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Cresco Union Savings Bank
August 6, 2004
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, DC 20429
Via e-mail: Comments@FDIC.gov
Subject: Proposed Guidance with Request for Comment
Interagency Guidance on Overdraft Protection Programs
We are pleased to respond to the Interagency Guidance on Overdraft
Protection Programs Request for Comment.
Cresco Union Savings Bank
is an experienced, well-established Financial Institution. At CUSB
our commitment is to offer our customers the
products and services they want. Pinnacle Financial System’s
Overdraft Protection Program is one of those services. This is supported
in part by the ABA’s recent survey of 1001 community bankers
which indicates that 76% of those surveyed believe that programs
such as Pinnacle Financial System’s Overdraft Protection Program
would be very useful to somewhat useful.
CUSB concurs with the
agencies’ general approach in providing
Best Practices regarding Overdraft Protection Programs. Our comments
are in italics below the proposed best practices.
Safety & Soundness
Considerations
The Guidance establishes a clear safety and soundness standard that
overdrafts must be charged-off within 30 days.
Cresco Union
Savings bank suggests a customer-friendly approach that’s
based on safety and soundness standards requiring prompt notifications
to the customer
of the overdraft and an encouragement
to bring the account to a positive balance as soon as possible. We
support a longer charge off policy than the 30 days proposed and
recommend that 60 or 90 days would allow for the reasonable collection
of a depositor account. (The NCUA regulations already contain a charge
off requirement for overdrafts using a 45 day rule which is also
longer than the 30 days suggested.)
Institutions should adopt rigorous loss estimation processes to
ensure that any allowances related to earned fees reflect all estimated
losses and that earned but uncollected fees are accounted for accurately.
We at Cresco Union Savings Bank do monitor our overdraft losses
and make appropriate provisions.
When an institution routinely communicates the available amount of
overdraft protection to depositors, these available amounts should
be reported as "unused commitments" in regulatory reports.
The Agencies also expect proper risk-based capital treatment of outstanding
overdrawn balances and unused commitments.
With this
language in the Guidance, any “disclosed program” would
appear subject to the reporting requirement. Cresco Union Savings
Bank’s position is that this reporting requirement should be
reserved only for contractually binding obligations such as traditional
overdraft lines of credit or other formalized credit facilities.
Best Practices
Institutions that establish overdraft protection programs should
take into consideration the following practices that have been implemented
by institutions and that may otherwise be required by applicable
law.
Such language
typically suggests that a failure to comply with any individual
best practice
would not normally be considered worthy
of an examination criticism as long as management had documented
its “consideration” of the practice and demonstrated
good reasons for not implementing it.
Cresco Union
Savings Bank would express concern that this language would be
problematic because
examiners may use the individual Best
Practices as a checklist to determine compliance with the Guidance
using a “line-by-line” approach rather than as a general
guideline for best practices worthy of management consideration.
Marketing and Communications with Consumers
• Avoid
promoting poor account management. Do not market the program in a manner
that encourages routine or intentional overdrafts;
rather present the program as a customer service that may cover inadvertent
consumer overdrafts.
• Fairly
represent overdraft protection programs and alternatives. When informing
consumers about an overdraft protection program, inform
consumers generally of other available overdraft services or credit
products, explain to consumers the costs and advantages of various
alternatives to the overdraft protection program, and identify for
consumers the risks and problems in relying on the program and the
consequences of abuse.
• Train
staff to explain program features and other choices. Train customer service
or consumer complaint processing staff to
explain their overdraft protection program's features, costs, and
terms, including how to opt out of the service. Staff also should
be able to explain other available overdraft products offered by
the institution and how consumers may qualify for them.
• Clearly
explain discretionary nature of program. If the overdraft
payment is discretionary, describe the circumstances in which the
institution would refuse to pay an overdraft or otherwise suspend
the overdraft protection program. Furthermore, if payment of overdrafts
is discretionary, information provided to consumers should not contain
any representations that would lead a consumer to expect that the
payment of overdrafts is guaranteed or assured.
• Distinguish
overdraft protection services from "free" account
features. Avoid promoting "free" accounts and overdraft
protection services in the same advertisement in a manner that suggests
the overdraft protection service is free of charges.
• Clearly
disclose program fee amounts. Marketing materials and information provided
to consumers that mention overdraft protection
programs should clearly disclose the dollar amount of the overdraft
protection fees for each overdraft and any interest rate or other
fees that may apply. For example, rather than merely stating that
the institution's standard NSF fee will apply, institutions should
restate the dollar amount of any applicable fees in the overdraft
protection program literature or other communication that discloses
the program's availability.
• Clarify that fees count against overdraft protection program
limit. Consumers should be alerted that the fees charged for covering
overdrafts, as well as the amount of the overdraft item, will be
subtracted from any overdraft protection limit disclosed, if applicable.
• Demonstrate
when multiple fees will be charged. Clearly disclose, where applicable,
that more than one overdraft protection
program fee may be charged against the account per day, depending
on the number of checks presented on and other withdrawals made from
the consumer's account.
• Explain
check clearing policies. Clearly disclose to consumers the order in which
the institution pays checks or processes other
transactions (e.g., transactions at the ATM or point-of-sale terminal).
• Illustrate
the type of transactions covered. Clearly disclose that overdraft protection
fees may be imposed in connection with
transactions such as ATM withdrawals, debit card transactions, preauthorized
automatic debits, telephone initiated transfers or other electronic
transfers, if applicable. If institutions' overdraft protection programs
cover transactions other than check transactions, institutions should
avoid language in marketing and other materials provided to consumers
implying that check transactions are the only transactions covered.
Program Features and Operation
• Provide
election or opt-out of service. Obtain affirmative
consent of consumers to receive overdraft protection. Alternatively,
where overdraft protection is automatically provided, permit consumers
to "opt out" of the overdraft program and provide a clear
consumer disclosure of this option.
• Alert
consumers before a non-check transaction triggers any fees. When consumers
attempt to use means other than checks to
withdraw or transfer funds made available through an overdraft protection
program, provide a specific consumer notice, where feasible, that
completing the withdrawal will trigger the overdraft protection fees.
This notice should be presented in a manner that permits consumers
to cancel the attempted withdrawal or transfer after receiving the
notice. If this is not possible, then post notices on proprietary
ATMs explaining that withdrawals in excess of the actual balance
will access the overdraft protection program and trigger fees for
consumers who have overdraft protection services. Institutions may
make access to the overdraft protection program unavailable through
means other than check transactions.
This section
appears to recognize limited availability of ATM providers that
can provide such programming, and allows for the posting of
signs at bank owned ATMs. The Guidance does not, however, address
POS terminals, most of which are located in retail stores throughout
the country. The absences of clear guidance concerning the inability
of institutions to provide advance notice to consumers at POS may
create an expectation that institutions should not make ODP available
at POS locations. It should be noted, that, in most cases, the ATM
and POS systems are driven by the same balance mechanisms. Clearly,
customers want access to their ODP limits at these locations, so
regulatory forbearance is requested until technology catches up with
new banking products.
• Prominently
distinguish actual balances from overdraft protection funds availability. When
disclosing an account balance by any means,
the disclosure should represent the consumer's own funds available
without the overdraft protection funds included. If more than one
balance is provided, separately (and prominently) identify the balance
without the inclusion of overdraft protection.
It appears
to be suggested that the only balance that should be displayed
is the balance reflecting
the “customer’s own
funds available without the overdraft protection funds included.” We
are concerned that some examiners might use this new paragraph to
criticize smaller institutions that can only provide a Positive Balance
File (PBF) to the POS and ATMs. While we support this best practice,
we are again requesting forbearance for the smaller institutions
that lack the ability to provide more than one balance without incurring
significant expenses. In these instances, we believe that institutions
that make good faith efforts to notify customers by providing notices
on their bank owned ATMs, using pre-printed receipts for balance
inquiries advising of their limit inclusion, and by providing clear
prior disclosures, should be allowed to continue providing ODP at
their ATM without undue criticism.
AT CUSB we provide customers with current balance when they perform
a balance inquiry function at an ATM terminal. This current balance
does not include overdraft protection limit or any other overdraft
protection program / funds transfer we currently have in place with
any customer. We believe that this is the most informative to the
customer and is not misleading in any fashion.
• Promptly notify consumers of overdraft protection program usage
each time used. Promptly notify consumers when overdraft protection has
been accessed, for example, by sending a notice to consumers the
day the overdraft protection program has been accessed. The notification
should identify the transaction, and disclose the overdraft amount,
any fees associated with the overdraft, the amount of time consumers
have to return their accounts to a positive balance, and the consequences
of not returning the account to a positive balance within the given
timeframe. Institutions should also consider reiterating the terms
of the overdraft protection service when the consumer accesses the
service for the first time. Where feasible, notify consumers in advance
if the institution plans to terminate or suspend the consumer's access
to the service.
• Consider
daily limits. Consider limiting the number of overdrafts or the dollar
amount of fees that will be charged against any one
account each day while continuing to provide coverage for all overdrafts
up to the overdraft limit.
• Monitor
overdraft protection program usage. Monitor excessive consumer usage, which
may indicate a need for alternative credit
arrangements or other services, and should inform consumers of these
available options.
• Fairly
report program usage. Institutions should not report negative information
to consumer reporting agencies when the overdrafts
are paid under the terms of overdraft protections programs that have
been promoted by the institutions.
Cresco Union Savings Bank appreciates this opportunity to respond
to the proposed regulation best practices.
Thank you.
Sincerely,
Joyce Rains
Operations Officer & AVP
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