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FDIC Federal Register Citations

Devon Bank

From: John Dabrowski
Sent: Friday, August 06, 2004 12:04 PM
To: Comments
Subject: Joint Agency Notice - Overdraft Protection Programs

August 5, 2004

Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429


Dear Mr.. Feldman:

Devon Bank has reviewed the newly published Interagency Guidance on Overdraft Protection Programs, published in volume 69, number 109 of the Federal Register on June 7, 2004. Devon Bank currently follows many of the best practices recommended in the guidelines. Following are a few areas we believe are worthy of comment.

CHARGE OFF OVERDRAFTS AT 30 DAYS

Devon Bank uses a collection process designed to make systematic contact with the customer and determine which customers wish to cure their negative balance and which are deserving of being charged off. The process has been used for quite some time and we believe it efficiently manages the risk to our bank. Accordingly, we 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.

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. Daily balances of customers who have overdrawn balances under the overdraft protection plan are less than 1% of the available commitments. Reporting in the manner suggested by the guidelines would appear to greatly overstate the risks associated with this product. We advocate loss reserves be maintained that are based on historical performance of the overdraft protection service.

FREE ACCOUNT DISCLOSURES

Financial institutions have 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 overdraft fees can be charged on the account under certain circumstances as are other fees when they are set out in detail in the depository agreement. We advocate allowing free account advertising with overdraft protection when conspicuous disclaimers are included in the communication that make clear that other restrictions may apply.

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. Devon Bank does not argue that a notice should be issued promptly upon an overdraft being created. However, the many systems which financial institutions use do not accommodate inclusion of all the additional information suggested by the guidelines. Accordingly, we suggest that this suggestion be deleted.

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. Devon Bank has experienced a high degree of success in utilizing repayment plans and find that they are an additional safety net for the customer. These repayment arrangements also produce a small degree of risk during the period in which they are being paid according to their terms. Accordingly, we would suggest that current and performing repayment plans not be charged off.

Thank you for allowing us the opportunity to present our concerns.


Sincerely,


John J. Dabrowski
Sr. Vice President & Chief Financial Officer

Devon Bank
6445 N. Western Ave.
Chicago, IL 60645

 
Last Updated 08/09/2004 regs@fdic.gov

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