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COMERICA
August 3, 2004
Office of the Comptroller of the Currency
250 E Street, SW
Washington, DC 20219
Docket No. 04-14
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th St. & Constitution Ave., N.W.
Washington, D.C. 20551
Docket No. OP-1198
Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
No. 2004-30
RE: Interagency Proposed Guidance on Overdraft Protection Programs
Dear Sirs and Mesdames:
The following comments
are provided on behalf of Comerica Bank, a $54 billion bank with offices
located in Michigan, California,
Florida, and Texas. The bank does not offer or market a "bounced
check protection" service, but does pay overdrafts for some
customers on a traditional discretionary basis and that practice
would be affected by adoption of the proposed Guidance. Comerica
appreciates the opportunity to comment of this important proposal.
OVERALL COMMENTS
We are troubled by the Guidance being issued the same day as extensive
revisions of Regulation DD-Truth in Savings are proposed by the Board
of Governors. To issue guidance on an issue that is significantly
influenced by a proposed regulation seems to be either too early
or too late. Guidance should be proposed after the regulation is
finalized or should have been proposed prior to proposing revisions
to the regulation. If the Guidance had been issued earlier, parts
of the regulatory amendment might well be unnecessary.
The issue
the Guidance attempts to address is driven by the substantial increase
in the
active marketing of "bounced-check protection." The
proposal expressly acknowledges that historically institutions have
not promoted this accommodation. That is where we believe the proposal
goes too far. It does not recognize that those institutions that
have not promoted this accommodation are causing no harm and, instead,
addresses the conduct of some as if it was the conduct of the entire
industry. This is evidenced by the proposal's assumptions as to the
characteristics that the Notice states overdraft programs have in
common.
We agree that the marketing of these programs needs attention. The
proposed guidance should be focused in that area.
PRINCIPAL ELEMENTS OF THE GUIDANCE
SAFETY AND SOUNDNESS CONSIDERATIONS
We certainly support the proposal's recognition of the need to incorporate
prudent risk management practices related to account eligibility,
repayment, and suspension. Our ad-hoc traditional discretionary process
incorporates these practices and has not created any issue of safety
and soundness.
However, we question the need for a prescriptive requirement of
charging-off within a 30 day period from the date first overdrawn.
The Uniform Retail Credit Classification and Account Management Policy
adopted by the Federal Financial Institutions Examination Council
on behalf of the banking agencies generally requires charge-off of
various types of retail credit past due 120 days or 180 days. In
the case of fraud, charge-off is required in 90 days after discovery.
Unsecured bankruptcy, under that Policy, requires charge-off within
60 days of receipt of notification of filing. It is not clear why
the banking agencies would propose a charge-off period for overdrafts
that is even shorter than for past retail credits, fraudulent loans,
and even bankruptcies. The likelihood of ultimate collection of any
overdraft certainly would seem, on the average, to be much greater
than that for a fraudulent loan or an unsecured loan to a bankrupt,
and, thus, a 30-day mandatory charge-off requirement seems draconian.
We do support the practice suggested in the proposed Guidance that
institutions should monitor carefully their programs on an ongoing
basis and adjust them as needed to account for risk. This is a sound
risk management process.
However, we disagree with the proposal's apparent premise that an
unmarketed ad-hoc discretionary traditional relation-based overdraft
payment program has the same risk as a marketed program. As the proposal
states, the existence of the traditional discretionary relation-based process has existed for many years. If one risk-ranks
the types of programs, one would certainly agree that a marketed
program that encourages overdrafts creates higher risk than a traditional
relation-based unmarketed ad-hoc process.
The bottom-line is that risk increases when a program is marketed
in a misleading manner. We respectively ask that you consider the
difference between a traditional unmarketed relation-based ad-hoc
process and a marketed program.
LEGAL RISKS
Overall we agree that legal risks must be considered. We have considered
those risks and chose not to market the overdraft product. We would
strongly suggest that regulatory and legal risk is much more prevalent
when an institution actively markets the product. A traditional relation-based
discretionary ad-hoc process does not raise the same level of regulatory
and legal risk. For example, active marketing programs increase the
risk of liability for misleading or deceptive acts.
BEST PRACTICES
Overall many of the proposed best practices appear to be true best
practices. However, we do question the following:
Opting Out:
With a truly marketed product, this may be feasible. However, we
believe the proposal fails to recognize the illogic of requiring
an opportunity to opt out in the case of an ad-hoc traditional discretionary
relation-based process that is not marketed that may not even be
available to the customer being offered the opportunity to opt out.
Apart from that irony, the cost of such an opt-out process will
be high in the case of many banks as it will have to be a manual
process in many cases. The benefit to be weighed against that cost
also is likely to be non-existent where, as here, the amount of the
overdraft fee equates to the amount of the return item fee, which
the customer would be forced to incur if the customer opts out of
the discretionary overdraft program.
Discretionary:
While we have no issue with the concept of not leading a consumer
to expect payment of an overdraft, we question why the agencies suggest
that a discretionary best practice is to tell the consumer customer
base in advance when overdraft payments will be made. In other words,
the non-marketed traditional discretionary relation-based overdraft
programs that many banks have would no longer really be discretionary
if the banks were to be required to adopt formal standards that they
are required to publish to their customer base.
Affirmative Consent:
We disagree that a best practice is to obtain an affirmative consent
of consumers to receive overdraft protection. Requiring such a process
will discourage the offering of non-marketed automated parameter-driven
traditional discretionary relation-based ad-hoc processes. This best
practice should be limited to truly marketed programs.
Specific Consumer Notice:
We question the
practicality of the "best practice" requiring
a notice of overdraft fees at ATMs and other access devices. The
issue is not a need for more disclosure, but the manner in which
the "bounced check" protection has been marketed. This "best
practice" would be extraordinarily burdensome, potentially rife
with privacy concerns (imagine a waiter returning with your debit
card and telling you its use to pay for a meal would overdraft your
account and asking you, in front of your guests, whether you wish
to proceed and pay a specified overdraft fee or a grocery clerk doing
the same thing), and is not the best way to address the issue at
this time.
OTHER THOUGHTS
It is somewhat
ironic, from the perspective of an offeror of an unmarketed traditional
relation-based discretionary program, that
this proposal seems to proceed in the premise that overdrafting deposit
accounts is some type of legal right that needs more protections.
We believe that there is considerable case law to the effect that
deposit customers have a duty to know the balance in their deposits
accounts and a duty not to overdraw such accounts. That case law
arises under state "uttering and publishing" statutes that
we believe most states have enacted as part of their criminal codes.
Those laws make it a crime to overdraft a deposit account intentionally.
It is in that context in which the instant proposal contemplates
giving customers of traditional discretionary overdraft programs
a right to opt in or out of intentionally overdrafting their accounts
(i.e. opting in or out of committing a crime).
CONCLUSION
We believe the proposed guidance is flawed in several ways. It does
not take into account the existence of non-marketed relation-based
traditional discretionary ad-hoc processes even though the Notice
acknowledges that this type of process has existed historically.
In addition, we believe the proposal needs to target the misleading
marketing of the product. It seems to do so in many aspects, but
unfortunately at the expense of the historical non-marketed relation-based
discretionary ad-hoc service.
Sincerely,
Julius L. Loeser
Chief Regulatory Counsel
Carl Edwin Spradlin, Jr.
First Vice President
Corporate Consumer Compliance Manager
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