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FORT HOOD NATIONAL BANK
July 28, 2004
Mr. John D. Hawke, Jr.
Department of the Treasury
Office of the Comptroller of Currency
250 E Street, S.W.
Public Information Room, Mailstop 1-5
Washington,
DC 20219
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal
Reserve System
20th Street and Constitution Avenue, N.W.
Washington,
DC 20551
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th
Street, N.W.
Washington, DC 20429
RE: Proposed Interagency Guidance on Overdraft Protection Programs
Docket No. OP-1198 (Federal Reserve System) Docket No. 04-14 9 (Office
of the Comptroller of Currency)
Proposed Regulation DD (Truth-In-Savings Act) Amendment Docket No.
R-1197
Please accept this letter on behalf of Fort Hood National Bank in
response to the request for public commentary on the Proposed Interagency
Guidance on Overdraft Protection Programs as referenced above and
as jointly published in the Federal Register on June 7, 2004, by
the OCC, FRB, FDIC, OTS and NCUA. We also appreciate the opportunity
to provide commentary on the closely related topics addressed in
the proposed amendments to Regulation DD. The comments below reflect
our underlying concern that much of what is proposed in the guidance
is simply additional regulatory burden wherein a determination of
need has not been fully developed and established. Said regulatory
burden will ultimately serve to inflate the cost of this service
to the consumer while providing the consumer with no meaningful benefit
or available alternative.
Fort Hood National Bank is located on Fort Hood, the largest military
post in the world, and we proudly serve those brave men and women
who serve our country. The concerns I have enumerated below are of
concern to us as we consider our active military customers as well
as retirees and any other consumers.
- The proposed guidance specifically provides that overdrawn balances
should be charged-off within 30 days from the date first overdrawn.
We suggest 90 days which is still well below the 120 days allowed
for loans and half the 180 days allowable for credit card accounts
and lines of credit tied to checking accounts that only require minimum
payments as opposed to repayment in full.
- The
proposed guidance of 30 days does not allow the consumer
adequate
time to correct the situation that may include periods
of short interruptions
in income due to mistake, temporary seizure or unemployment.
- Additional
expense will be incurred by financial institutions since many
overdrafts over 30 days are ultimately cleared by the consumer.
Financial institutions that use third party collection agencies
will
also incur costs to collect overdrafts that would otherwise be
paid if not charged-off.
- Additional
expense will fall to the consumer to reactivate their
account with the financial institution once the overdraft
is cleared
to include:
- The collection fee assessed on the account at the time of charge-off
- The cost of a new order of checks
- The fee for issuance of a new debit card
- The consumer's credit record will be negatively impacted by the
reporting of the charge-off to all major credit reporting agencies.
- The proposed guidance clearly provides for disparate treatment
between financial institutions and credit unions (30 days vs. 45
days).
- The proposed
guidance specifically states that the existence of an extended
repayment plan would not extend the charge-off determination
period beyond 30 days from the date of overdraft. This would
adversely impact a consumer's ability to cure the balance and
regain control of his or her checking account while building
credit through a payment plan for the overdraft.
- Absent a repayment option, the consumer may be unable to repay
the overdrawn balance save and except by returning to the overdraft
once their pay is deposited, thus perpetuating the cycle and causing
the consumer to pay additional NSF fees. A loan to repay the overdraft
allows the consumer to keep his or her checking account open while
repaying the overdraft apart from the checking account under monthly
terms that are affordable.
- Charge-off of the overdraft balance while the consumer is making
a bona fide attempt to repay the overdraft negatively impacts the
consumer's retail credit report all while the consumer tries to rectify
the balance due the financial institution.
- Since many of our customers are active duty soldiers, their ability
to obtain an additional short-term job to payoff the overdraft immediately
is simply not a possibility.
- The proposed guidance presumes that no underwriting occurs for
the extended repayment plan. These plans should be underwritten using
appropriate lending guidelines resulting in a signed note with specific
repayment terms. All loans of this nature would then be subjected
to the same management and reporting standards as all other loans
at the financial institution.
- The proposed
guidance specifically provides that the available amount of overdraft
protection
should be reported as "unused
commitments" in regulatory reporting if the amount is "routinely" communicated
to the consumer. The statement lacks specificity sufficient
to determine what means of communication is being referred to and
what frequency
would constitute "routine". Additionally, since the payment
of any item is in the financial institution's discretion, the amount
of systematic coding on an account does not constitute a commitment
on the financial institutions part that should be reported.
- The proposed
guidance suggests a "Best Practice" is to
include the dollar amount of the overdraft fee in all materials that "mention" overdraft
programs. A single brochure with all fees disclosed provides greater
timeliness and accuracy of information as well as greater efficiencies
for financial institutions.
- Consumers are referred by all product brochures to one fee brochure
to negate the need for multiple brochure updates when fees change.
- The proposed
guidance suggests a "Best Practice" is to
provide the consumes with an "election or opt-out" feature.
Opting-out would ultimately harm the consumer at the' point the service
is actually needed thus consumers prefer a financial institution
pay the NSF item regardless of whether it was knowingly or mistakenly
issued against insufficient funds.
- If a consumer where to opt-out at the time the account was opened,
the consumer will be negatively impacted in the following ways at
a point later when he or she might not even recall the action had
been taken.
- The fee for payment or return by the financial institution of each
NSF item is the same in most cases making it no less costly for return
of the item.
- Returned items cause the consumer to incur the following additional
consequences:
- Merchant fees for the returned item
- Multiple fees associated with the Merchant's multiple presentment
of the same item in an attempt to collect it from the financial institution
- Negative report by the merchant to check approval data bases
- Possibility of criminal prosecution
- The proposed
guidance suggests a "Best Practice" is to
alert the consumer before a non-check transaction triggers any fees.
This suggested practice is not possible given the various
means of presenting items as well as the move to convert checks
to electronic
payments.
- In the case of ACH, POS or online bill payment items, it is not
feasible to notify the consumer prior to payment. Return would cause
the same charge to apply to the consumer's account with additional
penalty impact to the consumer from the merchant or creditor as aforementioned.
- Return of the electronic item by the financial institution may
also cause cancellation of insurance policies, reoccurring payment
arrangements and/or memberships.
- The proposed
guidance suggests a "Best Practice where feasible" is
to alert the consumer in advance if the institution plans to terminate
or suspend the consumer's access. The financial institution's
obligation to pay or return an NSF item is discretionary and is
determined on
a case by case basis when an item is presented for payment. Overdraft
protection should be disclosed in the depositor's agreement as
being offered only at the sole discretion of the financial institution.
- The proposed
guidance suggests a "Best Practice" is to
consider limiting the number of overdraft items paid daily or a
daily limit on the number or amount of fees that will be charged
against
any one account while continuing to provide coverage. The financial
institution nor the consumer can control the timing of the presentment
of items. The financial institution incurs costs for every item
it handles for the consumer regardless of the timing of presentment.
- The proposed amendment to Regulation DD concerning overdraft fees
would require that financial institutions provide the consumer with
aggregated monthly and year-to-date totals of NSF fees paid as well
as differentiating between overdraft fees and return item fees.
- These proposed changes would require every financial institution
to make extensive modification to its operating system at great expense
in order to provide information to the consumer that is already available
for their personal calculation.
- Financial institutions should only be required to differentiate
overdraft fees from return item fees if the financial institution
has differing charges for each action.
- The relevant information concerning each NSF item charge is on
the ,consumer's financial institution statement on the date incurred
and is available for cumulative calculation by the consumer should
it be information sought or found useful. It is also reflected on
all NSF or overdraft notices sent to the consumer.
- The fees assessed not only recover some of the expense incurred
in handling NSF items, but also serves as a deterrent to those customers
who would otherwise choose to perform transactions that result in
an NSF item charge.
First National Bank Texas appreciates the opportunity to comment
on the proposed guidance. I would be happy to discuss this matter
more fully with your staff or to testify before any of the agencies
should you so desire. I strongly urge all of the agencies to consider
the burden that the proposed guidance will place on financial institutions
while ultimately providing no benefit to the consumer. Accordingly,
I request that the Proposed Guidance be withdrawn or at a minimum
revised and republished for public comment.
Sincerely,
Terry Tuggle
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