VENTURE BANK
July 20, 2004
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Re: Interagency Guidance on Overdraft Protection
comments@fdic.gov
RE: Proposed Guidance on Certain Overdraft Protection Programs
Dear Mr. Feldman:
I am writing on behalf of Venture Bank (“Bank”) to comment on the
agencies’ proposed guidance on overdraft protection. We recognize the
amount of effort that has gone into preparing this guidance. We
respectfully submit our comments below.
The Bank has offered its customers an Overdraft Protection Program (“ODP”)
for the last two and a half years; approximately 17% of the Bank’s
customers use the ODP. The Bank has managed the risk for this program in
an appropriate manner mitigating losses while providing a valued service
to its customers. The Bank already complies with a substantial majority
of the proposed guidelines as well as best practices.
Throughout the proposed guidance overdraft protection programs are
labeled as a “credit service”; we find this label troubling and entirely
inaccurate. Regulation Z applies when all four of the following
conditions are met: (i) the credit is offered or extended to consumers;
(ii) the offering or extension of credit is done regularly; (iii) the
credit is subject to a finance charge or is payable by a written
agreement in more than 4 installments; and (iv) the credit is primarily
for personal, family or household purposes. Our ODP is not offered
regularly it is simply provided as a service to our customers at the
time of account opening where they are provided an opportunity to opt
out from the service. We do not assess a finance charge, nor is this
service payable by written agreement in more than 4 installments.
Payment of the overdraft is expected at the time the account is
overdrawn. The Bank’s ODP is a discretionary service; we are not
obligated to pay any item presented for payment if an account does not
maintain sufficient funds. The ODP is simply a more efficient NSF
processing system. Our ODP provides an automated system for making
pay/return decisions allowing for more efficient use of our resources
and quicker processing. Our ODP is of benefit to our customers because
not as many items are returned and therefore, they are not charged as
much in fees by merchants and are saved the embarrassment of returned
checks. No written agreement is entered into at the time of account
opening and we may approve reasonable overdrafts as a non-contractual
courtesy. We feel it is essential that the final guidance eliminate the
term “credit service.”
The guidance establishes a clear safety and soundness standard that
overdraft balances must be charged off within 30 days from the date
first overdrawn. Further, it is stated that the existence of a repayment
plan would not extend the charge-off determination period beyond the 30
days measured from the date of the overdraft. We feel our ODP does not
pose a safety and soundness concern. The risk of this program has been
identified and accepted by the Bank’s board of directors and is managed
by senior management. A notice is sent to the customer upon the first
use of the ODP reminding them that repayment is expected immediately,
follow-up letters are sent at 10 day intervals and the overdraft
privilege is discontinued at the 30 day mark with customer letters used
for further collection. Bank procedures provide for the charge off of
the overdrawn balance at 60 days, at which time additional collection
efforts are made. A longer charge off period is also more favorable to
the customer since no damage would be done to depositors by the
premature reporting of charged off accounts to the credit bureaus.
The proposed guidance states that “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.” Unused commitments in the call report are defined
as “unused portions of commitments to make or purchase extensions of
credit in the form of loans or participations in loans, leases or
similar transactions.” Overdraft protection programs do not fit this
definition and thereby should not be included in unused commitments for
regulatory reporting. ODP’s as previously discussed are a discretionary
service not a credit product. There is no commitment to advance monies
or any written agreement with the customer. The Bank is not obligated to
pay any overdrafts and may cancel the service at any time. This
reporting requirement should only be reserved for contractually binding
obligations such as traditional overdraft lines of credit or other
formal credit facilities.
The proposed best practices includes a suggestion that all financial
institutions involved with ODP’s monitor excessive consumer usage, which
may indicate a need for alternative credit arrangements or other
services and inform consumers of these available options. Several
concerns are raised by this suggested “best practice.” First would be
the definition of “excessive consumer usage” this is a broad statement
and we feel not easily defined; what may be considered excessive for one
customer may not be for another. Second, we do not feel it is the Bank’s
responsibility or in the best interests of the customer to restrict use
of this product; customers want this product as evidenced by the volume
of transactions.
In Conclusion:
• Generally, we are in agreement with many elements of the proposed
ODP guidance. Many of the best practices suggested have already been
implemented by our institution.
• We disagree with the regulatory agencies’ requirement for charge off
of overdraft balances at 30 days as well as the suggested practice of
monitoring excessive consumer usage and classification of unused
commitments in regulatory reporting.
• Finally, we feel it is very important that the agencies take out all
references that ODP’s are a credit service, previous discussion shows
that this is a discretionary deposit product service.
Sincerely,
Jon M. Jones
President
Venture Bank
