New state guidance limits ability for banks to charge overdraft fees

ROCHESTER, N.Y. (WHEC) – New York State is putting a limit on bank overdrafts and insufficient funds fees.

It’s in an effort to address costs that disproportionately impact low-income New Yorkers.

“Access to safe, affordable banking services is a critical component of financial health and stability,” said Superintendent of Financial Services Adrienne A. Harris. “This Guidance sets clear expectations for New York banks and credit unions to prevent improper or unfair charges of overdraft and NSF fees, to encourage these institutions to address demand for low-cost banking services and to prevent harm to the most vulnerable consumers of banking services.”

The department of financial services has sent the new guidance to new york-regulated banking institutions. Banks will no longer be able to continue practices that double and sometimes triple the fees they charge when covering consumer overdrafts.

Specifically, the Guidance informs all regulated depository institutions of the need to avoid the following practices:

• Authorize Positive, Settle Negative (“APSN”) Transactions: charging consumers an overdraft fee even though the consumer had a positive account balance sufficient to cover the transaction when it was authorized by the institution.

• Double Fees Arising from Futile Overdraft Protection Transfers: charging a fee to consumers for an “overdraft protection” transfer from a consumer’s other account that is of an insufficient amount to avoid an overdraft, resulting in the consumer being charged both an overdraft fee as well as a fee for the “overdraft protection” transfer.

• Representment Fees: charging a consumer more than one NSF fee for the same declined transaction, without adequate disclosures, where the merchant re-presents the same transaction to the banking institution in a second or third attempt to collect funds.

A copy of the guidance on DFS expectations for overdraft and NSF fees can be found on the DFS website.