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THE EXCHANGE BANK
July 23, 2004
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street NW
Washington,
DC 20429
Re: Guidelines on Overdraft Protection Programs
Dear Mr. Feldman:
The Exchange Bank has reviewed the recently published Interagency
Guidance on Overdraft Protection Programs, published in Volume 69,
Number 109 of the Federal Register, and we are pleased to find that
we are following. the majority of the best practices outlined within.
However, there are a few areas which I believe are worthy of comment
and they are as follows:
A. Charge Off Overdrafts At 30 Days:
The Exchange Bank follows a process designed to minimize losses
to the bank 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. Accordingly, The Exchange
Bank would advocate that overdrafts be allowed up to an aging of
sixty (60) days prior to charging off an overdraft but in no event
less than forty-five (45) days as credit union regulations currently
require.
B. 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. The Exchange Bank advocates loss
reserve be maintained 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 my opinion
greatly overstate the risks associated with this product.
C. 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.
The Exchange Bank 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.
D. 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. The Exchange
Bank 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,
The Exchange Bank would suggest that this suggestion be deleted.
E. 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 (30) days. The Exchange Bank 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,
The Exchange Bank would suggest that current and performing repayment
plans not be charged off.
Very truly yours,
Sterling J. U. Laffitte
President
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