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REDDING BANK OF COMMERCE
July 29, 2004
Mr. Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th
Street N.W.
Washington, D.C. 20429
Attn: Comments
Dear Mr. Feldman,
I am writing in response to the Interagency Guidance on Overdraft
Protection Programs request for comments regarding overdraft protection
programs. I am enclosing a position statement prepared by Sam Jimenez,
our Director of Risk Management. The comments represent those of
the Directors and management of the company. I would like to direct
you attention to the discussion regarding Other Consumer Considerations
and strongly recommend adoption of our recommendation.
Please feel free to contact me directly with and questions or comments.
Sincerely,
Michael C. Mayer
President and Chief Executive Officer
cc: U. S. Senator Diane Feinstein
U. S. Congressman Wally Herger
California Department of Financial
Institutions
California Bankers Association
Comments on Interagency Guidance on Overdraft Protection Programs
The following commentary is in response to the proposed Interagency
Guidance on Overdraft Protection programs. Overall Redding Bank of
Commerce (RBC) agrees with all of the proposed guidance with the
exception of the 30-day charge-off proposition.
Background
RBC recently introduced its customers to an overdraft protection
program called Overdraft Privilege (OP). Our discretionary OP service
has all of the characteristics detailed in the proposed guidance
including criteria-based automatic coverage, paid overdrafts up to
an aggregate limit, flat fees for every item paid, and installment
loans for repayment of overdrafts and fees.
We feel that our overdraft program is a viable product. The OP product
provides our customers with a service that meets their needs for
convenience and flexibility in funds management. Management has already
implemented a number of controls outlined in the proposal. We have
made all of the proper disclosures; we are monitoring our customer's
use of this service and are making provisions to the bank's Allowance
for Loan and Lease Losses. Additionally, RBC management is currently
evaluating the industry's best practices and will implement all relevant
and applicable measures.
Safety and Soundness Considerations
With the exception of the 30-day charge off timeframe, RBC agrees
with the proposed interagency guidance. Written policies and procedures
addressing credit, operational, and other risks are prudent and consistent
with the bank's risk management philosophy and sound banking practices.
Although credit underwriting
is not part of our OP program, a 30-day charge off timeframe is
inconsistent with the characteristics and
associated risks with this type of product. RBC's OP service as with
many other institutions has a "Fresh Start" repayment plan
feature. The repayment plan is a short-term (the repayment period
can be up to a maximum range of six to nine months) installment loan
with no fees or finance charges that allows customers to repay their
overdrafts and fees. This feature or installment loan is not offered
until an account is overdrawn for more than 30 consecutive days in
an amount greater than $100.
A more reasonable charge off timeframe should correspond to the
characteristics of the OP product. As with any unsecured loan, borrower
performance along with repayment ability dictate whether a credit
remains a bankable asset. A 60 day charge off timeframe from the
day the overdraft(s) occurs would allow the customer 30 days to demonstrate repayment
ability and intent. Additionally, RBC reserves 100% of all "Fresh
Start" loans
in the bank's Allowance for Loan and Lease Losses thereby fully
recognizing the risk in these relatively
small and short-term credits. Should a 30-day charge off be required,
the repayment program will effectively be eliminated and replaced
with collection efforts and recoveries. This could hamper and possibly
eliminate RBC's and many other commur'ty' banks ability to serve
its customers with OP and other innovative financial products.
Legal Risks
RBC is confident that our product complies with all applicable Federal
laws and regulations. We have conducted a thorough review of our
vendor and believe our due diligence regarding this product is complete.
Other Consumer Considerations
RBC is committed to serving
its customers in a fair and respectful manner. However, it has
come to our attention that other bank(s)
in Northern California are not operating under the same commitment.
One such bank offers "free checking" to attract new customers
to its branches. However, unbeknown to these customers, the bank
processes their checks in order of the largest dollar items to the
smallest. Under this method, should the customer be overdrawn, the
bank will benefit with larger overdraft fees on a per item basis.
RBC processes its customer's checks by check number order or on a
non-discriminatory basis. Banks that process checks in a discriminatory
or large dollar checks first basis are acting in an unfair and deceptive
manner. At a minimum, these types of practices should be disclosed
to its customers. We feel that the FFIEC should address this issue
under this proposed guidance or other existing directives.
Best Practices
As previously stated, overall, RBC agrees with the proposed regulatory
guidance on Overdraft Protection including the industry's best practices.
We are viewing this proposal as an opportunity to review our current
OP procedures and will implement any and all of the industry's practices
that best serve our customers.
Thank you for the opportunity to comment on the proposed guidance.
Respectfully,
Samuel D. Jimenez
Vice President Director of Risk Management
Bank of Commerce Holdings
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