CITY BANK
August 2, 2004
Via email
FDIC – comments@FDIC.gov
RE: Inter-Agency Guidance on Overdraft Protection Programs
Gentlemen:
In regard to the proposed guidance on overdraft protection programs,
City Bank is concerned that the program for occasional inadvertent
overdrafts continues as a cost effective product for the consumer. This
service has become very popular for customers over the past few years.
It is our desire that the program not be subjected to the open end
credit requirements of Regulation Z, as the cost will cause the program
to be ineffective for financial institutions. Many customers have come
to rely on this product in times of need, and any increase in cost which
might hamper the effectiveness could deprive the customer of important
protection. Our current program is offered to all customers without
requiring a costly underwriting process. Also, this allows the product
to be available to persons that might not qualify for an open-end credit
line.
The proposed guidance indicates that overdraft balances should
generally be charged off within 30 days from the first date overdrawn.
However, it is our belief that overdraft balances should be treated as
any other problem consumer debt. To conform to other existing
guidelines, the debt should be written off only after a minimum of
90-120 days in overdrawn status. Our practice is to begin written
communication with the customer after 20 days overdrawn. Follow-up
letters are sent at 10 to 15 day intervals thereafter.
To require the unused balance of any overdraft protection available
to the entire customer base is absurd. While the program is available to
all customers, only a small percentage will actually use the product. To
report the unused balance would significantly distort regulatory reports
and render them useless.
With regard to the Equal Credit Opportunity Act, we agree that
overdraft protection is a form of credit, and more specifically
“incidental credit.” However, we do not believe it necessary to send the
customer an adverse action notice if the product is revoked due to
abuse. Our procedures do include written communication with the customer
to ensure awareness of his or her new standing with the bank.
The section of the guidance which addresses Electronic Funds Transfer
would be next to impossible to achieve. Terminal receipts at point of
sale locations will not be able to provide additional disclosures of
Reg. E.
Best Practices
Many of the best practices noted in the guidance have already been
adopted by our institution. However, several of the recommendations
deserve addressing.
The ability of the customer to opt out of overdraft privilege and
select another alternative is one of the best practices recommended. As
noted earlier, the cost to comply with open-end credit laws combined
with Reg Z would render any alternative unprofitable. The only choice
left is for the bank to return the check, impose the exact same fee that
would have been imposed under the overdraft protection plan, subject the
customer to the additional cost of the insufficient check by the
merchant, and add the potential for criminal action as well as the cost
of obtaining a money order to replace the item.
Requiring and affirmative consent of consumers to receive overdraft
protection will increase the paperwork burden. As such, this should only
be required for new customers and not current.
Alerting customers before a non-check transaction triggers any fees
is not possible. If a customer uses an off premises ATM or uses a debit
card, the bank has no control over the balance that is displayed by that
terminal or the ability to provide additional disclosures.
Placing daily limits on the number of overdrafts or the dollar amount
of fees that will be charged on any one day is both too costly and
complicated to implement. The customer should be aware of how many items
could be presented that might overdraw the account.
After visiting with our data processor, it was determined that the
ability to monitor for excessive usage is not available. Also, the
definition of “excessive” will differ for each customer.
In conclusion, City Bank feels the current overdraft privilege
program offered to our customers is working very well. It provides an
avenue to cover overdrafts to the masses, since not all customers would
qualify for an open-end line of credit.
Thank you for the opportunity to comment.
Sincerely,
Julie Beene
Vice President
City Bank
P.O. Box 5060
Lubbock, TX 79408
