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#118010 - 09/26/03 06:50 PM
Re: Overdraft Protection
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10K Club
Joined: Jul 2001
Posts: 83,226
Galveston, TX
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Quote:
being told by OCC that our program is unequivocally a "loan", that our overdraft fee is a finance charge and that the permitted overdraft limit is an open end line of credit
Well, I would first ask them on what regulatory citation are they basing this opinion. Start there. What may be considered a credit or loan undersome circumstances may not be considered a credit or a loan under others, depending on the regulation at which you are looking.
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#118011 - 09/26/03 08:01 PM
Re: Overdraft Protection
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Platinum Poster
Joined: Apr 2003
Posts: 933
New York State
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I totally agree, and have advised management to request a citation. I'm also very interested in what others are experiencing too.
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#118012 - 09/26/03 08:10 PM
Re: Overdraft Protection
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10K Club
Joined: Jul 2001
Posts: 83,226
Galveston, TX
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IMHO - These are extensions of credit under Reg B, they are not extensions of credit under Reg Z (unless you do something foolish), and I would not think that they are loans for ALLL. However, if you entering into some type of "second chance" program requiring them to pay the delinquent overdraft back in three installments (to keep it from falling under Reg Z), they may consider that a loan and require you to reserve for them and take losses from the ALLL account. As everyone knows, I don't like these programs and have never really contemplated that action by the regulators, but in that situation, they may be correct.
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#118013 - 09/26/03 08:36 PM
Re: Overdraft Protection
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Anonymous
Unregistered
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Our bank had a legal opinion from the vendor offering the service that helped with our review. I was told to keep the OD fee the same for Bounce Protection (BP) or you may have a problem. It may depend on how you are administrating the program. We have had no issues with our examinations with our BP.
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#118014 - 09/26/03 10:05 PM
Re: Overdraft Protection
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Anonymous
Unregistered
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We just had the OCC in and they asked us if we were doing these. We said no, and they were quite happy. They made it sound like the banks that are doing it won't be for long.
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#118015 - 09/29/03 04:17 AM
Re: Overdraft Protection
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10K Club
Joined: Oct 2000
Posts: 27,748
On the Net
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What is a loan for ALLL and Reg. Z may differ as well. Rather than a cite, I might ensure I was speaking with significant enough clout at your regulators office.
If you can do a reserve based on a 6 month historical loss of NSFs less fees you reverse, you might do better tax wise. This may take some number crunching to determine.
Decide if it is a battle worth fighting.
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AndyZ CRCM My opinions are not necessarily my employers. R+R-R=R+R Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell
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#118016 - 09/30/03 05:39 AM
Re: Overdraft Protection
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Member
Joined: Dec 2000
Posts: 55
Brookings, SD
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Andy's advice is sound. Just because there is a good argument that Reg Z doesn't apply, the safety and soundness folks may still expect you to reserve for your exposure. Also, take a look at the Comptroller's speech to the ABA in Hawaii last week. He didn't have kind words for bounce protection - no surprise.
We recently concluded a review of our bounce protection product and compared it to the following guidance:
* OCC Advisory Opinion 914,
* the recent memorandum sent to all banks by the ABA,
* transcript of discussion on the product held by the FRB's Consumer Advisory Council, and
* various other media and industry articles on the topic.
From a review of this material, two themes were apparent: be careful not to market the product in a manner that encourages overdrafts and be sure the terms of the product are clearly disclosed to the consumer when the account is established. In light of our research, we required our retail folks to develop a policy setting forth the manner in which they will solicit, underwrite, monitor, and collect on the bounce product.
I think it is also important to look at consumer satisfaction. Specifically, I would take a look at the ABA's recently completed survey on bounce protection programs. The survey showed that consumers are generally satisfied with the product.
If you're straightforward with your customer about the costs and benefits, I wouldn't be alarmed by rhetoric from the OCC.
_________________________
Trent Sorbe
President
First Community Financial, Inc.
Brookings, SD
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#118018 - 10/01/03 02:24 AM
Re: Overdraft Protection
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10K Club
Joined: Oct 2000
Posts: 27,748
On the Net
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There are vendors selling this as a product. John M. Floyd & Associates Pinnacle These are just two who emphasize these services. But I've no idea what you get for free.
_________________________
AndyZ CRCM My opinions are not necessarily my employers. R+R-R=R+R Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell
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#118019 - 10/01/03 10:47 AM
Re: Overdraft Protection
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10K Club
Joined: Aug 2001
Posts: 21,939
Next to Harvey
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jwrl, The OCC is sort of the wild card in anyone's ability to offer advice or present a training program. There is some irony in the fact that they are willing to tell Upstate that it is unequivocally a loan program, when the Fed (the authors of Reg Z) only recently sought public comments on the same issue. Maybe the OCC is just smarter?
In any case, if I worked for a national bank, I would not tweak the nose of the hangman just yet.
I'm not aware of any book or guide, but note the concise quality of tsorbe's advice. If you really want to read up on the subject, the letters submitted to the Fed are public - I know because I have had calls on mine. If you search the Threads using key words, you will locate several prior discussions. In any case, the topic is still in flux which means only the people who want to sell you something know the real answers.
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In this world you must be oh so smart or oh so pleasant. Well, for years I was smart. I recommend pleasant.
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#118021 - 10/02/03 03:57 PM
Re: Overdraft Protection
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10K Club
Joined: Jul 2001
Posts: 83,226
Galveston, TX
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Refer to 226.1(c) for Reg Z coverage definitions
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#118022 - 10/06/03 05:18 PM
Re: Overdraft Protection
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Anonymous
Unregistered
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As a means to attempt to shield the "workout" agreements from Reg Z coverage under the 4 payments rule, ODP vendors have advised banks to establish an ACH authorization with the customer, whereby the customer has the right to terminate the payments. The idea to is avoid the appearance/determination that a workout/repayment agreement is a contract and the customer is obligated to repay - in which case Reg Z would likely apply. This is a rather subjective analysis that you should review with your counsel to make sure your comfortable under Z and state law.
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#118023 - 10/06/03 05:24 PM
Re: Overdraft Protection
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10K Club
Joined: Jul 2001
Posts: 83,226
Galveston, TX
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Quote:
ODP vendors have advised banks to establish an ACH authorization with the customer
I'm confused - ACH from what and based on what type of authorization?
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#118024 - 10/06/03 05:42 PM
Re: Overdraft Protection
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Member
Joined: Dec 2000
Posts: 55
Brookings, SD
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Typically, the programs have a repayment program for customers who abuse the system or simply find themselves "in over their heads". Banks will establish some sort of repayment agreement for the overdrawn balance. Typically, the bank charges off the negative balance to a deposit loss account, the checking account is returned to a zero balance, and the customer agrees to have a set amount automatically debited from the checking account for a certain period of time until the charged off balance is repaid. The optional nature of the ACH agreement referenced above is a way to ATTEMPT to avoid coverage under Reg Z and state contract law.
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Trent Sorbe
President
First Community Financial, Inc.
Brookings, SD
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#118025 - 10/06/03 06:01 PM
Re: Overdraft Protection
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10K Club
Joined: Jul 2001
Posts: 83,226
Galveston, TX
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Well the term ACH agreement threw me, because normally a bank does not send periodic intrabank account transfers through an ACH system. Those are normally reserved for interbank transfers.
So when the checking account still doesn't have money in it to make these payments - do we get to whack them for another overdraft fee? $$$ God I love this creativity - just think of the creativity that Congress is going to dream up one of these days for these ODP programs.
It reminds me of the last words my pappy said to me - "Be careful son, that gun is loaded"
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#118026 - 10/06/03 06:18 PM
Re: Overdraft Protection
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Member
Joined: Dec 2000
Posts: 55
Brookings, SD
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I suppose technically a bank would be authorized to charge the NSF fee and I'm sure many do. As much as it pains me to acknolwedge, this may be a good example of why Hawke called ODP "another accident waiting to happen." While I think the agency has been a bit melodramtic on this issue, the industry should take advantage of the lack of clear regulatory guidance and consider some "best practices" as it relates to this service. http://www.occ.treas.gov/ftp/release/2003-75a.pdf
_________________________
Trent Sorbe
President
First Community Financial, Inc.
Brookings, SD
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#118028 - 11/03/03 10:11 PM
Re: Overdraft Protection
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10K Club
Joined: Jul 2001
Posts: 83,226
Galveston, TX
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I hope management is in the process of boosting their ALLL since they are turning these unpaid overdrafts into restructured loan transactions and will have to be writtem off against the ALLL instead of taking an operating loss. They most likely will have to reserve 100% for them. Remember to look for fair lending considerations when you are restructuring these overdraft amounts, i.e., who gets the 6 month terms versus who gets the 12 months terms, how is further collection activity going to be performed and monitored for fairness, etc., etc.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#118030 - 11/05/03 01:01 PM
Re: Overdraft Protection
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10K Club
Joined: Oct 2000
Posts: 27,748
On the Net
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Randy's advice is sound. Depending on volumes, if you track repayment histories and complete a thorough analysis of losses you may be able to justify a different reserve. You should also address extensions, renewals and the charge off time on this part of your portfolio. You should also address what amount, if any, will be paid into the OD for a customer with a fresh start loan. These are items you want to CYA on.
_________________________
AndyZ CRCM My opinions are not necessarily my employers. R+R-R=R+R Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell
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