Changes in Charge-off Policies

12 Months Ended

Dec. 31, 2011

Summary of Significant Accounting Policies and New Accounting Pronouncements and Changes in Charge-off Policies [Abstract]

Changes in Charge-off Policies

7.    Changes in Charge-off Policies During 2009

Prior to 2009, we maintained charge-off policies within our Consumer Lending and Mortgage Services businesses that were developed in consideration of the historical consumer finance customer profile. As such, these policies focused on maximizing the amount of cash collected while avoiding excessive collection expenses on loans which would likely become uncollectible. Our historical real estate secured charge-off policies reflected consideration of customer behavior in that initiation of foreclosure or repossession activities often served to prompt repayment of delinquent balances and, therefore, were designed to avoid ultimate foreclosure or repossession whenever it was economically reasonable. Charge-off policies for our personal non-credit card receivables were designed to be responsive to customer needs and collection experience which justified a longer collection and work out period for the consumer finance customer. Therefore, the charge-off policies for these products were historically longer than bank competitors who served a different market.

The impact of the economic turmoil which began in 2007 resulted in a change to the customer behavior patterns described above and it became clear in 2009 that the historical behavior patterns will not be re-established for the foreseeable future, if at all. As a result of these changes in customer behavior and resultant payment patterns, in December 2009 we elected to adopt more bank-like charge-off policies for our real estate secured and personal non-credit card receivables. As a result, real estate secured receivables are now written down to net realizable value less cost to sell generally no later than the end of the month in which the account becomes 180 days contractually delinquent. For personal non-credit card receivables, charge-off now occurs generally no later than the end of the month in which the account becomes 180 days contractually delinquent.

The impact of the changes in our charge-off policies adopted during the fourth quarter of 2009 resulted in an increase to our net loss of $227 million as summarized below:

	Real Estate Secured			Personal Non-Credit Card			Total
	(in millions)
Net interest income:
Reversal of accrued interest income on charged-off accounts (1)	$	246		$	105		$	351
Provision for credit losses:
Charge-offs to comply with charge-off policy changes		2,402			1,071			3,473
Release of credit loss reserves associated with principal and accrued interest income		(2,594	)		(878	)		(3,472	)
Tax benefit		(19	)		(106	)		(125	)
Reductions to net income	$	35		$	192		$	227

⁽¹⁾  Accrued interest income is reversed against finance and other interest income.