BANK OF ASHEVILLE July 7, 2004 Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429 Dear Mr. Feldman: We are writing to comment on the new Interagency Guidance on Overdraft Protection Programs, published in Volume 69, Number 109 of the Federal Register on June 7, 2004. The Bank of Asheville contracts with IMPACT Financial Services, and we feel that the majority of the requirements and best practices are already being followed because of the IMPACT Overdraft Privilege Service. However, there are a few areas which we believe are worthy of comment, and they are as follows:
I. CHARGE OFF OVERDRAFTS AT 30 DAYS: The Bank of Asheville has considered this issue and has created a collection process designed to minimize losses to the Bank while still focusing on customer retention. This process is designed to make systematic contact with the customers and determine which customers wish to cure their negative balance and which are deserving of being charged off. This process has been used for four years, and we believe that it efficiently manages the risk of the financial institution. 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. This would also be customer friendly in that we would allow them the opportunity to repay before reporting a charge-off to the customer’s credit.
II. 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. The Bank of Asheville has advocated loss reserves be maintained by financial institutions and that these reserves be based on the historical performance of the overdraft protection service. However, reporting in the manner suggested by the guidelines would, in our opinion, greatly overstate the risks associated with this product.
III. FREE ACCOUNT DISCLOSURES We have enjoyed 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 fees can be charged on the account under certain circumstances which are set out in detail in the depository agreement. The Bank of Asheville would advocate allowing free account advertising with overdraft protection when conspicuous disclaimers are included in the communication that makes clear that other restrictions may apply.
IV. NOTICES UPON FIRST AND SUBSEQUENT OVERDRAFTERS: 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. The Bank of Asheville would not argue that a notice should be issued promptly upon an overdraft being created. However, the systems which financial institutions frequently use do not accommodate inclusion of the type of additional information suggested by the guidelines. Accordingly, The Bank of Asheville would suggest that this suggestion be deleted.
V. 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. The Bank of Asheville has experienced a high degree of success in utilizing repayment plans and find that we provide an additional safety net for the customers. These repayment arrangements also produce a small degree of risk during the period in which they are being paid according to their terms. Accordingly, The Bank of Asheville would suggest that current and performing repayment plus not be charged off. Thank you for allowing this time for comment. We trust this information will be helpful in your deliberation. Sincerely,
G. Gordon Greenwood
President cc: William B. Brady, President and CEO
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