BERLIN CITY
BANK
August 6, 2004
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 federal agencies joint request
for comment concerning the Overdraft Protection Programs (ODP).
The Berlin City Bank (BCB) is a 100+ year old community
bank servicing central New Hampshire with an asset size of $399
million. BCB rolled
out Pinnacle’s “Bounce” overdraft privilege program
early this year. Very few customers opted not be included in the
program, and in fact, most customers are grateful that we provide
such a program.
We do agree with the agencies’ general approach in providing “Best
Practices” regarding ODP programs.
Safety & Soundness Considerations
The Guidance establishes a clear safety and soundness standard that
overdrafts must be charged-off within 30 days.
Pinnacle suggests 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. Pinnacle
supports
a longer charge off policy than the 30 days proposed and recommends
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.
Pinnacle encourages and we already monitor our overdraft losses
and make appropriate provisions. These amounts are also reported
to Pinnacle monthly and Pinnacle also monitors net losses for abnormalities.
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.
With this language in the Guidance, any “disclosed program” would
appear subject to the reporting requirement. It is our position
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
The Guidance appears to identify no new legal risks.
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.
Such language typically suggests that a failure
to comply with any individual best practice would not normally
be considered worthy
of an examination criticism as long as management had documented
its “consideration” of the practice and demonstrated
good reasons for not implementing it. It is a concern that some examiners
may 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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).
• 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, telephoneinitiated 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.
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.
• 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. 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 Pinnacle
best practice follows this Guidance, 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.
Thank you for your consideration of the comments contained in this
letter.
Very truly yours,
THE BERLIN CITY BANK
BY: Sharon L. Davis, VP
Compliance Officer
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