Charging Bad Address Accounts A "Service Fee"

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Question:

We have accumulated many accounts that are "no address" accounts. These have accumulated due to the customer not keeping us notified of a new or forwarding address. At one time, most of the accounts were service charged over a period of time and closed on their own due to a zero balance. Since that time, we have merged our regular checking product into a product that doesn't have a monthly service fee, therefore, most of the accounts are no longer service charged and would stay at their current balance (63% of them have less than $50 on deposit) until the funds would be escheated. NOW... the question....we are exploring the opportunity of implementing a service fee for "no current address" accounts. Our initial discussion with compliance was that we could implement that fee to all future "no address accounts" but not to the existing ones since we couldn't truly "Notify" them of the adverse change. I want to wholeheartedly disagree with that since we did disclose at the time the customer opened the account that it was their responsibility to notify us of any address changes.

Answer:

Answer by John Burnett:

First, let's assume that your state will allow you to impose the proposed fee.

Next, let's address your Compliance Officer's concerns. He or she is taking a conservative approach about notification. While there's nothing wrong with conservatism, there are other ways of looking at this. Perhaps your deposit agreement requires the customer to keep you apprised of current addresses. You may have language in your agreement that says that notice to the customer is adequate if mailed to the most recent address on your records. Either of those would give me a warm fuzzy feeling about suggesting that you send a notice to the LKA (last known address) and go from there.

Answer:

Answer by Andy Zavoina:

This answer is based on practical application and not an official citation.

TISA does not require that we maintain multiple fee tables for charges for customers who received a notice vs. those who were on a return mail status when the notice was delivered. Fees change as described after the advance notice is sent, for all effected accounts.

While the fee you describe applies to those who will not receive the notice, they were required to maintain a current address with you and have failed to do this. The new fee cannot go back in time, but in my opinion could apply to those going forward who have an incorrect address after the implementation date. This would include existing return mail status accounts. To not impose this new fee could also imply that other fees, ATM charges, rate changes, etc. would not apply to return mail accounts and this is not the case.

A question which involves the "unconscionableness" of the fee is how it will be charged. You wouldn't charge a return mail fee, send a notice to that effect, receive it back, charge another fee, send another notice, etc. The obvious intent there would be to exhaust the account of funds.

What you may consider is a fee for return mail processing. That fee would be charged once. Hopefully your system has the ability to not generate statements for return mail accounts and this would prevent a recurrence of the fee. In computer programming this recurrence was referred to as a "do-loop" where it just goes on and on. In this case you would subject yourself to criticism by continuing to send a statement you know is not deliverable.

If you retain paper statements and actually do hold these for customers, a monthly fee may be warranted, but you still run the risk of criticism as to how it is applied. You may also check your state laws to ensure that if these accounts are also in a dormant status, that fees may apply. In some cases a dormant account cannot be charged a fee.

First published on BankersOnline.com 06/9/03