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Banking Interpretations

October 2, 1998

Re: Request for a legal opinion regarding fees charged against dishonored electronic fund transfers

Your September 22, 1998 letter to Arthur A. Gelman, Acting General Counsel, New York State Banking Department ("NYSBD"), requesting that the NYSBD provide a legal opinion as to whether fees may be charged against dishonored electronic fund transfers ("EFT's") has been forwarded to me for response.

According to your letter, your client is a corporation that operates health clubs in 27 states, including New York, and offers its members the option of paying their monthly dues pursuant to an Automatic Payment Plan whereby bank accounts of members are automatically debited through EFT's. In instances in which EFT's are dishonored, the health clubs are seeking to charge an additional fee against the member due to the dishonor.

As noted in your letter, New York State General Obligations Law ("GOL") Section 5-328(2)(a) allows the holder of a dishonored check to charge up to $20.00 to the person from whom the holder received the dishonored check. However, a "dishonored check" as defined in GOL ' 5-328(1)(b) does not include a dishonored EFT. Further, "fund transfers," which are defined in Section 4-A-104 of the New York State Uniform Commercial Code ("UCC") and are subject to the provisions of Article 4-A of the UCC, are not considered negotiable instruments under New York law. Therefore, the health clubs may not charge an additional fee against dishonored EFT's pursuant to the provisions of GOL ' 5-328(2)(a).

In response to the second aspect of your inquiry as to whether there is an alternative to GOL ' 5-328(2)(a) upon which the health club may rely to charge its members a fee for dishonored EFT's, please be advised that the NYSBD is charged with interpreting only the Banking Law and thus has no formal advice to offer on the issue of whether, if the parties can agree in advance, a charge related to a dishonored check may be imposed outside GOL ' 5-328.

I trust this is helpful nonetheless.

Very truly yours,
[             ]
Assistant Counsel