New York-chartered banks would be barred from charging overdraft fees when consumers overdraw their accounts by $20 or less, under a proposal the state’s Department of Financial Services floated Wednesday.
“It is time that we hold banks accountable and lighten the burden of high overdraft fees for minor transactions to keep New Yorkers’ hard-earned money in their pockets,” Gov. Kathy Hochul, D-NY, said in a release.
Wednesday’s proposal is meant to boost consumer protections by tightening transaction-processing guidelines.
Under the measure, banks would be prohibited from charging overdraft fees that exceed the amount by which an account is overdrawn. Banks would also be barred from charging more than three overdraft or nonsufficient funds fees per day to the same account.
Further, banks could not charge more than one NSF or overdraft fee for the same transaction, such as when a retailer resubmits a declined transaction, according to the draft legislation.
The measure also targets “authorize positive, settle negative” charges – on transactions that are greenlighted when an account has sufficient funds in real time but may incur fees if a bank settles an account’s daily debits before settling credits. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. flagged such APSN charges as “deceptive” in 2023.
The proposed rule would also prohibit banks from charging NSF fees on electronic transactions declined in real time. The Consumer Financial Protection Bureau issued a proposed rule last year to combat that practice.
Wednesday’s proposal would apply only to state-chartered banks, so the vast majority of consumer accounts – at federally regulated banks such as JPMorgan Chase, Wells Fargo or Bank of America – would be outside the potential legislation’s reach. It is notable, though, that a state is pushing for stricter guidelines as the Trump administration begins its second term, a development broadly expected to herald looser financial regulations.
Among other restrictions, the New York proposal, which is open for public comment until Feb. 3, would prohibit banks from charging a fee for each consecutive day a negative account balance is not settled. Further, the measure would bar banks from charging double fees to cover an overdraft – for example, one fee when money is transferred from another account and a second charge for the overdraft itself.
“Today’s proposed regulation ensures that consumers will no longer be taxed with surprising and disproportionate fees for using the overdraft services provided with their bank accounts,” NYDFS Superintendent Adrienne Harris said in a statement Wednesday. "A healthy market grows when consumers have confidence and trust in the products offered and the providers offering them."
