In a move to bolster consumer financial protection, New York State Governor Kathy Hochul has announced proposed regulations aimed at curbing unfair Bank Overdraft fees. This initiative, a part of Governor Hochul’s broader 2025 State of the State agenda, seeks to alleviate the financial strain on New Yorkers by targeting what are often perceived as exploitative banking practices related to bank overdraft charges. The proposed rules are designed to ensure greater transparency and fairness in the fees associated with bank overdraft services.
According to New York State Department of Financial Services Superintendent Adrienne Harris, these regulations are crucial for fostering a healthy and trustworthy financial market. The core objective is to prevent consumers from being penalized with unexpected and disproportionate fees when they utilize bank overdraft facilities linked to their accounts.
The proposed regulations introduce several key measures to protect consumers from excessive bank overdraft fees and non-sufficient funds (NSF) fees. If enacted, state-chartered banks in New York would face significant restrictions, including:
- Elimination of Fees on Small Overdrafts: Banks would be prohibited from charging bank overdraft fees on transactions that overdraw an account by less than $20. This measure directly addresses charges on minor discrepancies that can trigger substantial fees.
- Capping Overdraft Fees: The regulations stipulate that bank overdraft fees cannot exceed the amount by which the account is overdrawn. This provision ensures that fees are proportionate to the actual overdraft amount.
- Limiting Daily Fee Charges: To prevent fee stacking, banks would be restricted to charging no more than three bank overdraft or NSF fees per account per day.
- Banning NSF Fees on Instant Declines: The proposed rules prohibit NSF fees for electronic transactions that are declined instantaneously due to insufficient funds.
- Preventing Multiple Fees for Single Transactions: Banks would be barred from charging multiple NSF or bank overdraft fees for the same transaction, including instances where a merchant resubmits a previously declined transaction.
- Eliminating Sustained Overdraft Fees: The regulations target “sustained,” “continuous,” or “daily” fees that are charged for each day an bank overdraft balance remains unpaid.
- Prohibiting Double-Dipping Fees: Banks would be prevented from charging consumers twice for the same bank overdraft situation, such as imposing a fee for transferring funds from another account to cover the overdraft, in addition to the bank overdraft fee itself.
- Fair Transaction Processing: The regulations aim to prevent banks from processing electronic debit transactions in a manner designed to maximize the number of bank overdraft and NSF fees incurred by customers.
- Fees on Authorized Transactions: Banks would be prohibited from charging an bank overdraft fee for an electronic transaction if the consumer’s account showed sufficient funds at the time the transaction was initiated.
This regulatory push builds upon previous actions taken by the Department of Financial Services, including a 2022 alert to financial institutions regarding unfair bank overdraft and NSF fee practices. Furthermore, legislation passed in 2023 granted DFS enhanced authority to combat unfair banking fees, paving the way for these more comprehensive regulations.
Governor Hochul’s focus on consumer protection extends beyond bank overdraft fees. Her affordability agenda encompasses a range of initiatives aimed at easing financial burdens for New Yorkers. These include measures to ensure transparent return policies for retail products, require businesses to disclose data-driven pricing for online shoppers, simplify subscription cancellation processes, and establish regulatory frameworks for emerging financial services like Buy Now Pay Later. Additionally, she is addressing issues such as unclaimed funds from Energy Service Companies and seeking to strengthen protections against elder financial exploitation.
The proposed regulations on bank overdraft fees are a result of a data-driven approach by DFS, informed by market analysis, existing regulatory frameworks, and a dedicated study on consumer fee practices. The Department is actively seeking input from stakeholders through a public comment period, indicating a commitment to collaborative refinement of these important consumer protections. These measures collectively underscore New York State’s dedication to creating a more equitable and affordable financial landscape for all its residents by addressing issues related to bank overdraft and other potentially harmful fee practices.
