|
FIRST COMMUNITY BANK
July 13, 2004
Mr. Robert E. Feldman, Executive Secretary
Attn: Comments/Executive
Secretary Section
Federal Deposit Insurance Corporation
550 17th
Street NW
Washington, DC 20429
Dear Mr. Feldman:
I am responding to the request for comment on Interagency Guidance on
Overdraft Protection. My response is on behalf of First Community Bank
in Kansas City, Kansas.
Our bank began using the Strunk & Associates Overdraft Privilege
Program in March, 2004. We selected that program based upon the
reputation of their product, their longevity in offering the product,
discussion with a sampling of their clients, and with our legal counsel.
We also weighed the potential benefits and risks associated with
offering Overdraft Privilege and developed policies and procedures to
effectively manage the program. We utilize many of the practices
recommended by Strunk & Associates, but also developed our own best
practices. For example, our minimum deposit to open a new account is
$200. The recommended opening balance is $25 and we decided to continue
with our established policy of $200. It is not our intention to open
accounts for the purpose of generating fees and then have to turn around
and charge them off to close them. We are interested in establishing a
lasting banking relationship with our customers.
The Overdraft Privilege Program enables us to automate a portion of
the discretionary payment of insufficient items into overdraft status.
We have had very few complaints and in fact several customers have
thanked us for paying items rather than returning them. Our NSF fee is
$20 per item and we do have a daily overdraft fee of $5, if the account
remains overdrawn for three
consecutive-business days. However, this fee is generally considerably
less than returning the item, still charging the $20 fee, and then
having the merchant, etc. charge another fee of up to $35, reprocessing
the item, and so forth. Furthermore, this is typically less expensive
for the consumer than turning to a payday lender, pawn shop or check
cashing facility. This should be a benefit, rather than a detriment to
the consumer. We are not against having "warning messages" at ATM's or
POS terminals, although it may be difficult to incorporate given the
vast array of products and fee structures offered by institutions. This
is a predicated on the ability of ATM and POS vendors to generate such
messages. It is not our intention to encourage irresponsible consumer behavior.
Safety & Soundness Considerations – We recognize that paying
more accounts into overdraft status does increase our institution's
credit risk. As stated above, we developed policies and procedures to
address and mitigate various risk. We are aware that more DDA accounts
will be written-off and have established a Reserve for Overdraft Losses.
It operates in a manner similar to the Reserve for Loan Loss. There is a
formula for funding the account based upon the aging of overdrafts and
net charge-offs. This reserve is monitored by senior management and
approved by the bank's Board of Directors on a monthly basis.
We follow Strunk's recommendations for mailing notices and letter to
customers in addition to the regular NSF and overdraft notices that they
receive. Overdrawn accounts are charged-off at the end of 60 days. At
this point, we have 100% of the balance reserved based upon our formula.
We consider this to be prudent risk management practices. The FIL
contains a recommendation to charge-off overdrafts after 30 days. This
is too soon because some customers only receive monthly deposits. It may
be detrimental to the customer and the bank to charge-off the account
too soon. According to information provided by Strunk & Associates,
collection efforts are vastly improved by giving the customer an
additional 15 – 30 days to bring the balance positive. Accounts are
monitored and those customers who do not make timely deposits are
disqualified from future participation in the program. As long as a
system is in place to monitor these accounts and reserve for them, a 45
to 60 day time frame seems more reasonable.
Customer Education and Disclosures – The materials provided by Strunk
& Associates are easy to understand, state that the program is purely
discretional and do not appear to mislead the customer. Furthermore, the
program applies to "free checking" accounts as well as regular checking
and NOW accounts. There does not seem to be a benefit to separating the
program from "free checking" accounts. The materials also disclose that
fees may be imposed for transactions other just checks. A comment was
made to disclose the order in which items are paid. This seems over
burdensome to the bank and confusing to the customer, especially if the
customer has accounts at several financial institutions. The average
consumer may not recall the order of payment for checks, ACH, POS, ATM
transactions, online bill payments, etc. and they probably won't carry
the disclosures with them. Typically, they will not be standing at an
ATM or POS terminal trying to sort this out and also figure out what
outstanding checks might be paid as well.
If our customer performs a balance inquiry at an ATM it does not
include any ODP availability, therefore it is not misleading them
regarding their account balance. They may withdraw funds however,
subject to the established daily withdrawal limit and also subject to
their ODP limit. The balance disclosed appears to be an IT vendor issue.
Regarding notification each time the product is used, we send out
overdraft notices on a daily basis and that has always been our standard
practice. We also send out additional mailings based on the timeline
provided by Strunk & Associates. Since the customers already receive
various notices when checks are paid or returned and/or their account is
overdrawn, there does not seem to be a need for further disclosures the
first time the ODP limit is accessed.
Daily limits are covered by the ODP limit. It does not seem
reasonable to limit the number of NSF's paid or daily fees to be
charged. This is a function of consumer behavior. The notices and
letters keep the customer informed. The limits set help protect both the
institution and the customer. It also should not be the responsibility
of bank staff to monitor customer usage of ODP and then counsel them.
Many customers would be offended by this.
We at First Community Bank believe that Overdraft Privilege provides
a beneficial service to our customers. We have policies and procedures
in place for qualifying customers, providing disclosures, risk
assessment and mitigation procedures, managing overdrafts and collection
efforts, notices and letters as well as reserving for potential losses.
Thank you for the opportunity to comment.
Sincerely,
Carol S. Waggoner
Executive Vice President
Chief Financial Office
First Community Bank
1300 N. 78th St.
Kansas City, KS 66112
|
