Month-End Processing, Payoffs and Chargeoffs

Related Topics

Month-End Processing

During the month end cycle, all indirect loans complete the following month-end process:

  • New loan upfront reserve amounts are posted to the general ledger.
  • Upfront reserve chargeback amounts are calculated and posted to the general ledger for loans paid off or charged off during the month.
  • Amortization amounts are calculated and posted to the general ledger.
  • Dealer statements are prepared and dealer balances are adjusted to reflect current month activity.
  • For dealers exceeding their holdback, a transaction is created to transfer the excess amount. The next day, Portico transfers the excess amount to the member number and share type specified on the Dealer Information - Maintenance window. If a dealer has an owning dealer listed on the Dealer Information - Maintenance window, Portico transfers the excess amount to the member number and share type specified for the owning dealer number. The following transfer processing is available:
    • Automatic transfer request to produce a check
    • ACH transfer to dealer’s bank account or elsewhere
    • Automatic general ledger transfer for later wire transfer
    • Dealer-issued checks against the account

Loans that have been paid off during the month will fully amortize at the end of the month for closed ended loans. Open ended loans will continue to amortize the monthly amount. Also if a loan is paid off with an adjustment transaction through a general ledger, then it will not be recognized as paid off and will continue to amortize monthly. On these loans additional maintenance will be required. On the Loans - Indirect Info tab, the Amortized Reserve Amount field must be changed to match the amount in the Upfront Reserve field. When these two fields are equal to each other, no other entries will be made by the system.

Calculations

Calculations for amortization and accelerated amortization of unearned upfront reserves use the existing Portico FASB 91 effective interest amortization method for split and flat reserve types.

Payoff and Chargeoff Scenarios

Payoff Scenario 1:

  • Loan balance equals zero.
  • Reserve type indicates the payoff day limit is 120 days and the payoff method is 0 (no chargebacks after payoff day limit).
  • Original loan date minus the last payment date is less than or equal to the payoff day limit. For example, the original date equals 01/01/05 and the last payment date equals 03/01/05; therefore, the difference is 60 days.
  • No chargeback has been processed.

Processing: Chargeback entire upfront reserve amount to the dealer:

  1. Debit dealer holdback general ledger for the chargeback amount.
  2. Credit interest income general ledger for the chargeback amount.
  3. Accelerate amortization by posting the remaining unearned reserve as a debit to loan interest and a credit to deferred fee.

Chargeoff Scenario 1:

  • Charge Off date is current month. Reserve type indicates a chargeoff day limit of 120 days and a chargeoff method of 0.
  • Original loan date minus the next payment due date is less than or equal to the chargeoff day limit. For example, the original date equals 01/01/05 and the next payment due date equals 03/01/05; therefore, the difference is 60 days.
  • No chargeback has been processed.

Processing: Chargeback entire upfront reserve amount to the dealer:

  1. Debit dealer holdback general ledger for the chargeback amount
  2. Credit interest income general ledger for the chargeback amount.
  3. Accelerate amortization by posting the remaining unearned reserve, as a debit to loan interest and a credit to deferred fee.

Payoff Scenario 2:

  • Loan balance equals zero.
  • Reserve type indicates the payoff day limit is 120 days.
  • Original loan date minus the last payment due date is greater than the payoff day limit. For example, the original date equals 01/01/05 and the last transaction date equals 06/01/05; therefore, the difference is 151 days.
  • Reserve type indicates no chargeback after the payoff day limit (Payoff Method equals 0).

Processing: No chargeback. Accelerate amortization by posting the remaining unearned reserve as a debit to loan interest and a credit to deferred fee.

Chargeoff Scenario 2:

  • Chargeoff Date is current month.
  • Reserve type indicates a chargeoff day limit of 120 days.
  • Reserve type indicates no chargeback after the chargeoff day limit (chargeoff method equals 0). For example, the original date equals 01/01/05 and the next payment due date equals 06/01/05; therefore, the difference is 151 days.

Processing: No chargeback. Accelerate amortization by posting the remaining unearned reserve as a debit to loan interest and a credit to deferred fee.

Payoff Scenario 3:

  • Loan balance equals zero.
  • Reserve type indicates the payoff days equal 000 and payoff method equals 1 (chargeback processing for the life of the loan using the unearned upfront reserve).

Processing:

  1. Calculate chargeback.
    1. spread = APR - buy rate
    2. dealer earned upfront reserve = life to date interest collected * (spread/APR)
    3. chargeback = upfront reserve - dealer earned upfront reserve
  2. If calculated chargeback is greater than zero:
    1. Chargeback calculated amount posted to the dealer.
    2. Debit dealer holdback general ledger for the chargeback amount.
    3. Credit interest income general ledger for the chargeback amount.
  3. Accelerate amortization by posting the remaining unearned reserve as a debit to loan interest and a credit to deferred fee.

Chargeoff Scenario 3:

Chargeoff date is current month. Reserve type indicates chargeback processing for the life of the loan (chargeoff days equals 999 and chargeoff method equals 0).

Processing: Chargeback entire upfront reserve amount to the dealer.

  1. Debit dealer holdback general ledger for the chargeback amount.
  2. Credit interest income general ledger for the chargeback amount.
  3. Accelerate amortization by posting the remaining unearned reserve as a debit to loan interest and a credit to deferred fee.