Remarks of Michael P. Smith
Before the New York State Banking Department
on Overdraft Fees and Bounce Protection Programs
October 17, 2005
New York City
Good morning, Superintendent Taylor. My name is Michael P. Smith and I am the President and Chief Executive Officer of the New York Bankers Association (NYBA). I thank you for the opportunity to testify here today. NYBA is comprised of community, regional and money center State and national banks in the State of New York, which in the aggregate have over 320,000 employees and assets in excess of $3 trillion. Seventy percent of those assets are now under a federal charter.
We are here today to support the final adoption by the New York State Banking Board of amendments to Part 32 and a new Part 6.8 of the General Regulations of the Banking Board. These amendments, which relate to the charges that may be imposed on insufficient funds or on uncollected balances by financial institutions, in connection with a check or other written order drawn upon it, will provide parity for State-chartered banks with their national counterparts, who already have this authority. Such action is totally consistent with the policy and mandates of Section 10 of New York’s Banking Law, requiring preservation of the State charter and maintenance of competitive parity between state and national banks. It is also consistent with New York ‘s “wild card” legislation (Sections 14-g and 14-h of the Banking Law), and will help to ensure the continued vibrancy of New York’s banking charter.
On May 13, 2002, NYBA filed a “wild card” petition seeking authority for New York State-chartered banks to charge a daily fee to checking accounts which do not have overdraft protection privileges and yet have been overdrawn or have a negative balance. In that petition, we pointed out that national banks already have such authority through an interpretive ruling of the Office of the Comptroller of the Currency (OCC) set forth at 12 C.F.R. 7.4002. The right of national banks to apply freer market prices than those currently allowed for State-chartered institutions has also been upheld by the federal courts.
We also pointed out in our “wild card” petition that this fee setting disparity between federally chartered and State-chartered institutions deprives State-chartered banks of an additional tool to discourage customers from overdrawing their accounts and encourage careful account management, and also places State-chartered banks at a competitive disadvantage to their federal counterparts. As Senator Farley said in his memorandum in support of the passage of the wild card legislation, “a failure of the State banking charter to keep pace with national bank powers would pose a real threat to the dual banking system and to New York’s continued ability to influence the conduct of the banking business” within New York State. Such a failure to keep pace with the federal charter would ultimately result in fewer State banks left to preserve important consumer protections found in our State Banking Law, and could jeopardize New York’s position as the financial capital of the world.
We applaud the New York State Banking Department for responding to the request in our petition, and in fact, expanding on that request, to allow State-chartered banks to adopt – as national banks may already do - responsible overdraft protection programs. Importantly, these programs will be subject to the same conditions that are imposed on national banks, including those set forth in the Joint Guidance on Overdraft Protection Programs promulgated by the federal regulators in February 2005, which establishes standards for the responsible disclosure and administration of overdraft protection services. The guidance is intended to ensure that banks offering overdraft protection services (1) adopt appropriate polices and procedures associated with these services; (2) be aware of all applicable federal and state laws; and, (3) adopt Best Practices which address appropriate marketing and communications strategies for informing consumers. Thus, we believe that customers of State-chartered financial institutions will now be able to be spared the embarrassment associated with the occasional bouncing of a check, while still being deterred from doing so by the imposition of an appropriately disclosed fee structure. Of course, customers who properly manage their account will never be charged this fee.
Over the last several years, there has been great debate over the continued viability of the State bank charter, given the rather broad scope of federal preemption authority. We believe that the Banking Board’s promulgation of these proposed amendments and additions to the Banking Regulations, are an important and timely step in ensuring the ongoing integrity of the State charter. State-chartered banks will have one less incentive to explore alternative charters. Thus, this proposal is consistent with the policy of New York as set forth in Sections 10 and 14-g of the New York Banking Law, to maintain and enhance a strong and competitive banking charter. We urge that, at the end of the comment period, the Banking Board finally adopt the amendments proposed to Part 32 and the addition of a new Part 6.8 of the Banking Regulations.
Once again, thank you for the opportunity to testify here today.