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> July 30, 2008
>
> Regulations Comments
>
> Chief Council's Office
>
> Office of Thrift Supervision
>
> 1700 G Street, NW.
>
> Re: Docket ID OTS- 2008-0004

Dear Sir:

Teche Federal Bank is grateful to have the opportunity to comment
regarding the "Regulation AA **--**Unfair or Deceptive Acts or Practices
\[R 1314\]," as it applies to overdraft services. Below is an outline of
problems that occur in the proposed regulation.

I.  **[These proposed regulations turn reality upside down, claiming
    that a bank paying (as opposed to bouncing) a customer check is
    somehow an "injury" under federal law]{.underline}**.

    A.  The proposed regulation explicitly states[^1] that for a bank to
        pay an NSF check[^2] (instead of bouncing the check) is an
        "injury"[^3] within the trial-lawyer friendly FTC law. The
        proposal indicates a feeling that the consumer is not "injured"
        if the bank simply bounces the check, and charges a fee for the
        bounced check.

    B.  The proposal indicates the primary goal is for the customer to
        have an opportunity to "opt out"[^4] of this supposedly
        injurious act of payment of NSF checks (and charging an NSF
        fee).

        1.  The proposal claims support from ultra-liberal organizations
            thinly disguised as so-called "Consumer Groups"[^5]. Banks
            would prefer not to be caught in the crossfire between
            political warring groups. But even more so, banks would
            prefer that the regulators not take the side of the far left
            advocates.

        2.  In fact, banks are well aware of many customers and
            consumers who are very thankful that banks willingly and
            voluntarily pay NSF fees for customers without any guarantee
            that the customer will pay back.

        3.  We have received thank you letters and calls from many
            customers who appreciate that the bank has paid their NSF
            check, rather than bouncing it.

    C.  The turning on the head of the logic of a benefit (paying NSF
        checks) into an injury has many unintended consequences.

        1.  Here is an example: If a bank received an "opt out" from a
            customer, and then mistakenly paid the NSF & charged the NSF
            fee, the bank would have then violated the customer's
            federal right.

        2.  This would make a bank vulnerable to lawsuits, in today's
            litigious world. In many states, such a lawsuit might be
            brought by the state attorney general, in others, by the
            U.S. attorney, and in still others, the "injured" bank
            customer might bring a lawsuit.

    D.  **[Overdraft Protection would have added burdens]{.underline}**.

        1.  Burdensome monthly statements disclosure would also apply.

        2.  There would be constant questions over when a customer
            exercises his federally-protected right to opt out because
            there is no requirement that the "opt out" must be in
            writing.

II. **[Bank Regulators would be required to analyze bank practices under
    the trial-lawyer friendly FTC law]{.underline}**.

    A.  In order to find a practice "unfair", under the FTC law, there
        are three (3) key points: (1) Substantial Consumer Injury, (2)
        Injury is not reasonably avoidable, and (3) Injury is not
        outweighed by countervailing benefits. None of these three key
        findings is warranted in this circumstance.

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    1.  **[Substantial Consumer Injury]{.underline}**.

        a.  To calculate "substantial" under the FTC law, [all consumer
            "injuries" are added together.]{.underline}[^6] Note that
            the idea of "injury" is not simply the effect on one
            customer. Please note the parallel to class action lawsuits,
            in which the plaintiff attorney aggregates the damages and
            then received his fee based on the supposed damages to
            untold thousands who do not in fact complain and in fact
            receive no compensation.

        b.  This section erroneously claims that consumers incur
            substantial monetary "injury" due to the payment of bank NSF
            fees. Most of the articles cited indicate the fact that
            [aggregate]{.underline}, nationwide NSF fees are a large
            number, or that 50% to 60% of service charge income is from
            NSF fees.

        c.  This entire analytical framework is completely inappropriate
            for the fact situation of a bank paying an NSF check. Thus,
            this proposed Reg. should not in any event be a promulgated
            pursuant to UDAP.

    2.  **[Injury is not reasonably avoidable]{.underline}**. The
        proposal makes the untenable suggestion that consumers cannot
        reasonably avoid this "injury" because they do not have the
        "opportunity to opt out".

> This analysis ignores several important points: (a) The customer can
> accept responsibility for the balance of his own account, (b) The
> customer can choose another bank (c) All fees charged by a bank are
> the result of a no pressure contract between the customer and the
> bank, or (d) The consumer can chose to remit payments by means other
> than a bank.

a.  [The customer can accept responsibility for the balance of his own
    account]{.underline}.

> This is a basic point that the regulators seem to have practically
> ignored. The very weak example given is that of the crediting of a
> return item. Of course, no statistics were provided to indicate the
> prevalence of NSFs when the customer supposedly did not know of the
> exact date on which his returned retail item was credited. This also
> ignores the very basic point, that even in this circumstance; it is
> the responsibility of the customer to know his own balance.

b.  [The customer can choose another bank]{.underline}. The proposal
    ignores this rather obvious possibility. Banks are not a monopoly,
    or even an oligopoly. There are literally thousands of banks in
    America.

c.  [The fees charged are the result of a no-pressure contract between
    the bank and the customer]{.underline}. While the FTC might point to
    other examples in which a contract was involved, other such examples
    typically involve some sort of duress or pressure on customers to
    make a contract. There is no duress or pressure involved in opening
    a checking account. There are no high-pressure salesmen.

> The occasional free gifts some banks offer to new customers are
> regulated so that they are of modest value, the toaster being the
> classic example. In fact, many banks are known for their lack of hard
> sell techniques, often encouraging the customer to take a brochure and
> consider whether they want to open an account. Still others are
> required to return with appropriate identification, as banks must all
> comply with the various regulations to comply with the PATRIOT Act.

d.  [The customer can choose to remit payments by methods other than the
    banking system]{.underline}. The customer can use cash, money orders
    or other methods to remit various payments.

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3.  **[Injury is not outweighed by countervailing benefits to customers
    or competition]{.underline}**. As we have shown above, there is no
    "injury". But even if there is, there are substantial countervailing
    benefits to consumers. Also, there is a countervailing benefit to
    competition.

> **[a. Countervailing benefits to consumers]{.underline}**. There is a
> substantial benefit to customers in the payment of overdraft checks by
> the bank. These correspond generally to items already mentioned: Here
> are a few benefits to the customer of the payment of NSF checks: (1)
> Avoidance of the payment of a returned check fee by the retailer, (2)
> Avoidance of loss of specific credit by the individual retailer (3)
> Retention of reputation by avoiding a public display of NSF checks (4)
> Payment of vital payments, such as home mortgage payments and
> automobile loan payments, (5) Avoidance of mortgage foreclosure, (6)
> Avoidance of late fees which may exceed the NSF fee, and (7) The
> ability to receive cash when desperately needed from ATM machines.
>
> [i. These are all significant benefits not mentioned by the
> regulators, as required by Statement for FTC Credit practice
> rule]{.underline}, cited in footnote 21, of the Supplementary
> Information, II Statutory Authority Under the Federal Trade Commission
> Act to Address Unfair or Deceptive Acts of Practices, B. Standards for
> Unfairness under the FTC Act. "This section would require, however,
> that the FTC carefully evaluate the benefits and costs of each
> exercise of its unfairness authority, gathering and considering
> reasonably available evidence."
>
> [ii It would appear that there has been no gathering nor reasonable
> consideration of the available evidence.]{.underline}
>
> **[b. Countervailing benefits to competition]{.underline}**. There is
> a substantial benefit to competition in the payment of bank
> overdrafts. For the past 40 years, community banks have been losing
> ground to other means of payment, most notably to credit card
> companies. Ordinary paper checks have waned as a method of payment,
> while credit card usage increased. Most small community banks do not
> have large credit card portfolios
>
> On the other hand, the majority of small community banks can and do
> offer debit cards. Further debit card usage is rising and is projected
> to exceed credit card usage in the foreseeable future. The effect of
> these proposed regulations will hamper debit card usage and tend to
> bring back the decline which community banks experienced in the latter
> half of the 20^th^ century.
>
> **[III. The proposal ignores the confusion of a customer not
> understanding the "opt-out".]{.underline}** Consumers will not easily
> understand the opt-out option. It might seem to the customers that
> they are "opting-out" of the *fee* that is charged when a bank pays
> their NSF, they may not understand that the bank will no longer pay
> their NSFs, therefore, will be subject to the normal NSF fees.
> Further, the exceptions to the rule are confusing and will cause a lot
> of problems when a customer who chose to opt-out is charged for an
> overdraft service.
>
> **[IV. A partial out-out is both impractical and
> confusing.]{.underline}** Implementing banking programs will be costly
> and time consuming to banks that do not have systems that allow
> partial opt-outs. While regulators feel that the "benefits" of partial
> opt-out outweigh the costs associated with implementing such banking
> programs[^7], they neglect to acknowledge the confusion created by
> offering such an option. The partial opt-out might lead to consumers
> misunderstanding what they "opted-out" of and how it will affect them.
>
> Finally, it is worth noting the remarkable success community banks
> have had with both checking accounts and debit cards over the past 15
> to 20 years. Prior to the 1990s, community banks were languishing,
> with large disintermediation.
>
> Community banks had been caught in the olden days, still practicing
> "bankers' hours", bouncing practically all NSF checks, and not making
> much progress with debit cards.
>
> A lot has changed since then. Banks are now open longer hours, most
> checks are paid rather than bounced, and the checking account,
> together with the accompanying debit card, is about to overtake credit
> cards in total dollar volume.
>
> What happened?
>
> Banks became a lot more customer oriented. One of the many aspects of
> the customer orientation has been the checking account. Two of the
> most important points of progress with checking accounts have been the
> payment of NSF checks and the wide distribution of debit cards to
> checking account customers.
>
> The payment of NSF checks (rather than the old-time banker practice of
> bouncing most checks) has been one of the most favorably received
> services provided by small community banks. Most customers no longer
> need to be concerned about the embarrassment and additional costs of a
> bounced check.
>
> The other key improvement of the checking account has been the Debit
> card. The increase of this delivery channel in the 90s, which
> continues to this day, has been nothing short of phenomenal, and by
> almost all estimates, is expected to exceed credit card in total
> volume within a few years.
>
> It is worth considering that all this occurred within the freedom of
> the marketplace, with intense competition from lots of other sources:
> credit cards, online bill pay services from various retail outlets,
> mutual funds, as well as other banks, savings & loans and credit
> unions.
>
> Remember that proposals based on the FTC law must be based on the FTC
> law, and the concept of "Unfair or Deceptive Acts or Practices". Thus,
> any such proposal must claim some sort of "unfairness" or "deception".
> Well, it is clear that there is no deception of any kind. Customers
> very well understand what they are getting and greatly appreciate it
> and are increasing in its use.
>
> Those making this proposal are left with no choice but to find
> "unfairness". And they find it in the most ridiculous way: to claim
> that payment of an NSF check, as opposed to bouncing it, is somehow
> unfair because there was no "opt out".
>
> "Opt out" of what? Payment of the check, instead of bouncing it? This
> is patently ridiculous, but they have no choice, because the proposal
> must be included under the UDAP law. Why? Because there is no legal
> basis for proposing this under any other law.
>
> It is very dangerous and of great concern to me when regulations are
> thus promulgated and then have the power of enforcement against banks,
> under the trial-lawyer friendly UDAP law. This is further exacerbated
> by the declaration of a "federal right" to this "Opt out".
>
> In conclusion, this is an inappropriate proposal it should be
> completely withdrawn.
>
> Sincerely,

W. Ross Little Jr.

Teche Federal Bank

Senior Vice President

Corporate Secretary

[^1]: Vol. 73 FR, Monday, May 19, 2008, p. 28929

[^2]: And charge an NSF fee.

[^3]: This ignores the fact to write a worthless check is a crime. The
    regulators admit that there would be no "injury" if the bank simply
    would not charge a fee for an NSF check. One wonders if the
    regulators would claim that the bank was "injured" if there was no
    fee, especially since this act is already a crime. The regulation
    and accompanying notes are silent on this issue of the bank as
    victim.

[^4]: Vol. 73 FR, Monday 19, 2008, p. 28929

[^5]: For example, Citizens for Responsible Lending, led by leftist
    crusader Martin Eakes, refers to bank foreclosure as "theft", while
    those who oppose them are referred to as subprime lenders who use
    "swift boat style campaigns". Eakes has been a long time opponent of
    community banks and has been a long time proponent of credit unions.
    Every other "Consumer Advocacy Group" has a similar far-left
    pedigree. It should be clear to a disinterested observer that such
    groups do not represent bank customers or consumers, but rather a
    particular political agenda.

[^6]: Vol. 73 FR, Monday, May 19, 2008, p. 28908

[^7]: Vol. 73 FR, Monday, May 19, 2008, p. 28930