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Federal Register Publications

FDIC Federal Register Citations



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FDIC Federal Register Citations



LYON COUNTY STATE BANK

July 19, 2004

Robert E. Feldman, Executive Secretary
Attention: Comments/Executive Secretary Section
Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429

Dear Mr. Feldman:

RE: Overdraft Protection Guidance Comment
FIL 63-2004, dated June 7, 2004

We appreciate the opportunity to provide comment on the proposed Interagency Guidance on Overdraft Protection Programs. Our comments on the Proposal are outlined below.

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 organizations. This proposal does not take into consideration well-managed discretionary programs and the bank's ability to adequately risk assess that program. 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.

X. We disagree with the need for an "opt out" program or affirmative consent to receive a service that can only help the customer. The charge that is assessed when an item is paid is often the same as that charge for returning the item and would normally never equal the cost of a returned item plus the merchant's fee. Therefore we can find no reason that the customer would want their check returned rather than paid.

XI. We currently disclose the order of paying items (largest to smallest) but disagree with a more-detailed explanation regarding processing order by transaction type (e.g., transaction at the ATM or point-of-sale terminal) that would only confuse the customer.

XII. We disagree with the proposed additions to the overdraft notification. The amount of time consumers have to return their accounts to a positive balance and the consequences of not returning it to a positive balance within that timeframe have generally not been affected in any negative manner by overdraft protection programs. Therefore, we see no need to provide additional disclosures. When full disclosures are provided upon account opening it should be the consumer's responsibility to retain those disclosures and there should be no need to reiterate those terms when the service is accessed. Again, we find too much information to be more confusing than helpful.

As a community bank, we appreciate the opportunity to provide comments on this very important topic.

Sincerely,

Russ Bonitatibus
Vice President




Last Updated 07/30/2004 regs@fdic.gov

Last Updated: August 4, 2024