(PRWEB) August 1, 2004
HOUSTON, TX Â July 31, 2004 Â The Federal governmentÂs proposed Interagency Guidance on the disclosure and administration of overdraft protection programs will Âimpose significant costs and burdensÂ on depository institutions seeking to Âcomply,Â says Cheryl Lawson, EVP-Operations of John M. Floyd & Associates (JMFA) of Houston.
JMFA, the originator and top tier consultant on automated overdraft privilege programs, raised significant concerns in its comment letter on Overdraft Protection Guidance (Docket Nos. OP-1198, 04-14, 2004-30), filed this week ahead of the Aug. 6 deadline for comments.
ÂWe are concerned that the guidance is so detailed that it will restrict institutionsÂ flexibility in offering overdraft programs and actually could result in consumers being provided with fewer alternatives to address inadvertent overdrafts,Â wrote CEO John M. Floyd.
The notice of proposed guidance and request for public comment by the Federal Reserve Board (FRB), Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision (OTS) and National Credit Union Administration (NCUA) was published in the Federal Register on June 7.
The consulting firm (http://www.JMFA.com), a leading provider of noninterest or fee income products, has established nearly 700 overdraft programs at banks, thrifts and credit unions nationwide. It has installed profit improvement programs in 1,750-plus institutions, adding more than $10 billion in increased pre-tax earnings for its clients in 49 states and Central America.
ÂLegal RisksÂ Best PracticesÂ
ÂWe believe a number of sweeping statements in the Proposed Guidance, particularly with respect to the sections on ÂLegal RisksÂ and ÂBest Practices,Â contain Âsweeping statementsÂ that Âwill create significant legal risks for institutions as private parties and others refer to the guidance to support legal claims,Â Lawson emphasized.
ÂFor these reasons, we are encouraging the Agencies to withdraw the Proposed Guidance or, alternatively, to publish a revised proposal for additional public comment,Â she confirmed.
The company, which estimates more than 2,000 U.S. financial institutions now have defined and communicated overdraft programs, has waged an intense campaign coast-to-coast to end abusive practices endemic to some programs as implemented, marketed and managed.
ÂSome programs discriminate against accountholders,Â she said. ÂOthers over-promote the service or under-educate accountholders on its appropriate use or fail to disclose the customer or memberÂs overdraft limit. The AgenciesÂ efforts to prevent these abuses are appreciated, but the proposed guidance threatens to put a veritable straight-jacket on a highly desirable, value-added service.Â
Floyd & Associates expressly took exception to:
Â Safety & Soundness Considerations that would require charge-offs of overdraft balances within 30 days, arguing that a 45-day period would result in enhanced collection of overdrafts and improve risk management practices. Overdraft balances should not be treated as loans and not reported as Âunused commitmentsÂ in regulatory reports.
Â The Guidance statement that when Âoverdrafts are paid, credit is extended,Â since the courts have generally concluded that an overdraft is not a credit under the Truth in Lending Act. JMFA noted that overdrafts are not covered by Regulation Z because the fees are not considered finance charges.
Â Applying the Equal Credit Opportunity Act against discrimination to overdraft programs. Such action Âwill likely lead to significant litigation by individualsÂ because overdraft programs are part of deposit accounts. As the FRBÂs recent amendments to Regulation DD provide, these programs also cannot be deemed credit.Â
Â Best Practices suggestions that may be viewed by Agency examiners and the courts as compliance requirements. ÂSeveral are helpful and appropriate, but a number, if adopted, would require costly and significant changes to the institutionÂs programs.Â Some suggestions are Âtechnologically not feasible.Â
Â Expanded Marketing and Communications with consumers as needless micromanagement.
JMFAÂs complete response to the Board of Governors of the Federal Reserve System can be accessed at http://www.jmfa.com/news/news.html#Opinions. Photos of Floyd and Lawson are at: http://www.jmfa.com/aboutus/aboutus.html
The company is encouraging its clients to contact the FRB before the Aug. 6 deadline with their comments on the proposed changes. Letters can be e-mailed to firstname.lastname@example.org to avoid delay.
FOR MORE INFORMATION OR INTERVIEWS:
Cheryl Lawson, EVP-Operations, John M. Floyd & Associates, Houston, 800-809-2307 or 281-424-3800; Web site: http://www.JMFA.com; e-mail: Cheryl.Lawson@JMFA.com
Preston F. Kirk, APR, Kirk Public Relations, Austin TX, 830-693-4447; email@example.com