Georgia Bank & Trust Co. of Augusta
August 2, 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:
We are pleased
to respond to the FDIC’s proposed guidance
for best practices for those financial organizations utilizing overdraft
protection programs. We appreciate being given the opportunity for
input into your guidance establishing industry standards for the
use of this service
Georgia Bank & Trust Co. of Augusta is a community bank of 700
+ million and the Bank has been offering an automated overdraft program
for over two years. We have found that our customer’s like
this service, use it to their advantage and as the program was designed:
to avoid having a check returned to a creditor or merchant. Our service
is offered to all consumers at the time of the account opening where
disclosures are provided that explain the service and under what
circumstances it will be activated. At the time of account opening
the customer is asked if they wish to have the service and if not,
are opted out. Additionally the disclosure given to all customers
when they open an account describes how the customer may opt out
of the service. The dollar limit for protection is assigned by product
type and the customer is fully informed of how the service can provide
the customer with the security that an occasional check that would
normally be returned can be paid instead. The fee for this service
is the same as it would be if the check were returned unpaid.
Safety & Soundness
Considerations
The Guidance establishes a clear safety and soundness standard that
overdrafts must be charged-off within 30 days. We feel that the approach
that we are using is somewhat more customer friendly. We are notifying
the customer through a series of letters over a seventy day period
that their account is overdrawn and deposits should be made in order
to correct this overdraft. If after this period the overdraft is
not cleared the account is charged off. At this point the account
is reported to ChexSystems if the balance is $100.00 or greater.
ChexSystems is a reporting service routinely used by the financial
institutions in our area. Prior to opening an account for a customer
this service is accessed and based upon criteria established by our
financial institution the customer is either offered an account or
is declined with appropriate disclosures provided.
If our practice
was to charge off the account after 30 days our customers who may
be able
to cover their overdraft would not be given
sufficient opportunity to do so. Some of our customers may have automatic
deposits into their accounts that are regularly received each month,
but may for some reason be delayed. Under the standards proposed
this customer’s account would be charged off before a deposit
could be made. Some customers are paid on a monthly basis and may
not be able to make a deposit into their account within the thirty
day window suggested.
Our financial organization would then be turning charged off information
over to ChexSystems and the customer might be put in the position
of being unable to obtain banking services elsewhere due to this
report.
It is our policy to provide the customer with a notice when the
customer first accesses the service. Each time a customer has a check
paid or returned whether under our overdraft protection program or
not, a notice is sent to the customer, identifying the item paid
or returned and the fee charged.
Under our overdraft
protection program if the customer remains overdrawn for twenty
consecutive
days a letter is sent to remind the customer
of the account’s status. At thirty days if the overdrawn status
has not been brought positive the overdraft protection service is
suspended and another letter is sent to the customer notifying of
this change in status. At fifty-five days a letter is sent advising
the customer again of the status of their account. At seventy days
the account is charged off and a letter is sent advising the customer
of this action. We feel this process of notifications allows a customer
appropriate opportunity to correct the overdrawn status and does
not unduly jeopardize the Bank’s safety or soundness by delaying
the charge off beyond thirty days.
When this product was originally started provision and reserve accounts
were established, in addition to accounts used to track losses and
recoveries. These accounts are closely monitored with their status
routinely reported to management. During the life of the use of our
program no increase in provision or reserves has been required. We
feel appropriate risk-based capital treatment of outstanding overdrawn
balances has been used under our procedures.
We do not feel that any available amounts not used but available
should be reported as unused commitments, as we have many customers
who have never used the service although it is available to them
and there is no written agreement such that the Bank is obligated
to pay any such overdrafts. Such reporting of this amount under this
recommendation would appear to be overstated.
Additionally we do object to being put into a category of financial
organization that would be required to treat these amounts as unused
commitment simply because the customer is informed of the amount
that can be used. It is our position that any reporting requirement
should be reserved for contractually binding obligations such as
the traditional overdraft lines of credit or other formalized credit
facilities.
Legal Risks
We are complying with all applicable laws and regulations.
Best Practices
Although we appear
to be following most of the best practices recommended, we feel
that
our program as it is functioning, based upon our experience
with the program, the modifications that we have made in the program
in consideration of factors learned from its implementation and continued
success of the program both for our customers and our bank that incorporation
of changes just to meet all of the best practices should not be necessary.
We suggest that any best practices suggested, be suggestions only.
That any program evaluated by examination teams continue to take
each bank’s administration of its program into consideration,
and not rate a program lacking simply because certain best practices
have been found not to be effective or in the best interest of the
bank and its customer base.
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.
We agree with this suggested practice and do not market our program
beyond its intended purpose.
• 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.
We agree with this suggested practice and do provide our customers
with full information in regards to all services and products that
we have available.
• 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.
We agree with this suggested practice and presently follow this
practice.
• 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.
We agree with this suggested practice and provide disclosures which
include this information.
• 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.
We agree with this suggested practice and do not market these two
products together, and do not overtly market our overdraft protection
program.
• 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.
We agree with this suggested practice and do provide this information
to our customers.
• 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.
We agree with this suggested practice and do provide this information.
• 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.
We agree with this suggested practice and do provide this information.
• 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).
We agree with this suggested practice.
• 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.
We agree with this suggested practice and are currently providing
all of this information.
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.
We agree with this suggested practice and do now ask our customers
if they wish to opt out. This information is also included in our
brochure on the service and in the disclosure provided at account
opening.
• 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.
We agree with this suggested practice however at present our technology
does not allow for any type of automated alert on ATM machines or
to POS providers. Both ATM and POS information is driven by the same
balance mechanism. We do post notices at our Bank owned ATMs to notify
customers, however, we have no control over non bank owned ATM disclosures
and have no way of notifying customers who use POS services as these
are usually provided in retail establishments.
• 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.
We do not disagree with this suggested practice however at present
our technology prevents us from being able to follow this practice
to its fullest detail. At present we can only provide one balance
for both ATM and POS transactions. We do have a notice up at our
Bank owned ATMs, our disclosures provide this information and the
brochure on this product also includes this information. As technology
allows this practice will be followed as best we can taking into
consideration that we cannot control other providers who may be using
this information such as non bank owned ATMs or for POS retail transactions.
As we provide information in multiple ways presently we do not feel
that our inability to provide this information in the manner suggested
should be misconstrued as an unfair or deceptive practice. We have
had no customer complaints implying such.
• 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.
We agree with this suggested practice and do as previously described
provide such notices.
• 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.
We do not disagree with this proposed suggested practice however
we are unsure how this could be implemented and still cover those
items that the customer prefers to have covered under our existing
program. We will take this under consideration.
• 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.
At present we do not have any reporting systems in place to accomplish
this suggested practice. We will take this under consideration.
• 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.
We agree with
this suggested practice. We do not report negative information
until the customer’s account is charged off. This
reflects back to a previous comment such that we give our customer’s
multiple notices prior to taking this action at the seventy day limit
when the account is charged off. We also evaluate each customer’s
situation in order to assist the customer in their efforts to pay
any amounts charged off and will work to amend any negatively reported
information when account is returned to good standing.
We appreciate being given this opportunity for input and for your
consideration of the information that we have provided in your decision
making process.
Sincerely,
Regina Mobley,
Group Vice President,
Bank Operations
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