New York State Department of Financial Services proposes rules to curb overdraft and NSF fees at state-chartered banks

The New York State Department of Financial Services (DFS) posted proposed regulations to strengthen consumer protections against unfair overdraft and non-sufficient funds (NSF) fee practices while preserving access to overdraft services. The proposal would limit fees on small-dollar overdrafts, cap the size and frequency of charges, require timely consumer notifications, and impose tighter rules on transaction processing. For state-chartered banks, the proposal would prohibit overdraft fees on overdrafts of less than USD 20, ban overdraft fees that exceed the overdrawn amount, and limit accounts to no more than three overdraft or NSF fees per day. It would also bar NSF fees for instantaneously declined electronic transactions, multiple NSF or overdraft fees for the same transaction (including merchant resubmissions), sustained or daily fees while an overdraft remains unpaid, and “double fees” for covering an overdraft (such as a transfer fee plus an overdraft fee). Additional restrictions would prohibit processing electronic debit transactions in a manner intended to maximize overdraft and NSF fees and charging an overdraft fee for an electronic transaction when the account indicated sufficient funds when the transaction was initiated. DFS indicated it will continue stakeholder engagement through the public comment period.