Decision establishing certain maximum dishonored check fees at Massachusetts state-chartered institutions - May 3, 2004
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 May 31, 2005.
2004 DRI Determination
The 2004 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. 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 46 banks and 13 credit unions. (The list of institutions surveyed includes 21 cooperative banks, 21 savings banks, 4 commercial bank and 13 credit unions. Asset sizes of all the institutions surveyed ranged from $9 million to over $19 billion. The total assets of all the institutions were $40 billion. The survey was conducted during regular safety and soundness examinations conducted in 2002, 2003 and early 2004. 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 $0.49 to $14.46 per item. Banks generally had a lower average cost than credit unions. The average cost to process a deposit return item was $4.84 for banks and credit unions combined. Banks had an average cost of $4.24 and credit unions had an average cost of $6.93. The time for processing a DRI ranged from 1 to 24 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 10 minutes per item. This resulted in an average adjusted cost of $3.01 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 $3.01. The existing fee shall remain in effect until May 31, 2005 or such later time as individual institutions have complied with the increased fee notice provisions required under the state and federal truth in savings laws. This fee determination shall be in effect from May 31, 2004, until May 31, 2005 or until such time as the Division issues its 2005 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.
| May 3, 2004 __________________________ Date | Steven L. Antonakes ___________________________________ Commissioner of Banks |