Citizens
Union Bank
August 5, 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 Board of Governors’ of the
Federal Reserve System request for comments concerning the proposed
changes to Federal Reserve Regulation DD.
Citizens Union
Bank, Shelbyville, KY offers the Pinnacle Financial Strategies
Bounce Protection automated
overdraft protection program
(the “Program”) to each of its personal checking account
(deposit) customers who have qualified. This program is a convenient
way for our customers to protect themselves in case of an accidental
overdraft or emergency expense. Responses from our customers have
proven to be extremely favorable to the program. These include the
avoidance of the embarrassment of a returned check and the avoidance
of additional charges by merchants. For no more than a standard NSF/overdraft
fee, this Program helps to protect their credit ratings and their
relationship with other businesses. When we were increasing the amount
of our benefit recently, we even had customers inform us of their
disappointment in not getting that increase sooner.
We believe our
Program is in concurrence with the Federal Reserve Agency’s
general approach in providing best practices regarding an ODP program.
Safety & Soundness
Considerations
The Guidance establishes a clear safety and soundness standard that
overdrafts must be charged-off within 30 days.
CUB promotes
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.
CUB already monitors overdraft losses and makes appropriate provisions.
We also have the option of dropping customers from the Program at
any time.
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.
We feel that this reporting requirement should be reserved only
for contractually binding obligations such as traditional overdraft
lines of credit or other formalized credit facilities.
Legal Risks
We see no additional changes in this and therefore have no comment.
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.
Our concern is
that this language may be problematic because examiners might 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.
We already comply with this.
• 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.
We already comply with this.
• 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.
We already comply with this.
• 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.
We already comply with this.
• 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.
We already comply with this.
• 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.
We do not market this Program, and our disclosures do state that
we charge our standard NSF fee, which we verbally inform them of
at the time. We do not state the dollar amount, so that if these
fees do ever increase, the disclosures will remain the same.
• 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.
We already comply with this.
• 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.
We already comply with this
• 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).
We already comply with this.
• 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.
We already comply with this.
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.
We already comply with this.
• 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. Please be reminded 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 needed 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.
This suggests
that the only balance that should be displayed is the balance reflecting
the “customer’s own funds available
without the overdraft protection funds included.” While our
best practice follows this Guidance, we are concerned that some examiners
are using 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.
We are also generous in refunding fees for first time charges to
customers who might not fully understand how the Program works.
• 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.
We already comply with this.
• 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.
We consider and often refund fees, if we see excessive charges,
and believe that the customer may not understand the Program completely.
• 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.
We already comply with this.
• 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.
We already comply with this.
In closing, I would like to thank you for the opportunity to comment
on this proposed change. If you have any questions, please contact
me at your convenience.
Respectfully submitted,
Billie W. Wade
President/CEO
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