[co-author: Stephanie Kozol]*
Given the future uncertainty of the Consumer Financial Protection Bureau’s (CFPB) efforts to regulate bank overdraft fees, New York’s Department of Financial Services (DFS) has stepped in to fill a perceived gap. The DFS announced proposed regulations to tackle what it perceives as unfair overdraft fees. The proposed regulations will “ensure consumers will no longer be burdened with overdraft fees for minor transactions and require banks to provide timely notifications to consumers about overdraft fees to improve transparency.”
While this proposal follows the CFPB’s December 2024 final rule that governed overdraft fees for financial institutions with more than $10 billion in assets, the DFS regulation applies to a broader category of institutions, indicating a harsher approach from the state regulator.
The proposed regulations include prohibitions on specific bank conduct related to overdraft fees, including:
- Processing electronic debit transactions in a manner intended to maximize the number of “insufficient funds charges”, which the regulation defines as overdraft fees or non-sufficient funds (NSF) charges.
- Charging NFS fees in connection with a transaction that is “declined instantaneously or near-instantaneously.”
- Imposing insufficient funds charges for an electronic transaction when the amount displayed to the consumer indicates sufficient funds were available at the time the transaction was initiated.
- Imposing insufficient funds charges that exceed the overdrawn amount.
- Imposing insufficient funds charges on overdrafts of less than $20.
- Charging more than three insufficient funds charges per consumer account per day.
- Imposing any charge on any overdraft transaction other than interest and one overdraft charge.
The comment period was short and closed on February 3. However, there will be additional time for public input as this was a “pre-proposed” draft for review, and DFS will need to provide a formal proposal for additional feedback. Significant changes in the regulation is not expected as it is in line with DFS’ stated priorities, including 2022 guidance that urged “regulated depository institutions” to “be transparent in the fees associated with deposit accounts.” Additionally, the proposed regulation has been publicized as “part of Governor Hochul’s 2025 State of the State Proposal to Protect Consumers and Keep Money in New Yorkers’ Pockets,” further emphasizing the importance the state has placed on this initiative.
Why It Matters
This serves as yet another reminder of the impact states have on the regulatory landscape. While DFS may have been targeting overdraft fees for years, its presentation of this proposed regulation while the fate of the CFPB’s similar rule is unknown highlights what is likely to be continued aggressive state action where there is a perceived gap in federal regulations or enforcement.
*Senior Government Relations Manager
