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BANK KANSAS July 21, 2004
Robert E. Feldman
Executive Secretary
Attention: Comments/Executive Secretary Section
FDIC
550 17th Street NW
Washington, DC 20429
RE: Overdraft Protection Guidance Comment
FIL 63-2004, dated June 7, 2004
Dear Mr. Feldman
We appreciate the opportunity to provide comment on the proposed
Interagency Guidance on Overdraft Protection Programs. Our comments on
the Proposal are outlined below.
I. To state that discretionary overdraft services are "new" is not
accurate. Almost every financial institution in the country offers, and
always has offered, a discretionary overdraft service. As a community
bank, we have always provided for overdrafts based on knowledge of our
customers and have established an internal set of standards designed to
facilitate the payment of overdrafts.
II. Even if a financial institution has the ability to "automate"
this service, it is still discretionary and all financial institutions
will be affected by regulatory changes. Therefore, the agencies are
cautioned to make changes that can be managed by the smallest financial
institutions as well as the largest.
III. We believe that the 30-day time frame for charge off of an
overdraft is too short. Our experience has shown that most consumers
will deposit sufficient funds to cover an overdraft within 45 days. To
establish a charge off time period imposes a one size fits all approach
that is simply not prudent in community banking organization. This
proposal does not take into consideration well-managed discretionary
programs and a financial institutions ability to assess their own risk.
We desire the flexibility to work with our customers as individuals.
IV. We disagree with reporting the available amount of overdraft
protection as "unused commitment". As defined, "commitment" implies an
agreement to assume a financial obligation at a future date.
Discretionary programs do not involve written agreements and are solely
for the accommodation of the customer. All materials and procedures show
that the payment of any overdraft is purely discretionary, therefore no
established commitment can be defined.
V. It is our opinion that financial institutions are very responsible
regarding the disclosure and education of any program offered, including
the discretionary payment of an overdraft. The industry has for some
time been very aware of the need for proper and full disclosure. Any
isolated problems should be dealt with on an individual basis by the
examing bodies and not as part of a global regulatory change that will
further burden the community banks.
VI. We do not believe that a discretionary overdraft program
encourages irresponsible behavior on the part of the consumer. The
American consumer has written checks in excess of their account balance
for as long as banks have been in business. A discretionary program,
rewards customers for their banking relationship and sound financial
practices as the overdrafts are paid based a set of circumstances unique
to the customer. A well-managed program will take into account a
consumer's financial problems and will prevent most customers from
becoming overdrawn beyond their ability to repay.
VII. We have also found that almost all eligible accounts are
provided discretionary coverage in community banks. We have not, nor do
we have knowledge of any financial institution that has "targeted" a
particular group of individuals. To say that discretionary overdraft
programs target low-income individuals is simply not factual.
VIII. We believe that consumers are given ample disclosure to fully
understand the cost of writing insufficient checks. As required under
various banking regulations, consumers are notified of fees when an
account is opened, in account brochures, on periodic statements and in
per-occurrence notices. To require financial institutions to alter their
periodic statements to provide additional information would be
burdensome and costly, especially to community banks that have
outsourced data processing.
IX. We disagree that there should be a cap on overdraft fees. Each
item that is paid avoids a number of possible additional fees or
negative information that could be imposed on a consumer, such as fees
assessed by the payee, late charges, derogatory credit history, or
collection charges. The fee paid to the financial institution for a
discretionary overdraft allows each community bank the ability to
continue providing a much-needed service to their customers.
As a community bank, we appreciate the opportunity to provide
comments on this very important topic.
Sincerely,
Lloyd Davidson
President
First Bank Kansas
235 South Santa Fe
Salina, KS 67402
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