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FDIC Federal Register Citations

OHIO VALLEY BANK COMPANY


The Ohio Valley Bank Company
420 Third Avenue
Gallipolis, OH 45631

July 29, 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

Dear Mr. Feldman:

This comment letter is submitted on behalf of Ohio Valley Bank Company, Gallipolis, Ohio in response to the FFIEC request for comment on the Proposed Guidance on Overdraft Protection Programs.

Ohio Valley Bank is a $700 million dollar community bank. We began offering Pinnacle Financials’ Bounce Protection Program in October, 2000. This privilege has been well received by our customer base.

We commend the FFIEC Agencies for their joint effort in proposing Best Practices regarding ODP programs. While we agree with most of the Best Practices, we do have some concerns about some of the proposed guidance.

Safety & Soundness Considerations

The Guidance establishes a clear safety and soundness standard that overdrafts must be charged-off within 30 days.

Comment: Currently, our bank charges off overdrawn accounts after 60 days regardless of whether or not a customer utilizes our Bounce Protection Program. At the time of the overdraft, we notify the customer of the overdraft amount and related fee for the NSF item. During the 60 day period, we send a series of letters encouraging the customer to bring their account to a positive balance.

We do not feel that a mandatory charge-off period of 30 days would prove beneficial to the consumer. To the contrary, this is ‘consumer unfriendly’. Based on the customer’s circumstances, i.e. illness, travel, timing of receiving their paycheck, maybe in between jobs, etc., 30 days may not be an adequate amount of time for the customer to bring their account positive. This could result in a premature charge off with resulting problems and inconveniences for the consumer.

This guidance covers accounts that participate in ODP programs. It would appear that under the guidance, accounts that do not participate in an ODP program could continue to be charged off after 60 days (or whatever timeframe the bank decides). This presents an operational issue as well as not treating all consumers the same with respect to the timing of charging off overdrawn checking accounts.

We suggest this guidance be revised to permit a longer charge off policy than the proposed 30 days and recommend that 60 to 90 days would allow for a reasonable collection of an overdrawn deposit account.

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.

Comment: We monitor our overdraft losses on a monthly basis and make provision as appropriate.

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.

Comment: We feel these reporting requirements should be reserved only for contractually binding obligations such as traditional overdraft lines of credit or other formalized credit facilities.

Legal Risks

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.

Comment: While we agree with the Best Practices approach, we are concerned that examiners may use this Best Practice as a checklist with resulting criticisms on a line by line basis.

We would recommend that when we are examined for compliance, the examiners should look at the complete program and take into consideration management’s reasons for not implementing a suggested ‘Best Practice’.

The technological abilities to comply with certain ‘Best Practices’ should also be taken into consideration when reviewing the bank’s program.

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.

Comment: We agree.

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.
Comment: We agree with the training practices suggested above. Please be aware that not all banks offer a full suite of overdraft products.

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.

Comment: Again, please be aware that not all banks offer a full suite of overdraft products.

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.

Comment: Generally, overdraft items are paid if the account is in good standing (account is brought to a positive balance within 30 days) and the overdraft is within the established limit. If not, the overdraft privilege on the account may be suspended.

This explanation should be adequate. Providing a more detailed definition could be conceived as a contractual agreement, which would be in conflict with the discretionary aspects of the program.

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.

Comment: We agree.

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.
Comment: We agree.

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.

Comment: We agree.

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.

Comment: We agree.

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).
Comment: We are a ‘pay all’ bank. This means that during nightly processing, we automatically post all debits regardless of the balance in the account. The next day, a clerk reviews the items contributing to the overdraft balance and generally pays items low to high, while taking into consideration ACH transactions, ATM and point-of-sale transactions, as well as checks that have been cashed at the teller window, automatic transfer payments made on loans, etc. and third party checks presented for payment. This review is done on a discretionary basis. Providing further definition to the customer would lend towards making the payment of items a contractual agreement which could make the bank libel, if we should deviate from published payment methods.

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.

Comment: We agree and currently do 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.

Comment: We currently provide the customer with an option to ‘opt out’ at new account opening; again, when the privilege is granted; and at any time the customer wishes to cease using the privilege. We do not agree that we should obtain affirmative consent from the customer. Doing so could mislead the customer to think they will receive the privilege, when in actuality; they may receive the privilege, if the account is in good standing.

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.

Comment: Our ATM provider does not currently have the functionality to inform the customer that continuing the transaction will access overdraft limits with a resulting option to cancel. Most point-of sale and ATM systems are driven by the same balance mechanisms. The regulators should take this into consideration because it will be impossible for the banks to comply with this requirement on point-of-sale transactions. It may prove feasible for ATM transactions, providing the ATM provider will make changes to support this requirement.

Clearly, some customers prefer using ATM’s to withdraw cash, while other customers prefer using their debit card for point-of-sale transactions, while still others may prefer to write checks to complete a transaction. Regardless of the method of payment chosen by the consumer, we need to provide the same access to the overdraft privilege for all customers.

Providing this functionality at the ATM is beyond our control. Banks making a good faith effort to meet this requirement should not be criticized.

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.

Comment: Since the implementation of the Bounce program by our bank in 2000, we have included the Bounce limit in the balance printed at the ATM. During the past four years, we have consistently educated our customers concerning this practice. We disclose this on the brochure given to the customer at account opening. We provide notice on the bank owned ATM’s that Bounce limits may be included in the balance. We print a message on all ATM receipts indicating the balance may include the Bounce limit. We also print a message on the customer’s statement to further inform them that, if they have Bounce, it is included in the ATM balance.

We are working with our core software provider, as well as our ATM switch provider, to enhance the balance reporting capabilities of the system by printing two balances; the available balance and available balance plus Bounce. Delivery of this enhancement is beyond our control. As I mentioned earlier in my comments, the same balance mechanism is used for ATM and point-of-sale transactions. To deviate from this established practice would be a disservice to our customers who choose to utilize the ATM for withdrawing cash and point-of-sale devices in payment for merchandise, rather than issuing checks.

We do not feel we should be unduly criticized for including the Bounce limit at the ATM and point-of-sale transactions. Rather, the examiners should look at the efforts we have taken to inform our customers concerning this practice. We do not feel this is an unfair and deceptive practice considering the efforts we continually make to inform our customers.

The statement ‘if more than one balance is provided, we should ‘prominently’ identify the balance without inclusion of overdraft protection’ suggests perhaps printing in bold print. If that is the intent, please be aware banks would be limited by the software/hardware capabilities of the various ATM systems, perhaps resulting in an inability to comply with this practice.

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.

Comment: We agree.

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.

Comment: We do not feel that limiting the number of overdrafts or the dollar amount of fees charged each day should be dictated to the banks.

With respect to limiting the number of overdrafts in a given day, please be aware that point-of-sale transactions may not be presented for payment until several days later, with other debits preceding the authorized transactions. This could result in exceeding a set limit of overdrafts that would be honored. The bank does not have an option to return point-of-sale transactions.

Generally, a customer who overdraws their account the first time and accesses their Bounce limit, is accorded an opportunity to have the OD fees waived by Bank policy and also is given the opportunity to ‘opt out’ of the program. Subsequent charges are then the responsibility of the customer and are assumed to be made with their full knowledge.

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.

Comment: There does not appear to be an easy method to comply with this practice without adding significant costs to administering this program. The term ‘excessive’ is subjective rather than definitive. What could be considered excessive to one bank could be acceptable to another.

Customers who are unsuccessful at managing their account and who cannot bring the account to a positive balance are handled on an individual basis. The customer is given an opportunity to enter our ‘Fresh Start’ program where they may have amounts automatically deducted from their account to be applied to the overdraft balance, while continuing to use their checking account without the Bounce privilege.

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.

Comment: We agree.

We respectfully submit our comments and thank you for the opportunity to voice our concerns. If you have any questions, I may be reached at 740.446.2631, ext. 314.

Very truly yours,

Patricia L. Davis
Vice President, Research and Technical Applications

Last Updated 08/06/2004 regs@fdic.gov

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