Comments – Overdraft Protection Programs
Peoples Bank & Trust (PB&T) has reviewed the newly published
Interagency Guidance on Overdraft Protection programs, published in Volume
69, Number 109 of the Federal Register on June 7, 2004. Comments to these
proposed guidelines are due back to any of the agencies before August
6, 2004. Peoples Bank & Trust was pleased to see that the majority
of the requirements and best practices are already being followed in
financial institutions utilizing the Impact Overdraft Privilege Service.
However, there are a few areas which we believe are worthy of comment
and they are as follows:
1. Charge Off Overdrafts at 30 days:
Peoples Bank & Trust has considered this issue and with Impacts
recommendation, has created a collection process designed to minimize
losses to Peoples Bank & Trust while still focusing on customer retention.
This process is designed to make systematic contact with the customers
and determine which customers wish to cure their negative balance and
which are deserving of being charged off. This process has been used
for quite some time and we believe that it efficiently manages the risk
to our bank. Accordingly, PB&T would advocate that overdrafts be
allowed up to an aging of sixty (60) days prior to charging off an
overdraft but in no event less than forty-five (45) days as regulations
currently
require.
2. Unused Commitment Reporting:
The proposed guidelines provide that the amount of unused commitments
should be reported in regulatory reports when an institution routinely
communicates the available amount of overdraft protection. Impact has
advocated loss reserves be maintained by PB&T and that these reserves
be based on the historical performance of the overdraft protection service.
However, reporting in the manner suggested by the guidelines would, in
PB&T opinion, greatly overstate the risks associated with this
product.
3. Notices Upon First and Subsequent Overdrafts:
The proposed regulations suggest that notices be provided containing
certain specific information upon the first overdraft paid under the
service as well as later uses of the privilege. PB&T would not argue
that a notice should be issued promptly upon an overdraft being created.
However, the systems which financial institutions frequently use do not
accommodate inclusion of the type of additional information suggested
by the guidelines. Accordingly, PB&T would suggest that this suggestion
be deleted.
4. Repayment plans:
The guidelines suggest that repayment arrangements which are formalized
between a depositor and a bank should be charged off when the underlying
overdraft has aged past thirty (30) days. PB&T has experienced a
high degree of success in utilizing repayment plans and find that they
provide an additional safety net for the customers. These repayment arrangements
also produce a small degree of risk during the period in which they are
being paid according to their terms. Accordingly, PB&T would suggest
that current and performing repayment plans not be charged off.
