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NY would bar banks from charging fees on overdrafts of less than $20

Written on Jan 31, 2025

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 Jan. 22. 

The 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 FDIC 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. 

The 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. 

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. 

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