I know that the agencies issued the final guidance on Overdraft Protection Programs on February 18th, 2005, but when does it become effective? Since it is guidance, is it effective immediately? I know the New Release states that it will be published in the Federal Register shortly, but we are uncertain as to when it becomes effective.

Any insight or help would be great...Thanks.

Again, I will ask for confirmation that this only applies to overdraft privilege programs, and not traditional lines of credit which customers must apply for????

Correct.

????

I would say it is effective immediately.

The OTS "Guidance on Overdraft Protection Programs" which appeared in the February 18th Federal Register has an effective date of February 18, 2005.

Thanks Dave, Randy and Jill for all you'alls input.

The guidance states that the agencies have extended the charge-off requirement to 60 days. What exactly does that mean? We say funds must be deposited to recover the overdraft within 30 days of the account entering a negative status.If an account is not brought current within 30 days, the privilege will be revoked. If not brought current within 45 days, the account will be closed and collection procedures initiated. I see the 60 days and I'm not sure where that applies and if it's just guidance and not a requirement.

Is "guidance", manadatory? If it is not law does a bank have to implement all of the "best practices". What reprocutions will come from regulators if not all "best practices" are implemented. Some of the "best practices" will be costly for bank's to implement, particuarly notification to customer at ATM stating that the funds available include ODP line and will cause them to incur a fee then allowing them to opt out of the transaction, similar to the fee notice for surcharging.

For those of you in the Chicago Region of the FDIC, their quarterly conference call is on March 22nd and will be discussion overdraft protection. We're already signed up.

The account should be charged off if it is in the OD for 60 days. That is how I read it. Paying items into the hots for them should have stopped when you stopped seeing regular deposits to bring the balance to a positive.

The guidance isn't a requirement, but a really good "go-by". Violations would be related to the laws. While thumbing your nose at all the recommendations is not recommended, telling your regulator that you found it helpful and implemented many of the suggestions to better inform and communicate with customers would be a positive. Explain why some suggestions wouldn't apply or couldn't be done cost effectively, and that you monitor that area for complaints or did something else to try and achieve the same goal.

Remember that Reg. DD amendments are still out there. If problems are seen, a quick definitional change and these could be completely disclosable under Z and DD.

I think a huge emphasis is seen in marketing the product and communicating with customers.

When we revoke someones overdraft privilege due to abuse we are sending a form letter that states we are revoking because...
The guidance talks about Reg B and the adverse action notice and the definition of "incidental credit". If we don't offer the 4 payment plan, we only charge the $25 fee to cover an OD and it has nothing to do with credit cards, we don't need to send an adverse action notice, right? Our form letter is sufficient.

Sounds OK to me, but the mere fact that you are sending them an official communication revoking their privledges implies that you had an original agreement to honor their overdrafts - you may want to examine those implications...

We charge them off at 45 days. Then there is an option for a "recovery plan" to be paid over the course of 6 months. Payments are considered "recoveries", no interest is charged during this time period. Not sure how this will stand up against the final guidelines.

Andy, what about the ALLL-what if you are currently recognizing DDA charge offs on the operational loss side? Since this is "guidance", are we still required to reserve for this? This is the part we are having trouble with and will probably have a call into our regulator, since they usually quote the issuances as law when guidance is provided. Probably because they see issues out there and they can say, "Uh, we gave you guidance, why are you not following it and now look at the mess we have!" I agree with treading carefully because I would a lot rather be complying happily with guidance than looking at a new or amended reg.

I am struggling with the ALLL provisioning as well. My CFO is already questioning me on this. We have been taking these as operational losses. What are others doing or intending to do regarding provisioning OD chargeoffs?

Straw-I checked with my regulator (FDIC) and they said we should have already been taking the losses to ALLL (my CFO is wanting the same clarification too), but not to worry if we have not, just that we need to begin and that it should not be a huge issue if you don't have a large volume of charge offs. We don't, but the reporting will be a change.

I'm looking for the reference, but it is my understanding also that OD charge-offs should have been going against ALLL for some time now. I know we started at one institution several years ago.

We had been using ALLL for a long time after backing out unpaid fees. By sampling your OD accounts and watching the aging process you periodically should adjust your ALLL allowance.

If you have only a few incidental ODs this isn't a big deal. When you employ an ODP you may have many and it can come down to a Safety and Soundness issue.

From the OTS prespective.

Q&A No. 215
SUBJECT: OVERDRAFT PROTECTION AND FEES
LINE(S): SC303/345
DATE: September 4, 2003
Question: An institution provides overdraft protection (not a line of credit) on its individual and commercial deposit accounts. It charges an overdraft protection fee when it covers an NSF check under the terms of the overdraft protection agreement. How should the overdraft amount be categorized on the TFR? If some of the amounts are later deemed uncollectable, how should they be reported?

Answer: Report the overdraft amounts and related uncollected fees as loans, depending on the type of deposit account. Report overdrafts and uncollected fees on individual deposit accounts on line SC345, Credit Cards and Related Plans. Report overdrafts and uncollected fees on commercial deposit accounts as unsecured commercial loans on line SC303, Unsecured Commercial Loans. Include the appropriate amount of allowance for loan losses for these accounts on line SC357, Allowance for Loan and Lease Losses.

For overdraft amounts reported on lines SC345 and SC303 deemed uncollectable, charge-off such amounts to valuation allowances, and report as charge-offs on lines VA580 and VA520, respectively, reducing ALLL on SC357. Do not charge-off uncollectable overdraft amounts to any other accounts, such as income or expense accounts.

From the call report perspective, Schedule RI-B - Charge-offs and Recoveries on Loans and Leases - Line 7 requires you to report charge-offs and recoveries for "other loans" as defined in Schedule RC-C, part I, items 8 and 9. Schedule RC-C line 9 includes "unplanned overdrafts to deposit accounts".

So it appears that it has been this way for some time and whether you are regulated by the OTS and file a TFR (see previous post) or the other regulators and file a Call Report, charge-off and recoveries on unplanned overdrafts do flow through the ALLL.