Decision establishing certain maximum dishonored check fees at Massachusetts state-chartered institutions February 16, 2001
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, 2002. (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 fourth annual determination of the maximum permissible DRI fee by the Division of Banks (the "Division"). In 2000 and 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 23, 2000) (hereinafter the "2000 DRI Decision") and 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").)
2001 DRI Determination
The 2001 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 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 Division's 2001 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 1997. The data collected from the Division's examination sampling process is summarized below.
A total of fifty-nine institutions were surveyed. This sample included 51 banks and 8 credit unions. (The list of institutions surveyed includes eighteen cooperative banks, twenty-four savings banks, nine commercial bank and eight credit unions. Asset sizes of all the institutions surveyed ranged from $16 million to over $14 billion. The total assets of all the institutions were $36 billion. The survey was conducted during regular safety and soundness examinations conducted in 1999, 2000 and early 2001. 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 $12.20 per item. Banks generally had a lower average cost than credit unions. The average cost to process a deposit return item was $3.71 for banks and credit unions combined. Banks had an average cost of $2.98 and credit unions had an average cost of $8.35. The time for processing a DRI ranged from 1 to 30 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 11 minutes per item. This resulted in an average adjusted cost of $2.53 per item.
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 be $2.53. This fee determination shall be in effect from March 23, 2001, until March 23, 2002 or until such time as the Division issues its 2002 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.
| February 16, 2001 Date | Thomas J. Curry Commissioner of Banks |