TIP: Recently, we’ve heard that state examiners have cited some credit unions for charging too much when a borrower makes a payment on a consumer loan (by check or ACH) and it “bounces.”
At issue is a provision found in section 422.202(1)(d) of the Wisconsin Consumer Act. It limits certain charges on consumer loans. Among those restrictions it says that on closed-end loans, lenders may impose “a charge not to exceed $15 for each check presented for payment to a creditor which is returned unsatisfied because the drawer does not have an account with the drawee, does not have sufficient funds in his or her account or does not have sufficient credit with the drawee.”
In other words, on closed-end consumer loans, your loan agreement should not call for (and the credit union should not impose) a fee of more than $15 when a borrower’s payment check bounces.
Whenever this provision comes up, the Legal Affairs team tries to stress several points:
- Our understanding of this provision is that it only applies if the credit union wants the convenience of adding the fee to the loan balance.
- If you do charge the fee against the loan, it is only allowed to be charged once per check, no matter how many times the check is re-presented for payment and returned again.
- The Wisconsin Department of Financial Institutions (which enforces the Consumer Act) has interpreted this fee cap to apply to rejected ACH payments, not just to bounced checks.
- The provision applies only to closed-end consumer loans. There is no similar fee cap for open-end consumer lending.
If you use League forms, our consumer note (WCUL #82014) includes a blank that credit unions need to complete regarding this fee:
The Credit Union may collect a returned check charge of $______ in accordance with Wis. Stats. § 422.202(1)(d) for each check presented for payment which is returned unsatisfied.
Form instructions remind credit unions that they may fill in that blank by including a fee of up to $15, but not more.
Double check your loan forms to be sure that your credit union isn’t contracting for an excessive fee. Also, check your credit union’s practices to be sure you’re not, in fact, charging more than $15 (even if your loan documents say otherwise).