FLORENCE SAVINGS BANK
July 15, 2004
Robert E. Feldman, Executive Secretary
ATTN: Comments@FDIC.gov
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429 REF: Overdraft Protection Guidance
Dear Mr. Feldman:
Thank you for the
opportunity to comment on the recently proposed “Interagency
Guidance on Overdraft Protection Programs”. I am writing to you
on behalf of Florence Savings Bank, an insured state nonmember bank
located in Florence, Massachusetts, with assets of approximately $750
million and eight branch offices that serve consumers and businesses
throughout Western Massachusetts.
Florence Savings Bank introduced its Occasional Overdraft Protection
Service to consumers in October 2003. The nature of this service presented
us with some unique challenges. There were occasional instances where
customers experienced confusion or difficulty with this new service.
In those cases, we listened to our customers, improved our communications
with them, and increased our oversight of overdraft activities, intervening
when necessary to detect and prevent consumer problems. By far, the
vast majority of our customers are very pleased with this new service,
and use the service as intended, on an occasional basis. We believe
this service provides an important courtesy to customers in good-standing.
We are in agreement
that some regulatory guidance is needed with this new consumer service.
We also agree that occasional overdrafts should
not be considered “credit”, and should not be governed
by the already far-too-complex rules of Regulation Z, which implements
the Truth-in-Lending Act. Florence Savings Bank is pleased to provide
the following comments relating to specific provisions of the proposed
Guidance.
1. Use of the Term “Best Practices”
The Guidance uses
the term “best practices” in proposing
the do’s and don’ts relating to overdraft protection services.
It is unclear how bank regulators will apply this new standard when
conducting examinations, or what protections would be provided for “best
practices” in a court of law.
2. Overdraft Charge-Offs After 30 Days
The Guidance specifically encourages comments on the subject of charging-off
overdraft balances within 30 days from the date first overdrawn. Our
current practice is to charge-off overdrawn balances between 45 days
and 75 days. The overdraft service is discontinued at 35 days. In addition
to the overdraft notice which is generated with the overdraft and mailed
to the customer on day one, the bank sends a series of letters to remind
the customer of the overdraft and actions the bank will take if payment
is not made. We believe this gives the customer every opportunity to
pay the overdraft balance in full. The 30 day proposed time frame/single
notice seems arbitrary and not in the best interest of the customer,
who is faced with the consequences of losing his/her checking account
and reported to a consumer reporting agency.
3. Reporting
Available Amounts as “Unused Commitments”
The Guidance proposes
that banks report available amounts routinely communicated to customers
as “unused commitments” subject
to risk-weighting. As the overdraft protection service is discretionary,
the bank can discontinue the service to customers at any time. This
item caused us to question the degree to which safety and soundness
concerns are addressed and implied in this proposal. The proposal erroneously
assumes that all customers could inadvertently overdraw their accounts
for the full overdraft amount simultaneously. We see no reasonable
justification for this added reporting.
4. Disclosing the Dollar Amount of Overdraft Protection Fees
The Guidance proposes
that banks disclose clearly the amount of the overdraft protection
fee
in its overdraft protection program materials
or other communications that disclose the program’s availability.
A standard practice in banking, which is permitted under Regulation
DD (Truth-in-Savings Act) and other deposit related regulations is
to allow
banks to reference the bank’s fee schedule as the source to determine
the specific amount of each fee. Further, Regulation DD requires the
bank to notify customers of any changes in fees. Use of language referencing
the fee schedule is intended to minimize costs associated with reprinting
and re-mailing numerous documents (rather than the fee schedule) when
fees change.
5. Disclosing the Order in Which the Bank Pays Checks and Other Items
The Guidance proposes that banks clearly disclose the order in which
the bank pays checks or processes other transactions, such as ATM debits
and point-of-sale transactions. The various delivery channels used
by banks, all of which have varying cutoff times and processing methods
would seem to make this an exercise in futility, and would seem to
provide no benefit to the consumer.
6. Obtaining Affirmative Consent of Consumers to Receive Overdraft
Protection
Because the overdraft protection service is so automated, preference
would be to automatically provide the service on a discretionary basis
to eligible customers. We agree that an opt-out provision should be
provided to all customers when they become eligible to receive overdraft
protection services.
7. Prominently Distinguish Actual Balances from Overdraft Funds Availability
We agree with the
practice of excluding the overdraft protection limit from the customer’s
balance.
8. Promptly Notify Consumers Each Time Overdraft Protection is Used
It is standard banking practice to provide prompt notice to consumers
when a check is paid or returned for insufficient funds. To include
all information proposed in the initial notification would be difficult
due to the size of the standard NSF notice. The proposed information
can be provided in reminder notices which are mailed subsequent to
the initial notice.
9. Disclosing Total Monthly Overdraft Fees and YTD Overdraft Fees
on Statements
The proposed amendments to Regulation DD (Truth-in-Savings Act) which
relate to the printing on account statements of the total amount of
overdraft fees assessed for the statement cycle and for the year-to-date
seems irregular when this practice is not currently required for any
other service fees. Again, the overdraft protection service is intended
to provide for occasional inadvertent overdrafts for customers in good
standing. Banks presently provide and NSF notice and itemize the fees
charged on the account statement. In light of this, totaling fees seems
redundant and unnecessary.
Again, we thank you for the opportunity to comment on the Proposed
Overdraft Protection Guidance.
Sincerely,
Margaret M. Murray
Vice President
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