Godbold
Financial Associates
July 19, 2004
Re: Comments Interagency
Guidelines on Overdraft Protection Programs
Volume 69, #109 of the Federal Register - June 7, 2004
I am pleased to respond in behalf of the Overdraft Protection Program,
Godbold Financial Associates of which I am president is affiliated
with Impact Financial Services of Little Rock, Arkansas. Godbold
Financial has been selling and implementing the Overdraft Privilege
in South Carolina, North Carolina, Virginia, Tennessee, Maryland,
and Delaware for the past 4 years. We currently represent 77 banks
in these areas.
My background
in banking began in 1963 with C&S Bank of South
Carolina and continued through until I retired in 1998 which included
President of Bank of Gaffney, Gaffney, South Carolina, President
of Lincoln Bank in Lincolnton, North Carolina, and President of Carolina
State Bank in Shelby, North Carolina. I was involved in the initial
development of Lincoln Bank and Carolina State Bank, which were denovo
banks.
My experience in community banking has helped me relate to the financial
institution that we represent and more particular to their customers.
The Overdraft Privilege has proven to be very good and safe for financial
institution. The customer needs and appreciates the product. The
customer feels like the financial institution trusts them for the
small limit provided and appreciates the financial institution for
proving the safety net to avoid returned checks, additional costs,
and embarrassment of having to pick up returned checks. This is one
of the best retail products that I have seen in my years of banking.
Win for the financial institution - Win for the customer.
COMMENTS:
CHARGE OFF IN 30 DAYS
Charging off
in 30 days is too fast. It is my strong recommendation that charge
off should
be at 60 days. Sixty days will only increase
the risk to the financial institution slightly. Impact’s collection
process starts at 30 days therefore a customer has not received a
collection letter until this time. The customer must be given time
to respond to the 30 day letter. Upon receipt of this letter a large
number of customers will clear their account with a deposit or they
will request to be placed on a repayment plan.
By charging off
in 30 days the financial institution will have to cancel ATM/Debit
Card, notify Chexsystems, etc. When the customer
clears there account (which happens frequently) the financial institution
must reverse the steps they took at charge off. This is bulky for
the financial institution and bad for the customer. 60 DAYS to charge
off will eliminate a tremendous amount of extra work for the financial
institution. To counter the
risk the financial institutions should set up a reserve specifically
for the Overdraft Privilege and Repayment Plans, using actual experience
to determine the amount.
The 60 days along with the reserve should be sufficient and it will
save the financial institution a tremendous amount of time and money.
Not to mention the inconvenience to the customer to reopen their
checking account and replace their ATM/Debit cards.
UNUSED COMMITMENT REPORTING
It is my opinion an unused commitment report serves no purpose.
It will make it appear that the risk is much greater than it really
is. Using a reserve account should satisfy the fears of the general
public and the regulators.
FREE ACCOUNT DISCLOSURES
I do not believe marketing free checking with the Overdraft Privilege
is misleading when adequate disclaimers are made and given. This
is no different from a financial institution marketing free checking
and requiring a direct deposit to get the free account. Adequate
disclaimer is the answer.
NOTICES UPON FIRST AND SUBSEQUENT OVERDRAFTS
I suggest that this section be deleted. All of the financial institution
we are responsible for their Overdraft Privilege (77 banks) use their
main processing system to provide the notices when checks have been
paid in an overdraft status, this allows the customer to know that
they are overdrawn and how much. To modify this notice specifically
for the Overdraft Privilege could be very expensive and in most cases
the operating system will not allow multiple types of notices plus
many are limited to the number of characters that can be put on the
notices. This would be a requirement that most community financial
institution would not be able to meet.
REPAYMENT PLANS
It has been our experience when a customer signs up on a formalized
basis for a repayment plan 80% will pay it off as agreed. To charge
this off in 30 days requires the financial institution to close the
account for the customer when most customers need a checking account.
One of the major purposes of the repayment plan is to allow the customer
to retain their account while drafts are being made against the account.
To charge off the account in 30 days is not in the best interest
of the customer since 80% of these customers would retain their account
with the financial institution in good standing. Most checking account
customers are good people that want to pay the financial institution.
CONCLUSIONS
I am pleased
that the regulators are coming together to form guidelines that
will be
good for the financial institutions and their customers.
The Overdraft Privilege product has proven to be good for the financial
institution and the customer. We have just gone through a lengthy
recession and the Overdraft Privilege program held up well. The Overdraft
Privilege actually performed better during the recession since the
financial institution customers needed the Overdraft Privilege more
and the financial institution experience only a slight increase in
charge offs. The Overdraft Privilege appears to be a minor safety
and soundness issue since this is such a small part of the financial
institution’s overall risk and reserves would balance the risk.
Another issue that was not in the potential guidelines is the use
of the Overdraft Privilege at the ATM and Point of Sale. Electronic
banking is becoming a major way of banking for the customer. It is
important that the customer be able to access their account for the
Overdraft Privilege at the ATM and Point of Sale. We do support not
showing the Overdraft Privilege limit in the available balance at
the ATMs. This can be misleading to customers.
John J. Godbold
President
Godbold Financial Associates
(affiliate of IMPACT Financial Services)
PO Box 37540
Rock Hill, SC 29732
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