A card issuing bank can have various income streams from a cardholder. Those revenue streams related to interest income, credit card balance consolidation and balance transfer fees, late (delinquency) fees, returned check fees (on customer’s credit card payment), cash advance fee, foreign currency fees, rush/expedited card fees, over-limit fee, and overdraft protection fees are all within the scope of Topic 310, Receivables, and, therefore, are not included in the scope of Topic 606, Revenue from Contracts with Customers, (per the scope exception in paragraph 606-10-15-2). Those income streams have specific guidance in Topic 310, for example, interest income is addressed in paragraph 310-10-25-9 and delinquency fees (which includes late fees and returned check fees) are addressed in paragraph 310-10-25-13. Many of the other fees are considered to be loan origination fees as addressed in Section 310-20-20.

However, questions have arisen as to whether other credit card fees (such as periodic or annual fees) are within the scope of Topic 310 or within the scope of Topic 606. The question arises because some services might be provided in conjunction with the lending arrangement and the receipt of the credit card fee. For example, the card issuing bank may provide certain ancillary services, such as concierge services or airport lounge access. This had led some stakeholders to question whether those services should be included within the scope of Topic 606.

In order to answer this question, one must first assess whether the fees are within the scope of Topic 310. If the fees are within the scope of Topic 310, then the guidance in that Topic would apply. Subtopic 310-20, Nonrefundable Fees and Other Costs, includes guidance on the recognition and the balance sheet classification of nonrefundable fees and costs associated with lending activities. If the fees are not within the scope of Topic 310, then an entity would need to assess the contract under Topic 606. The staff is aware that some stakeholders are referring to paragraph 606-10-15-4 in trying to determine the answer to this question. However, the staff notes that the guidance in that paragraph would apply at the point an entity determines that a contract includes goods or services within the scope of both Topic 606 and another Topic. That is, once that determination is made, the guidance in paragraph 606-10-15-4 provides a hierarchy on how to apply separation and allocation guidance. Therefore, if a determination is made that all goods or services in a contract are outside of the scope of Topic 606 then the guidance in that paragraph would not be applicable.

Additionally, the basis for conclusions of FASB Statement No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, describes that the Board concluded that a loan commitment might be either integral to lending or a separate customer service depending on the nature of the commitment. The Board concluded that to the extent a fee is to compensate the entity for a service provided during the commitment period, the separate components of a commitment fee cannot be identified and measured reliably enough to allow for separate accounting recognition for each component part. The staff notes that the basis for conclusions is non-authoritative; however, this description in the basis provides context around the language in paragraph 310-20-25-15 that “credit card fees generally cover many services to cardholders.”

The staff thinks that this question arises, in part, because the scope guidance in Topic 310 relates to a “fee” while the scope guidance in Topic 606 relates to “goods and services.” However, if the fee is within the scope of Topic 310, then the staff thinks that the services being performed in exchange for that fee also would be within the scope of Topic 310.

In the staff’s view, credit card fees are within the scope of Topic 310 based upon the guidance in Topic 310 and the basis for conclusions of Statement 91 explains what the Board considered to be “credit card fees.” Consequently, credit card fees are not within the scope of Topic 606.

As part of the staff’s research on this implementation question, the staff discussed the accounting for credit card fees under current GAAP with stakeholders. The staff’s outreach included many credit cards issuing banks and some of the large accounting firms that have significant experience auditing those institutions. All the stakeholders included in the staff’s outreach stated that all credit card fees are presently accounted for within the scope of Topic 310 (specifically Subtopic 310-20), rather than the guidance in Topic 605, Revenue Recognition. The staff notes that the Update for Topic 606 did not include consequential amendments to Topic 310 to change the scope of that topic related to credit card fees. Consequently, in the staff’s view, the conclusion under existing and new revenue recognition guidance should be the same.

The staff thinks it is important to note that a credit card issuing bank should not assume that all of its types of arrangements are excluded from the scope of Topic 606 solely because credit card fees are excluded from the scope of Topic 606. The entity should evaluate its other types of arrangements and reach a conclusion about the applicable GAAP for those other types of arrangements. For example, an entity that issues credit cards might also offer asset management services to clients for a fee. Those asset management services likely would be within the scope of Topic 606. Paragraph 606-10-15-1 states that the guidance in Topic 606 applies to all entities . That is, there are no entities or industries that are excluded from Topic 606. Rather, paragraph 606-10-15-2 provides a list of contracts/transactions that are within the scope of other Topics. Therefore, it would not be appropriate for an entity to conclude that it is excluded from the scope of Topic 606 solely because of its industry (such as, a financial institution or an insurance company).

The staff also thinks it is important to note that if any entity (bank or otherwise) enters into an arrangement that is labelled a credit card lending arrangement, but the overall nature of the arrangement is not a credit card lending arrangement, then the entity should not presume that the arrangement is entirely within the scope of Topic 310 and outside the scope of Topic 606.

As an example, to illustrate the staff’s point, assume an entity enters into an arrangement that is labelled a credit card lending arrangement and that involves the entity providing a credit card to the customer and the entity also transferring control of an automobile to the customer. In exchange, the customer pays a fee to the entity. Although the arrangement includes a credit card lending component, the overall nature of the arrangement is not simply a credit card lending arrangement. The transfer of control of an automobile is a key element of the arrangement. Consequently, the entity cannot assume that the entire arrangement is within the scope of Topic 310.