Charging fee for paper statements

To comply with regulation is it enough to just disclose on a checking account monthly statement that beginning in 45 days we will charge a fee $ for paper statements? We are also disclosing to avoid the fee you can sign up for e-statements.

Have I missed something? Unless there's been a court ruling to the contrary, cramdowns of this type don't (or probably don't) pass muster.

Assuming the checking accounts in question allow electronic fund transfers, Reg. E. applies. All Reg. E disclosures must be delivered "in writing." Paper is always a compliant medium. E-documents can become a compliant medium, PROVIDED you obtain each depositor's consent in the ESIGN-prescribed manner.

ESIGN consent is optional and it must be given "affirmatively." What you describe involves cramdown, not consent. To continue receiving paper statements, non-consenting depositors will be penalized...in other words, you will force them to pay for Reg. E disclosures. Reg. E requires you to "provide" disclosures, not sell them.

Your question relates only to existing accounts. If we were talking about new accounts, there would be no problem offering the choice of paper for a fee or tree-free for free. That difference between new and existing accounts is that potential account openers have a third choice--open the account at another bank.

Richard, with all due respect, I don't see where Reg E comes into play at all. Either way, paper or electronic, the customer is getting the Reg E statement disclosures. And current customers are not forced to pay the paper statement fee, they have the same choices as new customers - paper statements for a fee, electronic statements for free, or move their account to another bank. So I'm not clear on why that would be okay for new customers but not current customers. Also, a statement notice of the fee change 45 days prior seems fine to me.

It is always fine until it is not. I am required to give them a periodic statement by regulation. And, although unlike RESPA that prohibits the lender from charging them for disclosures, it is not much of a stretch to see some regulator eventually decide this is a UDAAP to charge customers specifically for what the account holding institution is required by the regulation to provide a consumer. Just price the dang accounts accordingly with a monthly service charge and quit nickel and diming customers - is just my opinion. I would be in the camp to just move my account.

Granted, this is a fuzzy issue. We've discussed it here since ESIGN was enacted, and I don't remember any of those discussions concluding with a comfortable decision that cramdowns are OK. The existing account holder does not have the same three choices as the new customer. The new customer who doesn't want e-delivery and doesn't want to pay a paper delivery fee has nothing to lose by walking and opening a new account anywhere s/he chooses. Bankers stay up late at night dreaming up ways to make checking accounts "sticky" for existing account holders. An existing depositor's choice to walk means s/he will experience inconvenience and probably some hard costs.

After considering the problem from various angles and thinking how best to avoid trouble from ESIGN, Reg. E, and UDAAP, I subscribe to Randy's solution. Impose a non-specific service charge on the account and then add "agree to tree-free statements" as one of the ways a depositor can escape the monthly service charge. This approach features carrots instead of sticks, and that's likely to reduce the number of unhappy customers.

Randy - I AM in the "move my account" camp. My bank did exactly what we're discussing, so I zeroed out the relationship and took it to a small community bank.

Is it possibly you both just feel strongly about receiving paper statements? I agree with Tom - I have a hard time seeing how it is UDAAP if you have account agreements stating such (very likely), and are abiding by both Reg E and Reg DD advance notice.

Must be missing something - if you're accomplishing the same thing by charging a monthly fee versus paper statement fee I just don't see the overall harm being any different.

Or maybe it is because between Richard and I, we probably have 90 years of banking experience between us and have pretty much seen it all from a regulatory standpoint.

Like I said earlier, this is a fuzzy issue involving several considerations. It's easier to see "harm" if you look at it from the affected customer's point of view.

Typical checking account holders will have one or more recurring EFT credits--including payroll, retirement benefits, annuities, interest and dividend payments from other deposits and investments within the bank and elsewhere. Customers who are retired could have numerous recurring credits from several sources. If the depositor balks at both the e-statements and the fees, the third choice means the customer will have to direct all those payors to transfer the funds elsewhere.

It's the same type of inconvenience on the payment side--just a larger number of autodebits the customer will have to undo and redo. That will include the rent or mortgage, other debt payments, utility bills, memberships, etc. The former depositor will also have to forfeit the cost of whatever checks s/he paid to print.

The loss of any linked pricing benefits (like loan interest rate reductions for checking account holders) would add to the harm.

Turning to the law, there's no clear guidance, but what we do know includes:
- ESIGN consent must be optional. Existing customers don't really have much of an option if they're cornered between an unwanted fee and the hassle of uprooting a relationship and moving it elsewhere.
- Reg. E requires the bank to "send a periodic statement" disclosing e-transaction information, fees, and other items. These disclosures must be delivered "in writing and in a form the consumer may keep." The regulation is silent on the question of charging a fee relating to the (legally required) delivery of these disclosures. As Randy mentioned above, RESPA has a clear prohibition of fees relating to the production or delivery of required disclosures. Even though Congress didn't write similar prohibitions into all the other consumer protection laws, it would be a mistake to view that as permissive. If such a prohibition were ever proposed, I doubt there would be many dissenting votes.

So...if the general spirit of consumer protection leans away from allowing fees related to the production or delivery of legally required disclosures, it's smarter to bundle the cost differential for e vs. paper statements in a product level service charge. That way you can present the idea of e-delivery as a carrot, not a stick. Depositors who want to reduce or eliminate the standard service charge can do so by maintaining qualifying balances, consenting to e-statements, and doing other things that add to the bank's bottom line.

Just to add my 2 cents - while Reg E doesn't expressly prohibit the practice, remember that UDAAP citations can occur even when you're in technical compliance with regulations. So, we're required to send you this statement and because of that we are going to specifically state this is a charge to you to provide what we are required to do. Not a big leap to an Unfair UDAAP citation.

There's one more way the regulators could express dissatisfaction with a practice that's neither illegal nor unfair/deceptive. I was a regulator in the '70s and can remember one or two cases where we didn't like something a bank was doing (evasion, bad faith, etc.) We couldn't come up with a specific citation, so we criticized the bank for failure to comply with "the spirit of the law" stated in the "authority, scope, purpose" section of the reg in question.