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STATE OF WASHINGTON
Department of Financial Institutions
August 5, 2004
Robert E. Feldman, Executive Secretary
Federal Deposit
Insurance Corporation
550 17th Street, NW. Washington, DC 20429
E-Mail:
Comments@FDIC.gov
Attention: Comments
Subject: Proposed Guidance
on Overdraft Protection Programs Federal Register, June 7, 2004 (Volume
69, Number 109, Pages 31858-31864)
Dear Mr. Feldman:
The Washington
State Department of Financial Institutions (“DFI”)1 is
pleased to comment on and generally supports the interagency proposed
guidance on overdraft protection programs (“Proposed Guidance”)2
issued by the members of the Federal Financial Institutions Examination
Council (“FFIEC”). The Proposed Guidance, including the “Best
Practices” section, provides the appropriate balance between
protecting consumers and providing flexibility to the financial institutions
offering overdraft protection programs.
In the summer of 2003, DFI
undertook an examination of the industry’s practices of overdraft
protection programs in Washington State. The results of that study
revealed that 17% (29 out of 170 state banks and credit unions regulated
by DFI) were offering overdraft protection programs, and another
14% were considering starting such a program. On February 26, 2004,
DFI issued its own Guidance and Best Practices for Overdraft
Protection Programs, which reflects in greater detail some of the concurring
views we express in this letter. In the interest of protecting all
account holders in Washington State, DFI appreciates the members
of the FFIEC issuing the Proposed Guidance to all federally insured
financial institutions.
It is important for financial
institutions to incorporate safety and soundness considerations,
legal risk analysis, and industry “best practices” into
their overdraft protection programs. The Proposed Guidance, which
includes “best practices,” provides an appropriate balance
between protecting consumers and providing flexibility for the financial
institutions offering this product.
DFI would like to underscore
the importance of four of the FFIEC’s proposed best practices.
Fairly Represent Overdraft Protection Programs and Alternatives
1.
DFI concurs with the FFIEC that financial institutions should fairly
represent overdraft protection programs and their alternatives for
customers. We found excellent examples of banks and credit unions
explaining less costly alternatives to an overdraft protection program
as a part of normal cross-selling. In addition, they also offer consumer
education, such as budgeting and making smart credit choices. Financial
institutions may spend less money on collections and receive quicker
repayment when consumers understand their overdraft protection program.
Prominently Distinguish Actual Balances from Overdraft Protection
Funds
2. The FFIEC Proposed Guidance to “prominently distinguish
actual balances from overdraft protection funds availability” is
a critical distinction. We are heartened that, with respect to electronic-enabled
transactions, the Proposed Guidance emphasizes showing the actual
balance at an ATM, point of sale terminal, on-line bill pay screen,
and in the case of an ACH transaction. We are also supportive of
the position of the FFIEC that, if the available balance is displayed,
the overdraft protection amount should not be added to the available
balance. By providing the customer’s actual balance, consumers
are less likely to inadvertently trigger an overdraft. In addition,
such a practice will facilitate quicker analysis of overdraft activity
problems, thereby permitting suspension of overdraft protection or
account closure when necessary. Because electronic transactions do
not provide an advance warning about triggering an overdraft, it
is particularly important to show the actual balance.
Opt-Out of
Service
3. The Proposed Guidance on “opt-out” is beneficial
for financial institutions and customers alike. Because financial
institutions do not underwrite each checking account for their overdraft
protection program, customers (who know their overdraft tendencies
or repayment limitations) may elect the “opt-out” feature.
Therefore, the financial institution may have a smaller amount to
collect (e.g., NSF fees, instead of the overdraft protection program
fee and the overdraft amount).
Notify Consumers of Each
Day’s Overdraft Protection Program Usage
4. The Proposed Guidance
recommends promptly notifying consumers when overdraft protection
has been accessed. Financial institutions typically provide an automated
notice to their customers when a NSF has been charged. The same procedures
should be available for the overdraft protection program, since payment
of an overdraft will likely incur a larger debt than the NSF fee
owed to the financial institution. If the overdraft was inadvertent,
a consumer may repay immediately. Also, with the emerging problem
of identity theft, the consumer may be able to immediately work with
the financial institution to prevent further loss due to fraud.
In
addition to the four proposals set forth above, DFI also supports
the FFIEC’s other proposed “best practices” namely:
• Fairly
market overdraft protection programs.
• Provide staff training
on marketing the programs.
• Expand consumer education.
• Avoid
promotion of poor account management.
• Provide advance warnings
when non-check transactions trigger fees.
• Consider daily
fee limits.
We look forward to final guidance from the FFIEC. In
the meantime, if you would like further information regarding our
analysis, examination, and guidance, please feel free to contact
David G. Kroeger, Director of the Division of Banks for the Washington
State Department of Financial Institutions at (206) 956-3229 or (360)
902-8747, or via email at dkroeger@dfi.wa.gov.
Sincerely,
Helen P.
Howell Director
_____________________
1 DFI provides regulatory oversight for Washington State’s financial
service providers, including banks, credit unions, mortgage brokers,
consumer loan companies, and securities issuers and salespersons.
2 While
this letter is addressed to the Federal Insurance Deposit Corporation
(“FDIC”), we recognize that the same Proposed Guidance was
issued by the Board of Governors of the Federal Reserve System [Docket
No. OP-1198], the National Credit Union Administration (“NCUA”),
the Office of the Comptroller of the Currency (“OCC”) [Docket
No. 04-14], and the Office of Thrift Supervision (“OTS”)
[Docket No. 2004-30].
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