|
CENTRAL BANCSHARES
July 9, 2004
Mr. Robert E. Feldman
Executive Secretary
Attn: Comments, Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Dear Mr. Feldman:
I am writing regarding the proposed revisions to Regulation DD and
Interagency Guidelines on Overdraft Protection Programs. We have
reviewed the proposals in detail and applaud your efforts to standardize
administration and communication of these programs for all financial
institutions. Two of our banks (Central Bank & Trust Co. and Central
Bank, FSB) have offered Courtesy Coverage (overdraft protection) since
early 2001. Our third bank, Salt Lick Deposit Bank, began offering it in
2003. We now have more than three year’s experience in dealing with the
multiple issues addressed in both proposals. Based on the working
knowledge we’ve gained, we would like to offer these comments.
Regulation DD Proposed Revisions
Periodic Statements
• Reflect total amount of fees imposed for overdrafts for the
statement period and year-to-date
• Reflect the total amount of fees for returned checks for statement
period and year-to-date
COMMENT: Rather than reporting fees paid, we recommend using the
number of items overdrawn for the statement period and year-to-date. We
believe using the amount of fees paid may prove confusing because those
figures may not include adjustments caused by fee waivers and refunds.
In our case, our statements would only indicate what was charged, rather
than what was collected. Adjustments for fee waivers and refunds are
maintained in separate files from the service charge routine. Updating
the service charge file with the new data would create additional
maintenance and expense for the Bank. It could also create confusion if
some of the items had been refused, because the customer had opted out
of Courtesy Coverage or because they had exceeded their coverage limit
and the Bank would not pay the item.
At this time, it is also unclear how long it may take for data
processors to program the system for this information to appear on a
periodic statement. We would suggest an implementation date in mid 2005,
to give banks and their data processors time for proper testing to
ensure compliance.
Advertising
• Misleading advertising describes a service solely as a protection
against checks when the overdraft service may be imposed in connection
with ATM withdrawals and other electronic fund transfers that permit
consumers to overdraw their accounts. Do not state that the coverage
protects bounced checks only when it also covers ATM/electronic
withdrawals
COMMENT: We believe that all communications with consumers should be
consistent, indicate what transactions are covered (checks, ATMs, POS,
etc.) and disclose the customer’s current balance without the Courtesy
Coverage available limit. This allows the customer to make a conscious
decision to exceed the available balance (and therefore, incur a fee)
for each transaction.
Proposed Interagency Guidance on Overdraft Protection Programs
Safety and Soundness Considerations
• Overdraft balances generally should be charged-off within 30 days
from the date first overdrawn. Some overdrafts are individually
underwritten and supported by a documented assessment of the
customer’s ability to repay – in these instances the FFIEC Uniform
Retail Credit Classification and Account Management Policy would
apply. For corporate and small businesses, existing credit
relationship may support exceptions to the 30 day charge-off guidance.
The existence of extended repayment plans beyond the initial 30 days
does not extend the charge-off period. Payments received after
charge-off (to the allowance) should be reported as a recovery.
COMMENT: Currently, we collect 70% of the overdrawn balances that go
past 30 days. Forcing mandatory charge-off and account closing at 30
days would adversely affect the Bank and customer. We believe the
customer is best served when the charge-off occurs only when all
collection efforts have been exhausted. If the customer has responded to
the attempts to collect the overdraft within the 30-day window, the
collector can arrange repayment without charging off the balance.
However, if the account remains overdrawn for 30 consecutive days and we
have not spoken with the customer, the overdraft protection should be
terminated until the customer brings the account “whole” by making a
deposit(s). If the customer has not corrected the overdraft within 60
days, it should be charged-off and disclosure made to the proper
agencies. Customers should not suffer for the Bank’s disclosure of
adverse information to the credit reporting agency until all attempts to
correct the problem have been exhausted. Imposing the mandatory
charge-off at 30 days will adversely affect a consumer’s ability to
obtain a checking account at another financial institution.
• Monitor the program carefully on an ongoing basis and adjust as
needed to account for credit risk. Identifying customers who are
excessively reliant on the product or who may present an undue credit
risk to the Bank and disqualify them from participation in the
program.
COMMENT: We believe it will be very difficult to determine excessive
or abusive usage of the program. Our experience has varied widely from
customer to customer. What is normal for some would be excessive for
those who simply cannot afford to pay the fees associated with heavy
usage. The Bank carefully monitors its program and frequent abusers are
identified through the collection process. Where necessary, customers
are disqualified from participation in the program. Overdraft privileges
are suspended at the 30th consecutive day to ensure that the next
deposit will return the account to a positive balance. Each collector
reviews his/her assigned accounts that are overdrawn 30 or more days.
• Overdraft losses (other than the portion attributable to
overdraft fees) should be charged off against the allowance for loan
and lease losses.
COMMENT: We recommend all fees charged in the last 90 days should be
included in the charge to the allowance for loans & lease losses.
• 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 and
reflected accurately in risk based capital
COMMENT: Central Bank does not routinely communicate the available
amount of overdraft protection to depositors; the ATM balance does not
reflect this limit and our Call Center and electronic systems do not
routinely report this limit. To do so would be confusing to the
customer. As such, we also do not think the unused amount should be
reflected as a commitment and considered in our risk-based capital
calculation.
• Alert consumers before a non-check transaction triggers any fees
where feasible (ATM).
COMMENT: It is not appropriate to single out ATMs for this disclosure
when it cannot be provided for checks or POS transactions. We should
treat the consumer in a consistent manner. Please note: our ATM
receipt reflects a negative balance in the account if the withdrawal
triggers an overdraft. Also, requiring a “prenotification” could be
very difficult for transactions at other bank’s ATMs.
• Consider daily limits (number and dollar amount of fees).
COMMENT: If the Bank institutes a daily cap, it could limit our
ability to identify chronic abusers and to provide corrective counseling
for them.
• Monitor overdraft protection program usage. Monitor excessive
usage, which may indicate a need for alternative credit arrangements
or other services and inform consumers of these available options.
COMMENT: Overdraft protection program usage is closely monitored.
When excessive overdrafts occur in a day, the customer is contacted to
provide assistance/counseling.
We believe these comments will provide some practical insight for
regulators to use in developing their guidelines. Risk management and
customer communications are vital to the success of any overdraft
program. At Central Bank, we regularly collect better than 93% of all
the fees charged for personal overdrafts and have averaged better than
90% collected since inception. Our management and Board of Directors
receive monthly reports of activity, collection rates, charge-offs and
related customer issues.
Again, we sincerely appreciate the opportunity to comment. If you
would like to discuss any of these suggestions in more detail, please
call me at 859-253-6184.
Sincerely,
Luther Deaton, Jr.
Chairman, President & CEO
Central Bancshares
Lexington, KY |
