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Free Checking Account Inactivity Fee

Question: 
For the last 12 months we have been offering a "free checking" account that we are heavily advertising. The customer who opens the account receives a free gift. We are finding that many customers are opening the account, receiving the gift, and allowing the account to remain "inactive" with a small balance. Our operations group is proposing an $4 inactivity fee to kick in after 6 months of no activity on accounts with balances under $100 to help get these accounts off the books. Of course, we would have to change our disclosures and redisclose to existing customers if we do this. We currently disclose a "dormant" fee that kicks in after 2 years of no activity. I can't find any guidance whether or not a free account can have such an inactivity fee after a certain period. Are you aware of any other institutions charging such a fee? Can such a fee be structured in a way not to violate DD? Our marketing vendor assisting with this free checking account is also a proponent of this inactivity fee.
Answer: 

Answer by David Dickinson:The Commentary to Section 230.8(a) #4 makes it clear that you can charge "fees assessed against a dormant account" and still call the account free. I know of numerous banks that consider 6 months of inactivity as dormant. I believe this is perfectly acceptable and well within your rights to assess this fee.

You are correct that this change will require a notification to all affected consumers. However, you could simply do this through a statement message and by updating your disclosures for new customers.

Answer: 

Answer by John Burnett:David and I disagree on whether you can declare an account dormant at the six month mark. Some states define the term in connection with their abandoned property laws.

Elsewhere in the Commentary (Comment #6 to section 230.7(a)(1)) the Fed Staff mentions inactive and dormant accounts and appears to recognize them as separate terms. I believe that if the Fed wanted to include inactive accounts in the comment that David cites, they would have.

There is nothing wrong with advertising an account as "free" for a specified period of time. You could adjust your ads to indicate that the "free" status ends after 6 months. At the end of six months, you could then apply an inactivity fee. If you elect to go this route, you will need to notify existing customers, as David noted.

First published on BankersOnline.com 1/29/07

First published on 01/29/2007

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