Decision establishing certain maximum dishonored check fees at Massachusetts state-chartered institutions March 23, 2000

By the Division of Banks

This decision establishes the maximum allowable fee Massachusetts state-chartered banks and credit unions may assess certain consumer deposit accounts for processing dishonored checks, otherwise referred to as deposit return items ("DRI"), under Massachusetts General Laws chapter 167D, section 3 and Massachusetts General Laws chapter 171, section 41A. (These statutes govern the consumer deposit accounts of state-chartered banks and credit unions, respectively. The statutes were inserted by St. 1997, c.178, ss.1-2. The provisions are substantially identical. Section 1 of the Act provides in pertinent part: "... no bank [or credit union] shall assess any fee, charge or other assessment against any account, established for personal, family or household purposes, of a depositor, who as the payee of a check, draft or money order, of which the payee is not also the maker, deposits the same therein and payment on any such instrument is refused by the depository institution upon which it is drawn because of insufficient funds or because the maker thereof did not have an account at such depository institution; provided, further, that a bank [or credit union] may assess a reasonable fee, charge or assessment that represents its direct costs, as established annually by the commissioner of banks, incurred for processing such, draft or money order." (Emphasis supplied.))

The maximum fee set by this decision shall remain in effect until, or shortly after, March 23, 2001. (Institutions may begin imposing this fee after making any notices that may be required under the state and federal truth in savings laws.) This is the third annual determination of the maximum permissible DRI fee by the Division of Banks (the "Division"). In 1999, the Division determined that the maximum allowable DRI fee was $3.08. (See Decision Establishing Certain Maximum Dishonored Check Fees at Massachusetts State-Chartered Institutions (March 4, 1999) (hereinafter the "1999 DRI Decision").) In 1998, the Division determined that the maximum allowable DRI fee was $2.66. (See Decision Establishing Certain Maximum Dishonored Check Fees at Massachusetts State-Chartered Institutions (February 23, 1998) (hereinafter the "1998 DRI Decision").)

2000 DRI Determination

The 2000 dishonored check or DRI fee is based upon deposit return item cost data independently obtained from a sample of state-chartered banks and credit unions. The Division collected this data during the course of its regularly scheduled financial safety and soundness examinations under G. L. c.167, s.2 conducted over the last twenty-four months. (This statute sets an annual minimum examination cycle for state-chartered banks and credit unions. In 1996, the statute was amended to permit an 18-month examination cycle for well capitalized institutions. (See St. 1996, c.238, s.10.) Favorable economic conditions have placed the vast majority of institutions into this category. The Division's examination cycle also is governed by certain supervisory agreements with federal bank regulatory agencies that call for an alternating examination schedule. Consequently, an on-site examination by the Division's staff occurs once every 36 months at a well capitalized bank.) This process is a continuation of the 1999 DRI Decision data collection procedures, which represented a major improvement over the data collection methodology and results submitted by industry trade groups during the 1998 DRI fee setting process. (In 1998, the Division initially hoped to use DRI cost survey data collected by the various bank and credit union trade groups to determine the maximum DRI fee. The wide variance in data collection methodologies and other variables caused the Division to reject the industry generated data. See 1998 Decision at 4-5.) The 1998 DRI fee determination also was a transitional determination in order to promptly implement Chapter 178 of the Acts of 1998, the DRI statute which became effective on February 24, 1998. (The final 1998 DRI fee was based upon a trial court's findings in reported California DRI fee litigation which included a determination of the actual cost of processing a DRI item for Bank of America. This judicial finding, was the initial basis for calculating a reasonable DRI fee under the Massachusetts statute. Adjustments, however, were made to reflect both the passage of time; differences between the Massachusetts state-chartered industry and a large California based national bank, and the effects of inflation through the application of the consumer price index. See 1998 Decision at 5-6.)

The Division's 2000 annual DRI fee determination is based upon a DRI cost data sampling conducted by the Division during its regular on-site financial safety and soundness examinations of state-chartered banks and credit unions. The examination process permitted the Division's examiners to observe and verify the sample's representative institutions' DRI item processing procedures and to examine the financial records supporting these direct DRI costs. The sample of institutions reasonably reflects industry differences in asset size, charter type, geographical location and DRI processing procedures. The Division used two years of DRI cost data to determine the maximum allowable fee under Chapter 178 of the Acts of 1998. The data collected from the Division's examination sampling process is summarized below.

A total of sixty-one institutions were surveyed. This sample included 52 banks and 9 credit unions. (The list of institutions surveyed includes twenty-two cooperative banks, twenty-two savings banks, eight commercial bank and nine credit unions. Asset sizes of all the institutions surveyed ranged from $5 million to over $17 billion. The total assets of all the institutions were $39.3 billion. The survey was conducted during regular safety and soundness examinations conducted in 1998, 1999, and early 2000. Institutions selected were done so solely on the basis of examination scheduling. As a result, the components of the sample are randomly derived and are not necessarily a representative sample of all institutions. The examiners independently collected the information after discussing the particular institution's DRI practices and procedures with affected institution personnel. All collected data was reviewed for reasonableness.) The cost of processing deposit returned items ranged from $0.17 to $13.01 per item. Banks generally had a lower average cost than credit unions. The average cost to process a deposit return item was $4.05 for banks and credit unions combined. Banks had an average cost of $3.16 and credit unions had an average cost of $9.18. The time for processing a DRI ranged from 1 to 70 minutes. Because of the wide range of processing timeframes, an adjusted average was calculated for those institutions that process deposit return items in no more than the average time of 13 minutes per item. This resulted in an average adjusted cost virtually unchanged of the $3.08 per item figure determined one year ago.

Conclusion

The maximum allowable fee Massachusetts state-chartered banks and credit unions may assess certain consumer deposit accounts for processing dishonored checks or DRI items under Massachusetts General Laws chapter 167D, section 3 and Massachusetts General Laws chapter 171, section 41A, respectively, shall remain $3.08. This fee determination shall be in effect from March 23, 2000, until March 23, 2001 or until such time as the Division issues its 2001 DRI fee decision.

State-chartered institutions are advised that the above DRI fee is the maximum fee permitted by law. Institutions, however, may elect to impose a lower DRI fee or to waive the fee for their customers.

March 23, 2000
Date		Thomas J. Curry
Commissioner of Banks