LYON COUNTY STATE BANK
July 19, 2004
Robert E. Feldman, Executive Secretary
Attention: Comments/Executive Secretary Section
Federal Deposit
Insurance Corporation
550 17th Street NW
Washington, DC 20429
Dear Mr. Feldman:
RE: Overdraft Protection Guidance Comment
FIL 63-2004, dated June 7,
2004
We appreciate the opportunity to provide comment on the proposed
Interagency Guidance on Overdraft Protection Programs. Our comments on
the Proposal are outlined below.
To state that discretionary overdraft services are "new" is
not accurate. Almost every financial institution in the country offers,
and
always has offered, a discretionary overdraft service. As a community
bank, we have always provided for overdrafts based on knowledge of
our
customers and have established an internal set of standards designed
to facilitate the payment of overdrafts.
II. Even if a financial institution has the ability
to "automate" this
service, it is still discretionary and all financial institutions
will be affected by regulatory changes. Therefore, the agencies are
cautioned to make changes that can be managed by the smallest financial
institutions as well as the largest.
III. We believe that the 30-day time frame for charge off of an
overdraft is too short. Our experience has shown that most consumers
will deposit sufficient funds to cover an overdraft within 45 days. To
establish a charge off time period imposes a one size fits all approach
that is simply not prudent in community banking organizations. This
proposal does not take into consideration well-managed discretionary
programs and the bank's ability to adequately risk assess that program.
We desire the flexibility to work with our customers as individuals.
IV. We disagree with reporting the available amount
of overdraft protection as "unused commitment". As defined, "commitment" implies
an agreement to assume a financial obligation at a future date.
Discretionary programs do not involve written agreements and are solely
for the accommodation of the customer. All materials and procedures
show
that the payment of any overdraft is purely discretionary, therefore
no established commitment can be defined.
V. It is our opinion that financial institutions are very responsible
regarding the disclosure and education of any program offered, including
the discretionary payment of an overdraft. The industry has for some
time been very aware of the need for proper and full disclosure. Any
isolated problems should be dealt with on an individual basis by the
examing bodies and not as part of a global regulatory change that will
further burden the community banks.
VI. We do not believe that a discretionary overdraft program encourages
irresponsible behavior on the part of the consumer. The American
consumer has written checks in excess of their account balance for as
long as banks have been in business. A discretionary program rewards
customers for their banking relationship and sound financial practices
as the overdrafts are paid based a set of circumstances unique to the
customer. A well-managed program will take into account a consumer's
financial problems and will prevent most customers from becoming
overdrawn beyond their ability to repay.
VII. We have also found that almost all eligible
accounts are provided discretionary coverage in community banks.
We have not, nor
do we have knowledge of any financial institution that has "targeted" a
particular group of individuals. To say that discretionary overdraft
programs target low-income individuals is simply not factual.
VIII. We believe that consumers are given ample disclosure to fully
understand the cost of writing insufficient checks. As required under
various banking regulations, consumers are notified of fees when an
account is opened, in account brochures, on periodic statements and in
per-occurrence notices. To require financial institutions to alter their
periodic statements to provide additional information would be
burdensome and costly, especially to community banks that have
outsourced data processing.
IX. We disagree that there should be a cap on overdraft fees. Each
item that is paid avoids a number of possible additional fees or
negative information that could be imposed on a consumer, such as fees
assessed by the payee, late charges, derogatory credit history or
collection charges. The fee paid to the financial institution for a
discretionary overdraft allows each community bank the ability to
continue providing a much-needed service to their customers.
X. We disagree with the need for an "opt out" program
or affirmative consent to receive a service that can only help the
customer. The charge
that is assessed when an item is paid is often the same as that charge
for returning the item and would normally never equal the cost of
a
returned item plus the merchant's fee. Therefore we can find no reason
that the customer would want their check returned rather than paid.
XI. We currently disclose the order of paying items (largest to
smallest) but disagree with a more-detailed explanation regarding
processing order by transaction type (e.g., transaction at the ATM or
point-of-sale terminal) that would only confuse the customer.
XII. We disagree with the proposed additions to the overdraft
notification. The amount of time consumers have to return their accounts
to a positive balance and the consequences of not returning it to a
positive balance within that timeframe have generally not been affected
in any negative manner by overdraft protection programs. Therefore, we
see no need to provide additional disclosures. When full disclosures are
provided upon account opening it should be the consumer's responsibility
to retain those disclosures and there should be no need to reiterate
those terms when the service is accessed. Again, we find too much
information to be more confusing than helpful.
As a community bank, we appreciate the opportunity to provide
comments on this very important topic.
Sincerely,
Russ Bonitatibus
Vice President
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