| GREATER ROME BANK
-----Original Message-----
From: Grey Winstead [mailto:Grey.Winstead@greaterromebank.com]
Sent: Wednesday, August 04, 2004 2:15 PM
To: Comments
Cc: Tom Caldwell; Jason Pruitt; steve@cbaofga.com
Subject: FFIEC proposed guidance on overdraft protection programs
I commend the regulators for attempting to bring a level of standards
or best practices to overdraft protection programs. The best practices
section of the proposed guidance should prove beneficial to our industry
and consumers. I have some serious reservations however, about two of
the provisions under the safety and soundness considerations. I have
great difficulty with regulations that move to a very detailed level of
accounting requirements to be applied equally to all banks, when the
degree of risk and the methods of delivering this service may vary
greatly from bank to bank.
Specifically, I disagree with the broad application of the following
proposals to all banks:
1) the general requirement to charge off overdrawn accounts “within
30 days from the date first overdrawn”; and
2) income and loss recognition requiring the use of a loss reserve,
similar to GAAP on loan loss reserves.
I express my opposition primarily based on our experience with the
implementation of our automated overdraft protection program in the
fourth quarter of 2001. Before the service was implemented we spent
several months developing policies and procedures, under the guidance of
Strunk and Associates, which addressed operational issues as well as
customer disclosures and service promotion. Prior to implementing the
program we were already manually processing 1,500 to 2,000 NSF items a
month. We currently process approximately 3,000 NSF items a month, with
approximately 600 of these handled automatically through the overdraft
privilege program; the rest of the items are still handled manually.
When we started the automated program, we began with about 1,300
accounts using the service. We now have 1,540 accounts using the
automated overdraft privilege service. Our Bank has $145 million in
assets. Over the first two years of the program we charged off $6,874 in
unpaid overdrafts, excluding NSF fee reversals. This low level of charge
offs is less than 0.003% of assets on an annualized basis. Our monthly
fee income from processing NSF items, the great majority of which are
paid and not returned, has grown from around $22,000 a month in 2001 to
approximately $45,000 a month in 2004. Roughly one third of this income
is from the automated overdraft privilege service.
When we began our program, we braced for high fee reversals and
principal charge-offs and established a loss reserve account, as was
recommended by the consultants. The losses never materialized. We
ultimately eliminated the loss reserve accounting on overdrafts, because
it was not cost effective or even necessary.
We feel our management policies and procedures are more than adequate
to manage this program without additional accounting and control
mandates from the regulators. We are diligent with our customer
disclosures and look to constantly improve customer communications. We
monitor all NSF activity, including the privilege service, daily. We
remove customers from the service at the first sign that they may have
difficulty using it responsibly. If a customer in the program is
overdraft for 35 days, our DP system automatically removes them from the
program and puts them in a manual handling mode. We charge off and close
accounts when collection efforts have been exhausted, but no later than
90 days. Overdrafts under both manual and automated systems are aged and
reported at director loan committee meetings.
While some banks may need more supervisory guidance on these safety
and soundness issues, our Bank will simply experience added processing
cost and regulatory overburden, without any benefit. I imagine that our
Bank will not be the only one that will be adversely affected by these
two provisions, if they become mandatory requirements. I strongly urge
the regulators to give consideration to making these two safety and
soundness provisions simply suggestions or guidance for those banks
whose management and processing environments may need stronger
accounting controls, or at least provide an exception for banks that can
demonstrate alternative, prudent risk management practices.
I would be happy to discuss this further if it might help. I can be
reached at the number below.
Grey
Grey Winstead
Greater Rome Bank
1600 Martha Berry Blvd.
Rome, GA 30165
706-295-3207, ext: 312
fax: 706-235-7763
grey.winstead@greaterromebank.com
http://www.greaterromebank.com/
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