Federal Deposit
Insurance Corporation

Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, DC 20429

Via e-mail: Comments@FDIC.gov

Subject: Proposed Guidance with Request for Comment
Interagency Guidance on Overdraft Protection Programs

We are pleased to respond to the Board of Governors’ of the Federal Reserve System request for comments concerning the proposed changes to Federal Reserve Regulation DD.

Citizens Union Bank, Shelbyville, KY offers the Pinnacle Financial Strategies Bounce Protection automated overdraft protection program (the “Program”) to each of its personal checking account (deposit) customers who have qualified. This program is a convenient way for our customers to protect themselves in case of an accidental overdraft or emergency expense. Responses from our customers have proven to be extremely favorable to the program. These include the avoidance of the embarrassment of a returned check and the avoidance of additional charges by merchants. For no more than a standard NSF/overdraft fee, this Program helps to protect their credit ratings and their relationship with other businesses. When we were increasing the amount of our benefit recently, we even had customers inform us of their disappointment in not getting that increase sooner.

We believe our Program is in concurrence with the Federal Reserve Agency’s general approach in providing best practices regarding an ODP program.

Safety & Soundness Considerations

The Guidance establishes a clear safety and soundness standard that overdrafts must be charged-off within 30 days.

CUB promotes a customer-friendly approach that’s based on safety and soundness standards requiring prompt notifications to the customer of the overdraft and an encouragement to bring the account to a positive balance as soon as possible. We support a longer charge off policy than the 30 days proposed and recommend that 60 or 90 days would allow for the reasonable collection of a depositor account. The NCUA regulations already contain a charge off requirement for overdrafts using a 45 day rule which is also longer than the 30 days suggested.

Institutions should adopt rigorous loss estimation processes to ensure that any allowances related to earned fees reflect all estimated losses and that earned but uncollected fees are accounted for accurately.

CUB already monitors overdraft losses and makes appropriate provisions. We also have the option of dropping customers from the Program at any time.

When an institution routinely communicates the available amount of overdraft protection to depositors, these available amounts should be reported as "unused commitments" in regulatory reports. The Agencies also expect proper risk-based capital treatment of outstanding overdrawn balances and unused commitments.

We feel that this reporting requirement should be reserved only for contractually binding obligations such as traditional overdraft lines of credit or other formalized credit facilities.

Legal Risks

We see no additional changes in this and therefore have no comment.

Best Practices

Institutions that establish overdraft protection programs should take into consideration the following practices that have been implemented by institutions and that may otherwise be required by applicable law.

Our concern is that this language may be problematic because examiners might use the individual Best Practices as a checklist to determine compliance with the Guidance using a “line-by-line” approach rather than as a general guideline for best practices worthy of management consideration.

Marketing and Communications with Consumers

• Avoid promoting poor account management. Do not market the program in a manner that encourages routine or intentional overdrafts; rather present the program as a customer service that may cover inadvertent consumer overdrafts.

We already comply with this.

• Fairly represent overdraft protection programs and alternatives. When informing consumers about an overdraft protection program, inform consumers generally of other available overdraft services or credit products, explain to consumers the costs and advantages of various alternatives to the overdraft protection program, and identify for consumers the risks and problems in relying on the program and the consequences of abuse.

We already comply with this.

• Train staff to explain program features and other choices. Train customer service or consumer complaint processing staff to explain their overdraft protection program's features, costs, and terms, including how to opt out of the service. Staff also should be able to explain other available overdraft products offered by the institution and how consumers may qualify for them.

We already comply with this.

• Clearly explain discretionary nature of program. If the overdraft payment is discretionary, describe the circumstances in which the institution would refuse to pay an overdraft or otherwise suspend the overdraft protection program. Furthermore, if payment of overdrafts is discretionary, information provided to consumers should not contain any representations that would lead a consumer to expect that the payment of overdrafts is guaranteed or assured.

We already comply with this.

• Distinguish overdraft protection services from "free" account features. Avoid promoting "free" accounts and overdraft protection services in the same advertisement in a manner that suggests the overdraft protection service is free of charges.

We already comply with this.

• Clearly disclose program fee amounts. Marketing materials and information provided to consumers that mention overdraft protection programs should clearly disclose the dollar amount of the overdraft protection fees for each overdraft and any interest rate or other fees that may apply. For example, rather than merely stating that the institution's standard NSF fee will apply, institutions should restate the dollar amount of any applicable fees in the overdraft protection program literature or other communication that discloses the program's availability.

We do not market this Program, and our disclosures do state that we charge our standard NSF fee, which we verbally inform them of at the time. We do not state the dollar amount, so that if these fees do ever increase, the disclosures will remain the same.

• Clarify that fees count against overdraft protection program limit. Consumers should be alerted that the fees charged for covering overdrafts, as well as the amount of the overdraft item, will be subtracted from any overdraft protection limit disclosed, if applicable.

We already comply with this.

• Demonstrate when multiple fees will be charged. Clearly disclose, where applicable, that more than one overdraft protection program fee may be charged against the account per day, depending on the number of checks presented on and other withdrawals made from the consumer's account.

We already comply with this

• Explain check clearing policies. Clearly disclose to consumers the order in which the institution pays checks or processes other transactions (e.g., transactions at the ATM or point-of-sale terminal).

We already comply with this.

• Illustrate the type of transactions covered. Clearly disclose that overdraft protection fees may be imposed in connection with transactions such as ATM withdrawals, debit card transactions, preauthorized automatic debits, telephone initiated transfers or other electronic transfers, if applicable. If institutions' overdraft protection programs cover transactions other than check transactions, institutions should avoid language in marketing and other materials provided to consumers implying that check transactions are the only transactions covered.

We already comply with this.

Program Features and Operation

• Provide election or opt-out of service. Obtain affirmative consent of consumers to receive overdraft protection. Alternatively, where overdraft protection is automatically provided, permit consumers to "opt out" of the overdraft program and provide a clear consumer disclosure of this option.

We already comply with this.

• Alert consumers before a non-check transaction triggers any fees. When consumers attempt to use means other than checks to withdraw or transfer funds made available through an overdraft protection program, provide a specific consumer notice, where feasible, that completing the withdrawal will trigger the overdraft protection fees. This notice should be presented in a manner that permits consumers to cancel the attempted withdrawal or transfer after receiving the notice. If this is not possible, then post notices on proprietary ATMs explaining that withdrawals in excess of the actual balance will access the overdraft protection program and trigger fees for consumers who have overdraft protection services. Institutions may make access to the overdraft protection program unavailable through means other than check transactions.

This section appears to recognize limited availability of ATM providers that can provide such programming, and allows for the posting of signs at bank owned ATMs. The Guidance does not, however, address POS terminals, most of which are located in retail stores throughout the country. The absences of clear guidance concerning the inability of institutions to provide advance notice to consumers at POS may create an expectation that institutions should not make ODP available at POS locations. Please be reminded that, in most cases, the ATM and POS systems are driven by the same balance mechanisms. Clearly, customers want access to their ODP limits at these locations, so regulatory forbearance is needed until technology catches up with new banking products.

• Prominently distinguish actual balances from overdraft protection funds availability. When disclosing an account balance by any means, the disclosure should represent the consumer's own funds available without the overdraft protection funds included. If more than one balance is provided, separately (and prominently) identify the balance without the inclusion of overdraft protection.

This suggests that the only balance that should be displayed is the balance reflecting the “customer’s own funds available without the overdraft protection funds included.” While our best practice follows this Guidance, we are concerned that some examiners are using this new paragraph to criticize smaller institutions that can only provide a Positive Balance File (PBF) to the POS and ATMs. While we support this best practice, we are again requesting forbearance for the smaller institutions that lack the ability to provide more than one balance without incurring significant expenses. In these instances, we believe that institutions that make good faith efforts to notify customers by providing notices on their bank owned ATMs, using pre-printed receipts for balance inquiries advising of their limit inclusion, and by providing clear prior disclosures, should be allowed to continue providing ODP at their ATM without undue criticism.

We are also generous in refunding fees for first time charges to customers who might not fully understand how the Program works.

• Promptly notify consumers of overdraft protection program usage each time used. Promptly notify consumers when overdraft protection has been accessed, for example, by sending a notice to consumers the day the overdraft protection program has been accessed. The notification should identify the transaction, and disclose the overdraft amount, any fees associated with the overdraft, the amount of time consumers have to return their accounts to a positive balance, and the consequences of not returning the account to a positive balance within the given timeframe. Institutions should also consider reiterating the terms of the overdraft protection service when the consumer accesses the service for the first time. Where feasible, notify consumers in advance if the institution plans to terminate or suspend the consumer's access to the service.

We already comply with this.

• Consider daily limits. Consider limiting the number of overdrafts or the dollar amount of fees that will be charged against any one account each day while continuing to provide coverage for all overdrafts up to the overdraft limit.

We consider and often refund fees, if we see excessive charges, and believe that the customer may not understand the Program completely.

• Monitor overdraft protection program usage. Monitor excessive consumer usage, which may indicate a need for alternative credit arrangements or other services, and should inform consumers of these available options.

We already comply with this.

• Fairly report program usage. Institutions should not report negative information to consumer reporting agencies when the overdrafts are paid under the terms of overdraft protections programs that have been promoted by the institutions.

We already comply with this.

In closing, I would like to thank you for the opportunity to comment on this proposed change. If you have any questions, please contact me at your convenience.

Respectfully submitted,

Billie W. Wade
President/CEO