Total$2,000 $2,269 
Finance receivables:
Collectively evaluated for impairment
$17,483 $17,393 
TDR net finance receivables680 691 
Total$18,163 $18,084 
Allowance for finance receivable losses as a percentage of finance receivables
11.01 %12.55 %