New York Banking Regulator Continues to Target Overdraft Fees

The state agency said the proposed fees would “eliminate the most exploitative and deceptive banking fees, cap overdraft fees, strengthen customer communications and establish stricter transaction processing requirements.” Among other provisions, the fees would prohibit New York-chartered banks from charging overdraft fees on overdraft transactions of less than $20 or if the overdrawn amount is less than the fee itself.

Pillsbury financial institutions group partner Brian Montgomery told Law360 that New York’s new proposed fee regulations have roots that go deeper than the change in presidential administrations.

“Generally speaking, you may see DFS [New York Department of Financial Services] and other state regulators try to fill perceived gaps with the new administration,” Montgomery said. “But DFS has been on this issue for several years ... I see this [proposal] as flowing directly out of that prior work and continuing it.”

Montgomery, a former DFS deputy superintendent, pointed to guidance that the agency issued in 2022, which urged New York-chartered banks to refrain from certain overdraft and NSF fee practices, like charging multiple fees on a single transaction. Last week’s proposal would go further by formally banning those practices.

That’s a “major step,” Montgomery said. “And the scope of this is in some ways more aggressive than the CFPB [Consumer Financial Protection Bureau] has been.”