Decision  Decision of May 31, 2018

Date:	05/31/2018
Organization:	Division of Banks

Decision establishing certain maximum dishonored check fees at Massachusetts state-chartered institutions

Introduction

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 6 and Massachusetts General Laws chapter 171, section 41A.¹ The maximum fee set by this decision shall remain in effect from July 1, 2018 to June 30, 2019, or until such time as the Division of Banks (Division) issues its 2019 DRI fee decision.

2018 DRI determination

The 2018 DRI fee is based upon deposit retum 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 Massachusetts General Laws chapter 167, section 2. The sample of institutions reasonably reflects industry differences in asset size, charter tyrpe, geographical location, and DRI processing procedures. The Division used three years of DRI cost data to determine the maximum allowable fee under Massachusetts General Laws chapter 167D, section 6 and Massachusetts General Laws chapter 171, section 41A. The data collected from the Division's examination sampling process is summarized below.

A total of 66 institutions were surveyed. This sample included 28 banks and 38 credit unions.² The cost of processing deposit returned items ranged from $3.00 to $30.53 per item. The average cost to process a deposit return item was $9.76 for banks and credit unions combined. Banks had an average cost of $7.47 and credit unions had an average cost of $11.40. The median cost of all institutions was $7.81 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 6 and Massachusetts General Laws chapter 171, section 41A, respectively, shall be $7.81. This fee determination shall be in effect from July 1, 2018 to June 30,2019, or until such time as the Division issues its 2019 DRI fee decision.

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

Terence A. McGinnis, Commissioner of Banks

May 31, 2018

1. These statutes govern the consumer deposit accounts of state-chartered banks and credit unions, respectively.  The statutes were inserted by St. 1997, c.178, ss1-2 as amended by St. 2014, c.482, s.35.  The provisions are substantially identical.  Addressing the actual costs incurred by a bank or credit union for processing a dishonored check, the act provides in pertinent part, "that a bank [or credit union] may assess a reasonable fee, charge or assessment that represents its direct costs, as established annually bu the Commissioner of Banks, incurred for processing such check, draft, or money order." (emphasis added)
2. The list of institutions surveyed includes 11 cooperative banks, 14 savings banks, 3 commercial banks, and 38 credit unions.  Asset sizes of all the institutions surveyed ranged from approximately $3 million to $4.5 billion.  The total assets of all institutions sampled is approximately $42.88 billion.  The survey was conducted during regular safety and soundness examinations over a three-year time span between January 1, 2015 and December 31, 2017.  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 discussion the particular institution's DRI practices and procedures with relevant personnel at the financial institution.  All collected data was reviewed for reasonableness.