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Devon Bank
From: John Dabrowski
Sent: Friday, August 06, 2004 12:04 PM
To: Comments
Subject: Joint Agency Notice - Overdraft Protection Programs
August 5, 2004
Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429
Dear Mr.. Feldman:
Devon Bank has reviewed the newly published Interagency Guidance
on Overdraft Protection Programs, published in volume 69, number
109 of the Federal Register on June 7, 2004. Devon Bank currently
follows many of the best practices recommended in the guidelines.
Following are a few areas we believe are worthy of comment.
CHARGE OFF OVERDRAFTS AT 30 DAYS
Devon Bank uses a collection process designed to make systematic
contact with the customer and determine which customers wish to cure
their negative balance and which are deserving of being charged off.
The process has been used for quite some time and we believe it efficiently
manages the risk to our bank. Accordingly, we would advocate that
overdrafts be allowed up to an aging of sixty (60) days prior to
charging off an overdraft but in no event less than forty-five (45)
days as credit union regulations currently require.
UNUSED COMMITMENT REPORTING
The proposed guidelines provide that the amount of unused commitments
should be reported in regulatory reports when an institution routinely
communicates the available amount of overdraft protection. Daily
balances of customers who have overdrawn balances under the overdraft
protection plan are less than 1% of the available commitments. Reporting
in the manner suggested by the guidelines would appear to greatly
overstate the risks associated with this product. We advocate loss
reserves be maintained that are based on historical performance of
the overdraft protection service.
FREE ACCOUNT DISCLOSURES
Financial institutions have enjoyed great success through marketing
Free Accounts. These accounts have proven equally valuable for a
large segment of depositors. However, it would appear to be common
sense that overdraft fees can be charged on the account under certain
circumstances as are other fees when they are set out in detail in
the depository agreement. We advocate allowing free account advertising
with overdraft protection when conspicuous disclaimers are included
in the communication that make clear that other restrictions may
apply.
NOTICES UPON FIRST AND SUBSEQUENT OVERDRAFTS
The proposed regulations suggest that notices be provided containing
certain specific information upon the first overdraft paid under
the service as well as later uses of the privilege. Devon Bank does
not argue that a notice should be issued promptly upon an overdraft
being created. However, the many systems which financial institutions
use do not accommodate inclusion of all the additional information
suggested by the guidelines. Accordingly, we suggest that this suggestion
be deleted.
REPAYMENT PLANS
The guidelines suggest that repayment arrangements which are formalized
between a depositor and a bank should be charged off when the underlying
overdraft has aged past thirty (30) days. Devon Bank has experienced
a high degree of success in utilizing repayment plans and find that
they are an additional safety net for the customer. These repayment
arrangements also produce a small degree of risk during the period
in which they are being paid according to their terms. Accordingly,
we would suggest that current and performing repayment plans not
be charged off.
Thank you for allowing us the opportunity to present our concerns.
Sincerely,
John J. Dabrowski
Sr. Vice President & Chief Financial Officer
Devon Bank
6445 N. Western Ave.
Chicago, IL 60645
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