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OHIO VALLEY BANK COMPANY
The Ohio Valley Bank Company
420 Third Avenue
Gallipolis, OH 45631
July 29, 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
Dear Mr. Feldman:
This comment letter is submitted on behalf of Ohio Valley Bank
Company, Gallipolis, Ohio in response to the FFIEC request for comment
on the Proposed Guidance on Overdraft Protection Programs.
Ohio Valley Bank is a $700 million dollar community bank. We began
offering Pinnacle Financials’ Bounce Protection Program in October,
2000. This privilege has been well received by our customer base.
We commend the FFIEC Agencies for their joint effort in proposing
Best Practices regarding ODP programs. While we agree with most of the
Best Practices, we do have some concerns about some of the proposed
guidance.
Safety & Soundness Considerations
The Guidance establishes a clear safety and soundness standard that
overdrafts must be charged-off within 30 days.
Comment: Currently, our bank charges off overdrawn accounts after 60
days regardless of whether or not a customer utilizes our Bounce
Protection Program. At the time of the overdraft, we notify the customer
of the overdraft amount and related fee for the NSF item. During the 60
day period, we send a series of letters encouraging the customer to
bring their account to a positive balance.
We do not feel that a mandatory charge-off period of 30 days would
prove beneficial to the consumer. To the contrary, this is ‘consumer
unfriendly’. Based on the customer’s circumstances, i.e. illness,
travel, timing of receiving their paycheck, maybe in between jobs, etc.,
30 days may not be an adequate amount of time for the customer to bring
their account positive. This could result in a premature charge off with
resulting problems and inconveniences for the consumer.
This guidance covers accounts that participate in ODP programs. It
would appear that under the guidance, accounts that do not participate
in an ODP program could continue to be charged off after 60 days (or
whatever timeframe the bank decides). This presents an operational issue
as well as not treating all consumers the same with respect to the
timing of charging off overdrawn checking accounts.
We suggest this guidance be revised to permit a longer charge off
policy than the proposed 30 days and recommend that 60 to 90 days would
allow for a reasonable collection of an overdrawn deposit account.
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.
Comment: We monitor our overdraft losses on a monthly basis and make
provision as appropriate.
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.
Comment: We feel these reporting requirements should be reserved only
for contractually binding obligations such as traditional overdraft
lines of credit or other formalized credit facilities.
Legal Risks
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.
Comment: While we agree with the Best Practices approach, we are
concerned that examiners may use this Best Practice as a checklist with
resulting criticisms on a line by line basis.
We would recommend that when we are examined for compliance, the
examiners should look at the complete program and take into
consideration management’s reasons for not implementing a suggested
‘Best Practice’.
The technological abilities to comply with certain ‘Best Practices’
should also be taken into consideration when reviewing the bank’s
program.
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.
Comment: We agree.
• 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.
Comment: We agree with the training practices suggested above. Please be
aware that not all banks offer a full suite of overdraft products.
• 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.
Comment: Again, please be aware that not all banks offer a full suite
of overdraft products.
• 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.
Comment: Generally, overdraft items are paid if the account is in
good standing (account is brought to a positive balance within 30 days)
and the overdraft is within the established limit. If not, the overdraft
privilege on the account may be suspended.
This explanation should be adequate. Providing a more detailed
definition could be conceived as a contractual agreement, which would be
in conflict with the discretionary aspects of the program.
• 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.
Comment: We agree.
• 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.
Comment: We agree.
• 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.
Comment: We agree.
• 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.
Comment: We agree.
• 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).
Comment: We are a ‘pay all’ bank. This means that during nightly
processing, we automatically post all debits regardless of the balance
in the account. The next day, a clerk reviews the items contributing to
the overdraft balance and generally pays items low to high, while
taking into consideration ACH transactions, ATM and point-of-sale
transactions, as well as checks that have been cashed at the teller
window, automatic transfer payments made on loans, etc. and third party
checks presented for payment. This review is done on a discretionary
basis. Providing further definition to the customer would lend towards
making the payment of items a contractual agreement which could make the
bank libel, if we should deviate from published payment methods.
• 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.
Comment: We agree and currently do 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.
Comment: We currently provide the customer with an option to ‘opt
out’ at new account opening; again, when the privilege is granted; and
at any time the customer wishes to cease using the privilege. We do
not agree that we should obtain affirmative consent from the
customer. Doing so could mislead the customer to think they will
receive the privilege, when in actuality; they may receive the
privilege, if the account is in good standing.
• 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.
Comment: Our ATM provider does not currently have the functionality
to inform the customer that continuing the transaction will access
overdraft limits with a resulting option to cancel. Most point-of sale
and ATM systems are driven by the same balance mechanisms. The
regulators should take this into consideration because it will be
impossible for the banks to comply with this requirement on
point-of-sale transactions. It may prove feasible for ATM transactions,
providing the ATM provider will make changes to support this
requirement.
Clearly, some customers prefer using ATM’s to withdraw cash, while
other customers prefer using their debit card for point-of-sale
transactions, while still others may prefer to write checks to complete
a transaction. Regardless of the method of payment chosen by the
consumer, we need to provide the same access to the overdraft privilege
for all customers.
Providing this functionality at the ATM is beyond our control.
Banks making a good faith effort to meet this requirement should not be
criticized.
• 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.
Comment: Since the implementation of the Bounce program by our bank
in 2000, we have included the Bounce limit in the balance printed
at the ATM. During the past four years, we have consistently educated
our customers concerning this practice. We disclose this on the
brochure given to the customer at account opening. We provide notice on
the bank owned ATM’s that Bounce limits may be included in the balance.
We print a message on all ATM receipts indicating the balance may
include the Bounce limit. We also print a message on the customer’s
statement to further inform them that, if they have Bounce, it is
included in the ATM balance.
We are working with our core software provider, as well as our ATM
switch provider, to enhance the balance reporting capabilities of the
system by printing two balances; the available balance and available
balance plus Bounce. Delivery of this enhancement is beyond our control.
As I mentioned earlier in my comments, the same balance mechanism is
used for ATM and point-of-sale transactions. To deviate from this
established practice would be a disservice to our customers who
choose to utilize the ATM for withdrawing cash and point-of-sale devices
in payment for merchandise, rather than issuing checks.
We do not feel we should be unduly criticized for including the
Bounce limit at the ATM and point-of-sale transactions. Rather, the
examiners should look at the efforts we have taken to inform our
customers concerning this practice. We do not feel this is an unfair
and deceptive practice considering the efforts we continually make
to inform our customers.
The statement ‘if more than one balance is provided, we should ‘prominently’
identify the balance without inclusion of overdraft protection’ suggests
perhaps printing in bold print. If that is the intent, please be aware
banks would be limited by the software/hardware capabilities of the
various ATM systems, perhaps resulting in an inability to comply with
this practice.
• 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.
Comment: We agree.
• 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.
Comment: We do not feel that limiting the number of overdrafts or the
dollar amount of fees charged each day should be dictated to the banks.
With respect to limiting the number of overdrafts in a given day,
please be aware that point-of-sale transactions may not be presented for
payment until several days later, with other debits preceding the
authorized transactions. This could result in exceeding a set limit of
overdrafts that would be honored. The bank does not have an option to
return point-of-sale transactions.
Generally, a customer who overdraws their account the first time and
accesses their Bounce limit, is accorded an opportunity to have the OD
fees waived by Bank policy and also is given the opportunity to ‘opt
out’ of the program. Subsequent charges are then the responsibility of
the customer and are assumed to be made with their full knowledge.
• 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.
Comment: There does not appear to be an easy method to comply with
this practice without adding significant costs to administering this
program. The term ‘excessive’ is subjective rather than definitive. What
could be considered excessive to one bank could be acceptable to
another.
Customers who are unsuccessful at managing their account and who
cannot bring the account to a positive balance are handled on an
individual basis. The customer is given an opportunity to enter our
‘Fresh Start’ program where they may have amounts automatically deducted
from their account to be applied to the overdraft balance, while
continuing to use their checking account without the Bounce privilege.
• 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.
Comment: We agree.
We respectfully submit our comments and thank you for the opportunity
to voice our concerns. If you have any questions, I may be reached at
740.446.2631, ext. 314.
Very truly yours,
Patricia L. Davis
Vice President, Research and Technical Applications
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