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BANK OF THE CAROLINAS
GUIDLINE COMMENTS
BOTC 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. There are a few areas which we believe
are worthy of comment and they are as follows:
I. CHARGE OFF OVERDRAFTS AT 30 DAYS:
BOTC has considered this issue and has created a collection process
designed to minimize losses to the Financial Institution 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 quite some time and we believe that
it efficiently manages the risk of the financial institution. According,
BOTC would advocate that overdrafts be allowed up to an aging of 60 days
prior to charging off an overdraft but in no event less than forty-five
days as credit union regulations currently require.
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. BOTC 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 BOTC’s opinion, greatly overstate the risks
associated with this product.
III. FREE ACCOUNT DISCLOSURES:
Financial institutions have greatly 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 fees can be charged on the account under certain
circumstances which are set out in detail in the depository agreement.
BOTC would advocate allowing free account advertising with overdraft
protection when conspicuous disclaimers are included in the
communication that make clear that other restrictions may apply.
IV. 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. BOTC 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, BOTC 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 days. BOTC has experienced a
high degree of success in utilizing repayment plans and find that they
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, BOTC
would suggest that current and performing repayment plus not be charged
off.
D.T. Twiford
Bank of The Carolinas
Mocksville, NC
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