FARMERS and MERCHANTS BANK
July 7, 2004
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments FDIC
550 17th Street NW
Washington, DC 20429
Re: FDIC No. 2004-30 Overdraft Guidance on Overdraft Protection
Programs
The following
comments to the proposed guidelines published in Volume 69, Number
109 of the Federal Register on June 7, 2004 are herein
offered for your consideration.
The majority of the guidelines requirements and best practices are
welcomed and are being complied with by our bank. However, there
are a few areas, which we believe, are worthy of comment and they
are as follows:
I. CHARGE
OFF OVERDRAFTS AT 30 DAYS:
Our bank offers
an overdraft privilege program through the assistance of IMPACT
financial services Inc. This program provides a collection
process designed to minimize losses while still focusing on customer
retention. This process is, designed to make systematic contact
with the customers
and determines which are deserving of being charged off. This process
has been used for quite sometime and we believe that it efficiently
manages the risk to the bank. Accordingly, we would advocate that
overdrafts be allowed up to an aging of sixty days prior to charge
off of an overdraft account. This is our current policy and has been
reviewed in the past by the bank examiners and deemed a satisfactory
process by them.
II. UNUSED COMMITMENT
REPORTING:
The proposed
guidelines provide that the amount of unused commitments should
be reported in regulatory reports when an institution routinely
communicates the available amount of overdraft protection to its
customers. Our bank advocates an adequate loss reserve be maintained
and that these reserves be based on the historical performance of
the overdraft protection service. However, reporting in the manner
suggested by the guidelines would, in our opinion, greatly overstate
the risks associated with this product. These lines of credit made
available to our customers are very different from a line of credit
offered to a business or individual in that these later lines of
credit are preceded by a signed legal document as to the terms and
conditions of the line of credit and are in amounts that greatly
exceed the overdraft privilege program we offer to our customers.
Our overdraft privilege program gives the customer written notice
at the time the privilege is approved that the privilege may be revoked
at anytime.
III. NOTICES
UPON FIRST AND SUBSEQUENT OVERDRAFTS:
The proposed regulations suggest that notices be provided containing
certain specific information upon the first overdraft paid under
the service as well as later uses of the privilege. We would not
argue that a notice be issued promptly upon an overdraft being created.
However, the systems, which financial institutions frequently use,
do not accommodate inclusion of the type of additional information
suggested by the guidelines. Accordingly we would like to suggest
that this suggestion be deleted.
IV. REPAYMENT
PLANS:
The guidelines suggest that repayment arrangements, which are formalized
between a depositor and a bank, should be charged off when the underlying
overdraft has aged past thirty (30) days. Our process has experienced
a high degree of success in utilizing repayment plans and these plans
provide an additional safety net for our customers. These repayment
arrangements also produce a small degree of risk during the period
in which they are being paid according to their terms. Therefore,
we would suggest that current and performing repayment plans not
be charged off.
In conclusion, our goal has been to offer a service that complies
with the best practices guidelines as stated in the Interagency Guidelines
and fairly pricing the product that allows our customers to decide
for themselves when and if they wish to utilize this product. We
appreciate the opportunity to comment on the proposed guidelines.
Respectfully submitted,
Jerald L. Ikner Sr.
Sr. Vice President/CFO
Farmers & Merchants Bank
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