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METAIRIE BANK & TRUST COMPANY
From: hayleyr [mailto:RHayley@metairiebank.com]
Sent: Tuesday, July 20, 2004 11:15 AM
To: Comments
Subject: Overdraft Protection Program
July 20, 2004
Robert E. Feldman
Executive Secretary
Attention: Comments/Executive Secretary Section
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Re: Overdraft Protection Guidance; Docket Nos. OP-1198, 04-14,
2004-30
Dear Mr. Feldman:
This comment letter is submitted on behalf of Metairie Bank & Trust
Company in response to the notice of proposed guidance (“Proposed
Guidance”) and request for public comment by the Federal Reserve Board
(“FRB”), Office of the Comptroller of the Currency (“OCC”), Federal
Deposit Insurance Corporation (“FDIC”), Office of Thrift Supervision (“OTS”),
and National Credit Union Administration (“NCUA”), published in the
Federal Register on June 7, 2004. The Proposed Guidance is intended to
assist depository institutions in the disclosure and administration of
overdraft protection services. Metairie Bank & Trust Company appreciates
the opportunity to comment on this important matter.
The Proposed Guidance provides that “overdraft balances should
generally be charged off within 30 days from the date first overdrawn.”
With regard to federal credit unions, a 45-day period generally applies
under existing rules that apply to those entities. The Proposed Guidance
also states that even if an institution allows a consumer to cover an
overdraft through an extended payment plan, the 30-day charge-off
provision would apply. We disagree with this proposal, and believe that
it is not necessary to achieve safe and sound banking practices and also
could adversely impact consumers. Most consumers seek to repay
overdrafts as quickly as possible. Banks actively pursue the prompt
payment of overdrafts through the use of written and oral notices to
consumers. However, numerous circumstances can arise in which consumers
simply are unable to repay overdrafts in full within 30 days of the
overdraft. If an account must be charged off within 30 days, it can be
more difficult to collect payment for such amounts. Alternatively, if an
institution is not required to charge off an account until day 45, the
likelihood of collection in that “additional” 15-day period can be
enhanced because consumers may be far more willing to pay a sum before
it is charged-off. Thus, we believe adoption of a 45-day charge off
period, which also would be consistent with the time period that applies
to federal credit unions, could enhance the ability of institutions to
collect overdrafts and actually enable better risk management practices.
The Proposed Guidance also provides that, with respect to reporting
requirements, overdraft balances should be reported as loans and
overdraft losses should be charged against the allowance for loan and
lease losses. The Proposed Guidance also states that when an institution
routinely communicates the available amount of overdraft protection to
depositors, the amounts should be reported as “unused commitments” in
regulatory reports. We respectfully disagree with this approach and
believe that it is more appropriate to net overdraft balances against
deposits because no agreement exists with respect to the overdrafts.
Furthermore, negative balances occur daily at institutions, without
regard to overdraft protection programs, and these balances are not
classified as loans nor are they subject to immediate charge-off
policies. We believe that overdraft balances should be treated the same
way. In addition, to the extent these balances are not treated as loans,
available amounts also should not be reported as “unused commitments” in
regulatory reports.
The Proposed Guidance states that when overdrafts are paid, credit is
extended. We disagree with this statement. Courts have reviewed this
question and have generally concluded that an overdraft is not credit
under the Truth in Lending Act, unless it is a line of credit
established by written contract. There does not appear to be any reason
to include this statement since the guidance implicitly notes that
overdrafts are not covered by Regulation Z because the fees are not
considered finance charges. Finally, the FRB’s recent proposed
amendments to Regulation DD, which solely covers deposit accounts and
not credit, makes it clear that overdraft programs are not credit.
The Proposed Guidance states that the prohibition in the Equal Credit
Opportunity Act (“ECOA”) against discrimination “applies to overdraft
programs.” While we believe that institutions should not discriminate
against persons on the basis of race and other factors, we do not
believe that the ECOA should be deemed to apply to overdraft programs.
In particular, the ECOA applies to credit extensions and credit is
defined as the “right” granted by a creditor to a person to defer
payment of debt. The overdraft programs described by the Agencies do not
involve a “right” granted by institutions. Also, as discussed above,
because overdraft programs are part of deposit accounts, as the FRB’s
recent amendments to Regulation DD provide, these programs also cannot
be deemed credit. For these reasons, we believe that ECOA does not apply
to overdraft programs.
As for the suggestion that institutions “explain to consumers the
costs and advantages of various alternatives to the overdraft protection
program” and identify the risks and problems in relying on the program
and the consequences of “abuse”, we believe this suggestion
micro-manages the way in which, and customers to whom, institutions
provide information, and is unnecessary. In addition, providing a
detailed cost-benefit analysis of the alternatives to overdraft programs
could require the creation of a lengthy and complicated document.
Institutions make available significant information about their products
and services, including lines of credit and other products. This
information is made available through numerous channels, such as their
websites, via telephone, and in branches. It is simply unnecessary and
inappropriate for the Agencies to dictate the marketing approaches used
by institutions. As a result, we recommend deletion of this provision.
We also oppose the inclusion of the provision requiring institutions
to explain their check clearing policies. Check clearing policies are,
at most, only tangentially related to an overdraft program. This
provision is outside the scope of the purpose of providing information
about overdraft programs and should be deleted. In addition, such
policies can be very detailed because they relate to checks and other
channels through which consumers can withdraw funds, and the Agencies
suggestion of a “clear” disclosure could require a lengthy and detailed
document.
We strongly oppose the suggestion that institutions require consumers
to “opt-in” before providing overdraft services or, alternatively,
permit consumers to opt-out of an overdraft program. Consumers are fully
apprised by institutions when institutions may honor an overdrawn item,
instead of returning the item unpaid and having a merchant or other
party assess a fee, in addition to the “NSF” fee charged by the
account-holding institution. Providing an “opt-in” notice to consumers
for overdraft programs would work hardship on consumers and would result
in consumers paying greater amounts for checks returned unpaid (due to
merchant fees, for example). Furthermore, there is no basis for
requiring the provision of an “opt-out” notice to consumers. This would
impose significant costs and burdens on institutions and likely would
result in significant litigation, due to the potential creation of a
consumer “right,” by the provision of such notices. For example,
questions could be raised as to whether the notice is clear, the scope
of the right, and numerous other issues. We urge the Agencies to delete
this provision.
We also strongly oppose the suggestion that institutions provide a
notice to consumers, “when feasible” before completing a transaction,
that a transaction may overdraw an account, for the reasons discussed
below. First, it is unclear what “when feasible” means. Technologically,
an institution could not implement such a requirement, and any such
approach would require the expenditure of extraordinary sums. Also,
because systems that permit access to funds do not operate in “real
time,” it is simply impossible to know whether, at the time of a
withdrawal, a specific transaction will overdraw an account because of
the processing of other deposits and withdrawals.
We also disagree with the suggestion that institutions post a notice
at their ATMs explaining that withdrawals in excess of the balance of
funds in a consumer’s account will access the overdraft protection
program. We believe such a notice would confuse or mislead consumers,
and should not be adopted. There are already so many notices required at
ATMs that the inclusion of another notice would add to the confusion and
possibly mislead consumers. The Agencies should not adopt this
provision.
Finally, as to the provision that institutions promptly notify
consumers of overdraft protection usage each time overdraft services
have been triggered, we recommend the agencies modify this provision. In
particular, we believe the reference to sending a notice to consumers
“the day” the overdraft program has been accessed is not possible in
many instances. We recommend this provision simply suggest that
institutions “promptly” notify consumers of the overdraft. In addition,
it may be desirable for notice to be provided through means other than
email or by a paper notice, such as by telephone, to ensure speedy
notice is provided. This provision should clarify that such notice can
be provided orally, if that is deemed the most effective means of
“delivery” by the institution.
Metairie Bank & Trust Company appreciates the opportunity to comment
on this important matter. If you have any questions concerning these
comments, or if we may otherwise be of assistance in connection with
this matter, please do not hesitate to contact Richard A. Hayley,
VP/Compliance Officer, at (504) 834-6330.
Sincerely,
Richard A. Hayley
VP/Compliance Officer
Metairie Bank & Trust Company
3344 Metairie Rd.
Metairie LA. 70001
(504) 834-6330
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