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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