USA Correct Revenue Recognition for Credit Card Annual Fees?

[Joseph West]

Hello all, I'm new to the forum, but I thought this may be a good place to post a question I have regarding credit card annual fees.

I work at a regional commercial bank in FP&A, and I am currently tangled with Corporate Accounting over the revenue recognition of credit card annual fees.

Our budget was setup in a way that the revenue from the credit card annual fees on the customer accounts is taken in directly to the P&L once charged. However, when the credit card platform was developed, for some reason it was setup to amortize the fee over 365 days once the customer account was charged. I noticed this, and began sending a month end accrual to Corporate Accounting each month to true-up the GL to what we should be taking into the P&L each month (total customer account charges).

Corporate Accounting has come back to me stating that this is incorrect, and the annual fees SHOULD be amortized over a year.

Does anyone know the correct accounting recognition for credit card annual fees? To amortize or not to amortize? Do you have any support to back it up? Would love some help to meet our budget, the reversal would have a large impact to our Retail P&L!!! Thanks!!

I have also included the accounting guidance they provided to me to support their decision:

ASC 310-20

> Credit Card Fees and Costs
25-15 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.
25-16 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.
25-17 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.
25-18 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.

> Credit Card Fees and Costs
35-4 The following guidance addresses the amortization of deferred origination costs of credit cards with fees, without fees, or when the fees have been waived for a limited period of time.
35-5 Fees deferred in accordance with paragraph

shall be recognized on a straight-line basis over the period the fee entitles the cardholder to use the card. This accounting shall also apply to other similar card arrangements that involve an extension of credit by the card issuer.
35-6 In connection with the issuance of a credit card that is not a private label credit card

, an issuer may incur certain credit card origination costs that qualify as direct loan origination costs pursuant to this Topic.Paragraph

explains that only the costs of origination that qualify as direct loan origination costs under the definition of that term are eligible for deferral. That definition explains that all other costs shall be charged to expense as incurred.That definition explains that, therefore, costs eligible for deferral would likely exceed fees only when a credit card is first issued.
35-7 The net amount of credit card origination costs netted against the related credit card fee, if any, and recognized in accordance with paragraph 310-20-25-17 :

shall be amortized on a straight-line basis over the privilege period. That paragraph states that significance for this purpose shall be evaluated based on the amount of the fee relative to the related costs and provides related guidance.
35-8 Any net amount deferred in accordance with paragraph 310-20-25-18 :

shall be amortized on a straight-line basis over the privilege period.

 

[Fidget]

Without indulging in all those ASC quotes, common accounting sense tells me that a total fee taken at the start, should be spread over the period it applies to.