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UNION BANK & TRUST COMPANY
August 9, 2004
Robert E. Feldman, Executive Secretary
Attention: Comments/Executive Secretary Section
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, DC 20429
Dear Mr. Feldman:
I am responding to the request for comment regarding the Interagency
Guidance on Overdraft Protection Programs. Thank you for this opportunity.
Safety and Soundness
We recognize the importance of risk management and the constant
monitoring of accounts that are overdrawn. We feel, however, that
by placing a 30-day charge off timeframe on overdrawn accounts we
would be doing a disservice to our customers. Charging off an overdraft
after 30 days would result in closing the customer’s account
and turning it over for collection much earlier than our current
process. This would be detrimental to our customers and their future
banking needs by increasing the number of accounts we are reporting
to the credit bureau, negative databases, and collection agencies.
If the proposed guidance is left at 30 days, and is ultimately interpreted
by onsite examination staff, the possibility of working with a customer
has been eliminated from the equation. This will force all financial
institutions to automatically lump customers that overdraw their
accounts into the same category and create an automated process of
charging off overdrawn balance. It has been the experience of our
customers that 93% will bring their account positive within the 45 – 60
day time frame and therefore our recommendation would be a 60-day
charge off timeframe.
Best Practices
Marketing and Communications with customers
Clearly explain
discretionary nature of program. Listed under best
practices is a suggestion that a depository institution “describe
the circumstances in which the institution would refuse to pay an
overdraft or otherwise suspend the overdraft protection program.” Although
we should be very specific about the overdraft service we are offering
to our customers, we feel that by listing all circumstances that
would warrant an item being returned would lead customers to believe
that if none of these circumstances are met that an item will be
paid. This goes against the meaning of discretionary and the banks
ability to make decisions on whether to pay or return an item. The
focus should be on making clear to the customer that the service
is discretionary.
Distinguish overdraft protection services from “free” account
features. This is not a marketing approach that our institution practices,
nor do we single out just our free account holders. We extend the
service to almost our entire checking account customer base in a
variety of checking account products. The guidance should clarify
that the practice of delivering a fee schedule for other products
and services associated with a transaction account along with account
agreements that cross-reference the fee schedule is acceptable practice.
Explain check-clearing
policies. The Uniform Commercial Code (UCC)
states that a financial institution may pay items presented for payment
in any order. Therefore, the statement of explaining check-clearing
policies, or describing the order of payment, is in direct contradiction
to the UCC should not be included in the final guidance. To explain
the exact order in which transactions are processed (checks, ACH,
POS, ATM, etc.) as well as any deviations that may occur, in a way
the customer would understand, could be difficult and confusing for
the customer.
Ultimately it is the responsibility of the accountholder to make
sure they have sufficient funds in their account when they are issuing
payment for service. From the standpoint of the customer, check-clearing
policies only come into play when an item(s) is presented against
insufficient funds and the institution returns the item(s) rather
then paying it.
Program Features and Operation
Alert Customer
before a non-check transaction triggers any fees.
In our experience in providing an overdraft protection service we
have several of our customers who take advantage of the electronic
banking services we provide and have received very few customer complaints.
This particular guidance concerns us, which is recognized in the
Proposal, that it could be costly with system enhancement to notify
customers prior to them overdrawing their account using an ATM. To
provide notification at POS terminals would be very difficult if
not impossible and would involve not only a change with our core
processor but with the all ATM and POS networks across the country.
Consider
Daily Limits. We are opposed to limiting the number of
overdrafts or the dollar amount of fees assessed each day while continuing
to provide coverage for all overdrafts up to the proposed limit.
Customers would prefer to see their items paid rather than returned
because each item paid avoids possible return fees assessed by the
retailer or payee. A limit could encourage customers by sending the
wrong message to present more items against insufficient funds, exceeding
the daily limit and causing the customer to incur more fees from
the retailer or payee. The merchant is going to still collect fees
for returned items regardless of the number of items presented. Our
experience shows that on average the number of non-sufficient fund
items per overdrawn account is two, which is an insignificant number.
Again, thank you for the opportunity to submit our comments on the
Proposed Guidance.
Respectfully,
Jason McCown
Operations Officer
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