By the Division of Banks

July 30, 2004

Jennifer J. Johnson
Secretary, Board of Governors of the Federal Reserve System
20 th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: Proposed Interagency Guidance on Overdraft Protection Programs
Docket No. OP-1198

Dear Ms. Johnson,

The Commonwealth of Massachusetts Division of Banks (the "Division") is pleased to have the opportunity to comment on the proposed Federal Financial Institutions Examination Council ("FFIEC") Interagency Guidance on Overdraft Protection Programs (the "Guidance"). The Division is the primary regulator of nearly 300 state-chartered banks and credit unions with total combined assets in excess of $190 billion. The Division is aware that some Massachusetts state-chartered banks and credit unions have begun to offer overdraft protection programs. Moreover, several additional state-chartered banks and credit unions are contemplating whether or not to offer such a program.

The Division applauds the FFIEC's effort to provide greater assistance to banks and credit unions through the Guidance and its best practices. The Division recognizes that by offering overdraft protection programs, many banks and credit unions are simply formalizing a historically informal practice of covering an inadvertent overdraft and thereby saving a consumer the embarrassment and potential added costs of bouncing a check often within the individual's local community. Nevertheless, the Division believes that each financial institution should carefully consider the significant safety and soundness, compliance, legal, and reputational risks that are associated with overdraft protection programs as part of its due diligence. Accordingly, the Division would like to draw attention to five specific points within the Guidance.

The FFIEC appropriately cautions banks and credit unions on how overdraft protection programs are marketed to consumers. Of significant concern to the Division is the impact of a marketing campaign or related efforts which would have the effect of encouraging consumers to purposely overdraft their accounts. While overdraft protection can provide a service to consumers, banks and credit unions must be careful to balance efforts to inform consumers of its availability versus encouraging overdrafts.

The Division also believes that the Guidance appropriately advises banks and credit unions that care should be undertaken to ensure available balances provided to consumers do not contain the funds available through overdraft protection programs. A clear representation of the actual available balance will allow consumers to avoid confusion as to whether or not funds are truly available to cover a transaction without triggering the overdraft protection program and resulting fees.

The Guidance recommends that financial institutions monitor overdraft protection programs for excessive usage. It is the Division's position that the Guidance should be strengthened on this issue. Banks and credit unions should be encouraged to establish parameters under which continual overdrafts will result in a consumer's removal from the program.

The Guidance relative to accessing overdraft protection in non-check transactions should be reconsidered. Prior to incurring an overdraft protection program fee, the Guidance recommends providing consumers with some form of disclosure indicating that fees in certain non-check transactions will be incurred. Similar to an ATM surcharge, the Guidance suggests that consumers who are about to trigger overdraft protection fees during an ATM transaction be provided with an electronic notice that advises the consumer that they are about to trigger a fee and provide the depositor with the choice of canceling the transaction and thereby not incurring the fee. The Division disagrees with this position. If a consumer is provided with the opportunity to purposely overdraft their account through an ATM then they are moving beyond the stated purpose of overdraft protection programs (to cover unintended bounced checks). A knowing affirmative action to overdraw an account is more in the line of establishing a credit relationship. Accordingly, the Division believes the Guidance should be rewritten to strongly discourage access to overdraft protection programs through ATM transactions or any other means by which a consumer could consciously overdraft an account.

Finally, the Division believes that the Guidance should be amended to strongly discourage financial institutions from charging daily fees beyond a short finite period, in addition to the typical flat fee which is triggered when an overdraft item is paid, for every day an account remains overdrawn. The charging of such daily fees without limitation would also appear to be more akin to a credit relationship.

If you should have any questions relative to the contents of this letter, please contact Senior Deputy Commissioner David J. Cotney at (617) 956-1500 extension 1542. Once again, thank you for the opportunity to comment on the proposal.

Very truly yours,

Steven L. Antonakes
Commissioner of Banks