STERLING BANK Robert E. Feldman Subject: PR-60-2004 Agencies Issue Proposed Guidance on Overdraft Protection Programs Dear Mr. Feldman: I am submitting comments on behalf of Sterling Bank headquartered in Houston, Texas, on the Interagency Guidance on Overdraft Protection. By way of background, our overdraft protection program was created for the purpose of automating the formerly manual process by which account officers review their customers’ overdrafts. For customers who maintain their accounts in good standing, the program allows the account officer to establish an overdraft limit for which items will automatically be paid into the overdraft, to a limit of $300. The determination of whether an account is in good standing is defined by established criteria such as an existing deposit relationship of at least six (6) months with regular deposits, no legal orders outstanding, and is brought to a positive balance every thirty (30) days. Promotion of Program: Our overdraft protection program is outlined in our account agreement under the heading Overdraft Privilege Policy which states, “We may refuse to pay an overdraft for you at any time, even though we may have previously paid overdrafts for you.” The account agreement is clear as to fees charged for insufficient items as it states, “The amount of any overdrafts plus insufficient funds and/or overdraft fees that you may owe us shall be due and payable on demand.” Additionally, the agreement states, “Whether we pay or return an item that is insufficient, a flat per-item handling fee will be charged to your Account as set forth in our fee schedule.” The fee imposed for an overdraft paid under this program is identical to the fee charged to customers not in the program. We believe such disclosures provide sufficient information for consumers to differentiate between the overdraft protection program and overdraft line-of-credit products. 30-Day Charge-Off: One concern with the proposed requirement to charge-off overdraft balances after 30 days is the fact that the 30-day timeframe may not afford customers adequate time to resolve an overdraft. It is conceivable that in a 31-day statement cycle (month) a customer could overdraw his/her account on the first day of the statement cycle and be charged-off before receiving the monthly statement thus not allowing the customer time to receive and reconcile a bank statement containing such overdraft activity despite receiving notice of overdraft. Additionally, customers who receive monthly payments from employers or the government may not receive those payments in time to satisfy an overdraft balance within a 30-day period. The proposed swift charge-off of an overdrawn account and subsequent reporting of such to a reporting agency would have an adverse impact customers who may otherwise have been able to bring the account current. Another consideration is the significant operational challenges the 30-day timeframe would pose to financial institutions. Financial institutions would bear the burden of system changes required to comply with the proposed 30-day charge-off of overdrawn accounts. Our current overdraft protection policy, which charges-off after 60 days, represents little risk to the bank. In light of these arguments, we propose that 60 or 90 days would be a more reasonable amount of time, both for the financial institution and the customer, to charge-off an overdrawn account. Equal Credit Opportunity Act: Sterling Bank agrees that overdraft protection coverage meets the definition of “incidental credit” as defined in Regulation B. Therefore, action taken to discontinue overdraft coverage would not trigger the adverse action notice required by Regulation B. Regarding the need for additional disclosures, we assert that sufficient notice of such action is provided where initial account disclosures explain that the financial institution may refuse to pay an overdraft at any time, even though overdrafts may have previously been paid. Provide Election or Opt-Out of Service: The best practice of obtaining affirmative consent of consumers to receive overdraft protection or permitting customers to “opt-out” of the program would impose significant costs of compliance on financial institutions without benefit to customers. Given the fact that customers are subject to returned check fees from merchants in addition to bank fees for overdrafts, opting-out of overdraft protection would impose additional costs to the customer. Although overdraft fees are disclosed to bank customers, merchant fees may or may not be disclosed to customers by the merchants; therefore, customers may not be fully aware of the adverse impact they would incur due to the lack of overdraft protection. Fairly Report Program Usage: Sterling Bank concurs that institutions should not report negative information to consumer reporting agencies when the overdrafts are paid under the terms of overdraft protection programs. I appreciate the opportunity to comment. Sincerely, Brandi M. Gregg |
| Last Updated 08/16/2004 | regs@fdic.gov |