STERLING BANK
August 14, 2004
Robert E. Feldman
Executive Secretary
Attention: Comments, Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Subject: PR-60-2004 Agencies Issue Proposed Guidance on Overdraft Protection
Programs
Dear Mr. Feldman:
I am submitting comments on behalf of Sterling Bank headquartered in
Houston, Texas, on the Interagency Guidance on Overdraft Protection.
By way of background,
our overdraft protection program was created for the purpose of automating
the formerly manual process by which account
officers review their customers’ overdrafts. For customers who
maintain their accounts in good standing, the program allows the account
officer to establish an overdraft limit for which items will automatically
be paid into the overdraft, to a limit of $300. The determination of
whether an account is in good standing is defined by established criteria
such as an existing deposit relationship of at least six (6) months with
regular deposits, no legal orders outstanding, and is brought to a positive
balance every thirty (30) days.
Promotion
of Program:
Our overdraft protection program is outlined in our account agreement
under
the heading Overdraft Privilege Policy which
states, “We may refuse to pay an overdraft for you at any time,
even though we may have previously paid overdrafts for you.” The
account agreement is clear as to fees charged for insufficient items
as it states, “The amount of any overdrafts plus insufficient funds
and/or overdraft fees that you may owe us shall be due and payable on
demand.” Additionally, the agreement states, “Whether we
pay or return an item that is insufficient, a flat per-item handling
fee will be charged to your Account as set forth in our fee schedule.” The
fee imposed for an overdraft paid under this program is identical to
the fee charged to customers not in the program. We believe such disclosures
provide sufficient information for consumers to differentiate between
the overdraft protection program and overdraft line-of-credit products.
30-Day Charge-Off: One concern with the proposed requirement to charge-off
overdraft balances after 30 days is the fact that the 30-day timeframe
may not afford customers adequate time to resolve an overdraft. It is
conceivable that in a 31-day statement cycle (month) a customer could
overdraw his/her account on the first day of the statement cycle and
be charged-off before receiving the monthly statement thus not allowing
the customer time to receive and reconcile a bank statement containing
such overdraft activity despite receiving notice of overdraft. Additionally,
customers who receive monthly payments from employers or the government
may not receive those payments in time to satisfy an overdraft balance
within a 30-day period. The proposed swift charge-off of an overdrawn
account and subsequent reporting of such to a reporting agency would
have an adverse impact customers who may otherwise have been able to
bring the account current. Another consideration is the significant operational
challenges the 30-day timeframe would pose to financial institutions.
Financial institutions would bear the burden of system changes required
to comply with the proposed 30-day charge-off of overdrawn accounts.
Our current overdraft protection policy, which charges-off after 60 days,
represents little risk to the bank.
In light of these arguments, we propose that 60 or 90 days would be
a more reasonable amount of time, both for the financial institution
and the customer, to charge-off an overdrawn account.
Equal Credit
Opportunity Act: Sterling Bank agrees that overdraft protection coverage meets
the definition
of “incidental credit” as defined
in Regulation B. Therefore, action taken to discontinue overdraft coverage
would not trigger the adverse action notice required by Regulation B.
Regarding the need for additional disclosures, we assert that sufficient
notice of such action is provided where initial account disclosures explain
that the financial institution may refuse to pay an overdraft at any
time, even though overdrafts may have previously been paid.
Provide Election
or Opt-Out of Service: The best practice of obtaining affirmative consent
of consumers
to receive overdraft protection or permitting
customers to “opt-out” of the program would impose significant
costs of compliance on financial institutions without benefit to customers.
Given the fact that customers are subject to returned check fees from
merchants in addition to bank fees for overdrafts, opting-out of overdraft
protection would impose additional costs to the customer. Although overdraft
fees are disclosed to bank customers, merchant fees may or may not be
disclosed to customers by the merchants; therefore, customers may not
be fully aware of the adverse impact they would incur due to the lack
of overdraft protection.
Fairly Report
Program Usage: Sterling Bank concurs that institutions
should not report negative information to consumer reporting agencies
when the overdrafts are paid under the terms of overdraft protection
programs.
I appreciate the opportunity to comment.
Sincerely,
Brandi M. Gregg
Vice President and Compliance Manager
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