New York Regulator Takes Aim at Overdraft, NSF Fees

Department of Financial Services issues guidance to banks on unfair, deceptive practices when it comes to fees

The New York Department of Financial Services (DFS) has released proposed guidance to banks that targets unfair and deceptive practices when it comes to overdraft and non-sufficient funds (NSF) fees. The guidance is designed to make banking more affordable for vulnerable consumers.

Superintendent of Financial Services Adrienne Harris said the move is about improving access to banking for all New York consumers. She explained in a statement:

“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 move was immediately applauded by consumer advocates, who said it would open the banking system up to more consumers and eliminate barriers to banking.

“Overdraft fees fall heavily on families that are struggling to make ends meet and have a particularly harsh impact on communities of color that have long been deprived of the ability to build wealth and financial stability," said Lauren Saunders, Associate Director of the National Consumer Law Center. “Abusive overdraft fee practices exacerbate existing inequalities and take a deep toll on New York’s Black and brown families. I commend the Superintendent for taking action against unfair overdraft fee practices that harm communities already struggling under an historically unfair system.”

“Unfair and deceptive overdraft practices plunder the bank accounts of those who have the least to spare,” said Nadine Chabrier, senior policy and litigation counsel for the Center for Responsible Lending. “We commend the New York State Department of Financial Services for issuing guidance that will rein in financial institutions that drain dollars from New York families.” 

The guidance takes specific steps to eliminate unfair and deceptive practices and create a more open banking system in New York. These include asking institutions to avoid the following:

• 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. 

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