{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/310/20/#25-recognition","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"310","topic_title":"Receivables","subtopic":"310-20","subtopic_title":"Nonrefundable Fees and Other Costs","section":{"number":"25","label":"25 Recognition","anchor":"25-recognition","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"310-20-25-1","para":"25-1","html":"This Section addresses the recognition of certain lending fees and costs, specifically:
- a
- b
Other lending-related costs
- c
Cost determination
- d
- e
- f
- g
Purchase of a
loan or group of loans
- h
Independent third parties.
Loan origination fees shall be deferred. Likewise, direct loan origination costs shall be deferred.
All other lending-related costs, including costs related to activities performed by the lender for advertising, soliciting potential borrowers, servicing existing loans, and other ancillary activities related to establishing and monitoring credit policies, supervision, and administration, shall be charged to expense as incurred. Employees' compensation and fringe benefits related to those activities, unsuccessful loan origination efforts, and idle time shall be charged to expense as incurred. Administrative costs, rent, depreciation, and all other occupancy and equipment costs are considered indirect costs and shall be charged to expense as incurred. Costs for software dedicated to loan processing and origination are not eligible for deferral as direct loan origination costs under the definition of that term. Such costs are not other costs related to those activities that would not have been incurred but for that loan as contemplated in the definition of the term.
Fees paid to a service bureau for loan processing are not eligible for deferral as direct loan origination costs under the definition of that term because the services were performed after the loan has already been made; the costs are not origination costs.
Bonuses based on successful production of loans that are paid to employees involved in loan origination activities are partially deferrable as direct loan origination costs under the definition of that term. Bonuses are part of an employee's total compensation. The portion of the employee's total compensation that may be deferred as direct loan origination costs is the portion that is directly related to time spent on the activities contemplated in the definition of that term and results in the origination of a loan.
If compensation for an employee traditionally paid by salary or hourly wage is switched wholly or partially to commissions on successful loan production, such costs would be partially deferrable as direct loan origination costs under the definition of that term. As specified in the preceding paragraph, only the portion of the employee's total compensation directly related to time spent on activities contemplated in the definition of that term for completed loans would be deferred. Commission-based compensation arrangements between a lender and its employees may be similar to arrangements a lender may have with independent third parties such as loan brokers. However, when origination activities are performed by the lender's employees, the lender must allocate compensation costs applicable to the activities contemplated in the definition of direct loan acquisition costs based on the portion of time spent by employees. An allocation of the employees' total compensation between origination and other activities is made so that only those costs associated with those lending activities contemplated in the definition of that term are deferred for completed loans, even if commissions are 100 percent of such compensation and are based solely on completed loan transactions. This Subtopic does not specify how costs are to be determined but rather what costs must be deferred. In many instances, standard costing may be used to estimate the costs to be deferred in accordance with the provisions of this Subtopic. For certain loans, the cost of origination may be similar and standard costing may be appropriate for those loans, while other loans may be of such a nature that costs must be identified separately. Lenders may use any one or a combination of methods that will provide adequate information to report financial results in accordance with this Subtopic. Development of a standard costing system will require periodic analysis of variances and, if necessary, adjustment of standard costing estimates. Possible standard cost methods that may be used to measure costs applicable to transactions that have occurred include standard costs, actual costs, job process (for example, homogeneous loans), or job order (for example, specific loans).
The successful-efforts accounting notion utilized at an entity-wide level may result in a standard cost system that does not accurately reflect the amount of costs that may be deferred and amortized under the provisions of this Subtopic. Successful loan efforts can be determined as a percentage of each function (for example, application, verification, underwriting, appraisal, closing) and may be based on the percentage, adjusted for idle time and time spent on activities for which the related costs cannot be deferred, of successful and unsuccessful efforts determined for each function.
In accounting for costs associated with loan originations on loans that have not yet been closed, judgment is required to estimate the number of loans in process that will result in a successful loan origination. Origination costs on a loan in process may be deferred until the loan is either closed or considered an unsuccessful effort. If a loan in process is determined to be unsuccessful after the balance sheet date but before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25), costs that have been deferred through the balance sheet date shall be charged to expense in the period ending with the balance sheet date. Except as set forth in paragraph 310-20-35-3, fees received for a commitment to originate or purchase a loan or group of loans shall be deferred. Direct loan origination costs incurred to make a commitment to originate a loan shall be offset against any related commitment fee and the net amount recognized as set forth in paragraph 310-20-35-3. If qualifying costs associated with commitments exceed commitment fees received (or if no fee is charged), whether or not the resulting net cost may be deferred depends on the likelihood of the commitment being exercised. This Subtopic applies to both nonrefundable fees and costs, and paragraphs 310-20-35-3 and 310-20-25-1 may require that the net of such items be deferred. However, if the likelihood that the commitment will be exercised is remote, any net costs shall be charged to expense immediately rather than deferred and amortized on a straight-line basis over the commitment period. Fees received for providing commercial letters of credit are covered by this Subtopic. Such fees are considered commitment fees, and the accounting is specified in paragraph 310-20-35-3. Credit card fees generally cover many services to cardholders. Accordingly, fees that are periodically charged to cardholders shall be deferred. This accounting shall also apply to other similar card arrangements that involve an extension of credit by the card issuer.
Only the costs of origination that qualify as direct loan origination costs under the definition of that term are eligible for deferral. All other costs shall be charged to expense as incurred. Therefore, costs eligible for deferral would likely exceed fees only when a credit card is first issued.
Credit card origination costs shall be netted against the related credit card fee, if any. In situations where a significant fee is charged, the privilege period is the period that the fee entitles the cardholder to use the credit card. If there is no significant fee, the privilege period shall be one year. Significance for this purpose shall be evaluated based on the amount of the fee relative to the related costs.
Credit card accounts acquired individually shall be accounted for as originations under this Subtopic. Amounts paid to a third party to acquire individual credit card accounts shall be deferred and netted against the related credit card fee, if any.
The entity managing a loan syndication (the syndicator) shall recognize loan syndication fees when the syndication is complete unless a portion of the syndication loan is retained. If the yield on the portion of the loan retained by the syndicator is less than the average yield to the other syndication participants after considering the fees passed through by the syndicator, the syndicator shall defer a portion of the syndication fee to produce a yield on the portion of the loan retained that is not less than the average yield on the loans held by the other syndication participants.
All transactions that are structured legally as loan syndications shall be accounted for as loan syndications in accordance with the provisions of this Subtopic.
Paragraph 310-20-30-5 explains that the initial investment in a purchased loan or group of loans shall include the amount paid to the seller plus any fees paid or less any fees received. The initial investment frequently differs from the related loan's principal amount at the date of purchase. All other costs incurred in connection with acquiring purchased loans or committing to purchase loans shall be charged to expense as incurred. Designation of a fee or cost as an origination fee or cost for a loan that is purchased is inappropriate because a purchased loan has already been originated by another party. Costs incurred in connection with acquiring loans or committing to purchase loans, including a participation, shall be charged to expense in accordance with paragraph 310-20-35-15. For the originating lender, net fees and costs associated with a loan participation would become a component of the net loan investment balance to be used in calculating the gain or loss on a subsequent sale as described in paragraph 310-20-35-16. If an entity utilizes a third party for loan originations and the third party is not considered an independent third party for several reasons but also is not an employee of the entity, the entity shall defer those costs directly related to specified activities that can be determined to meet the criteria for direct loan origination costs under the definition of that term as long as those costs would not have been incurred but for that loan.
Fees paid to independent third parties for advisory services regarding loan origination activities, even if those same activities are performed internally, are not considered to be incurred for the specified activities set forth in the definition of the direct loan acquisition costs term and shall be charged to expense as incurred whether paid to independent third parties or performed internally.
Fees paid to an independent third party, or incurred internally, for portfolio management or investment consultation are considered other costs incurred in connection with acquiring purchased loans or committing to purchase loans because they constitute investment advisory costs, not loan origination costs. Therefore, such costs shall be charged to expense in accordance with paragraph 310-20-35-15 whether the costs are paid to independent third parties or incurred internally. In some circumstances judgment may be necessary to determine if a third party is independent.