NY Department of Financial Services Proposes Banning Overdraft Fees on Transactions Under $20

The New York Department of Financial Services (NYDFS) recently proposed banning state-chartered banks from charging overdraft fees on transactions that are $20 or less, as well as overdraft fees that are more than the overdrawn amount. The Department says these and other regulations would ensure consumers are not burdened by overdraft fees for minor transactions, and would require banks to notify consumers of overdraft charges in a timely manner.

“With hidden fees and unfair practices, it has become increasingly more difficult for hard-working New Yorkers to keep up,” New York Governor Hochul said. “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.”

The proposal would limit banks from charging more than three overdraft or nonsufficient funds (NSF) fees per consumer per day. It also seeks to curb deceptive practices by banning NSF fees for instantaneously declined electronic transactions. The proposal would be limited to New York’s 52 state-chartered commercial banks and trust companies.

The NYDFS’s proposal would also ban multiple overdraft and NSF fees for the same transaction, including when a merchant resubmits a previously declined transaction. State-chartered banks would be prohibited from charging double fees to cover overdrafts, such as one fee for automatically transferring funds from a different account and another for the actual overdraft.

“A healthy market grows when consumers have confidence and trust in the products offered and the providers offering them,” said NYDFS Superintendent Adrienne Harris, according to American Banker. “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.”

The proposal aims to continue changes made in 2023 by the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) that were targeted at overdraft practices that regulators said were excessive during the Biden administration. Public comment for the proposed rule will be open until February 3.