August 2, 2004
Mr. John D. Hawke, Jr.
Department of the Treasury
Office of the Comptroller of Currency
250
E Street, S.W.
Public Information Room, Mailstop 1-5
Washington, DC
20219
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal
Reserve System
20th Street and Constitution Avenue, N.W.
Washington,
DC 20551
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th'
Street, N.W.
Washington, DC 20429
RE: Proposed Interagency Guidance on Overdraft Protection Programs Docket
No. OP-1198 (Federal Reserve System) Docket No. 04-14 9 (Office of the
Comptroller of Currency)
Proposed Regulation DD (Truth-In-Savings Act) Amendment Docket No. R-1197
I am a long-time Houston, Texas area banker and an independent bank
consultant. Please accept this letter in response to the request for
public commentary on the Proposed Interagency Guidance on Overdraft Protection
Programs as referenced above and as jointly published in the Federal
Register on June 7, 2004, by the OCC, FRB, FDIC, OTS and NCUA. I also
appreciate the opportunity to provide commentary on the closely related
topics addressed in the proposed amendments to Regulation DD. The comments
below reflect my underlying concern that much of what is proposed in
the guidance is simply additional regulatory burden wherein a determination
of need has not been fully developed and established. Said regulatory
burden will ultimately serve to inflate the cost of this service to the
consumer while providing the consumer with no meaningful benefit or available
alternative.
- The proposed guidance specifically provides that overdrawn balances
should be charged-off within 30 days from the date first overdrawn. We
suggest 90 days which is still well below the 120 days allowed for loans
and half the 180 days allowable for credit card accounts and lines of
credit tied to checking accounts that only require minimum payments as
opposed to repayment in full.
- The proposed guidance of 30 days does not allow the consumer
adequate time to correct the situation that may include periods
of short interruptions
in income due to mistake, temporary seizure or unemployment.
- Additional expense will be incurred by financial institutions
since many overdrafts over 30 days are ultimately cleared by
the consumer.
Financial institutions that use third party collection agencies
will also incur costs to collect overdrafts that would otherwise
be paid if
not charged-off.
- Additional expense will fall to the consumer to reactivate
their account with the financial institution once the overdraft
is cleared to include:
- The collection fee assessed on the account at the time
of charge-off
- The cost of a new order of checks
- The fee for issuance of a new debit card
- The consumer's credit record will be negatively impacted by
the reporting of the charge-off to all major credit reporting
agencies.
- The proposed
guidance clearly provides for disparate treatment between financial
institutions and credit unions (30 days vs.
45 days).
- The proposed guidance specifically states that the existence of an extended
repayment plan would not extend the charge-off determination period beyond
30 days from the date of overdraft. This would adversely impact a consumer's
ability to cure the balance and regain control of his or her checking
account while building credit through a payment plan for the overdraft.
- Absent a repayment option, the consumer may be unable to repay
the overdrawn balance save and except by returning to the overdraft
once
their pay is deposited, thus perpetuating the cycle and causing
the consumer to pay additional NSF fees. A loan to repay the
overdraft allows the
consumer to keep his or her checking account open while repaying
the overdraft apart from the checking account under monthly terms
that are
affordable.
- Charge-off of the overdraft balance while the consumer is
making a bona fide attempt to repay the overdraft negatively
impacts
the consumer's
retail credit report all while the consumer tries to rectify
the balance due the financial institution.
- The proposed guidance presumes that no underwriting occurs
for the extended repayment plan. These plans should be underwritten
using appropriate
lending guidelines resulting in a signed note with specific
repayment terms. All loans of this nature would then be subjected
to the
same management and reporting standards as all other loans
at the financial institution.
- The proposed
guidance specifically provides that the available amount of overdraft
protection
should be reported as "unused commitments" in
regulatory reporting if the amount is "routinely" communicated
to the consumer. The statement lacks specificity sufficient
to determine what means of communication is being referred to and what
frequency would
constitute "routine". Additionally, since the payment of
any item is in the financial institution's discretion, the amount of
systematic
coding on an account does not constitute a commitment on the financial
institutions part that should be reported.
- The proposed amendment to Regulation DD concerning overdraft fees
would require that financial institutions provide the consumer with
aggregated
monthly and year-to-date totals of NSF fees paid as well as differentiating
between overdraft fees and return item fees.
- These proposed changes would require every financial instituution
to make extensive modification to its operating system at great
expense
in order to provide information to the consumer that is already
available for their personal calculation.
- Financial institutions should only be required to differentiate
overdraft fees from return item fees if the financial institution
has differing
charges for each action.
- The relevant information concerning each NSF item charge is
on the consumer's financial institution statement on the date incurred
and is
available for cumulative calculation by the consumer should
it be information sought or found useful. It is also reflected
on all NSF or overdraft
notices sent to the consumer.
- The fees assessed not only recover some of the expense incurred
in handling NSF items, but also serves as a deterrent to those
customers
who would otherwise choose to perform transactions that result
in an NSF item charge.
I appreciate the opportunity to comment on the proposed guidance. I
would be happy to discuss this matter more fully with your staff or to
testify before any of the agencies should you so desire. I strongly urge
all of the agencies to consider the burden that the proposed guidance
will place on financial institutions while ultimately providing no benefit
to the consumer. Accordingly, I request that the Proposed Guidance be
withdrawn or at a minimum revised and republished for public comment.
Sincerely,
Joe M. Bailey
Flatonia, TX
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