On February 2, 2023, New York Governor Kathy Hochul released her 2024 fiscal budget proposal, which included banking policy to “Protect New Yorkers from Predatory Banking Fee” in the Executive Budget Briefing Book. The Briefing Book states:
“The Executive Budget includes nation-leading legislation that comprehensively addresses abusive bank fee practices, which tend to disproportionally harm low- and moderate-income New Yorkers, including stopping the opportunistic sequencing of transactions in a way designed to maximize fees charged to consumers, ending other unfair overdraft and non-sufficient funds fee practices, and ensuring clear disclosures and alerts of any permissible bank processing charges.”
This policy statement contemplates legislation that would expand the NYDFS guidance issued this past summer discouraging banks from engaging in certain practices involving “authorize positive, settle negative” transactions that cause overdraft fees, multiple non-sufficient funds (NSF) fees on representments, and so-called “double” overdraft fees in connection with overdraft protection services (as we blogged about here).
Last summer, Governor Hochul signed a bill requiring the NYDFS to conduct a study of overdraft fees and provide a report to the Governor within one year. The report is to be posted on the DFS website (as we blogged about here). Presumably, the proposed legislation will be informed by the results of the study, which has not yet been released.
Assembly Bill A2171 was introduced on January 23, 2023 and would create the “Consumer Overdraft Protection Act.” The bill, which was also introduced in the two prior legislative sessions, has been referred to Assembly Banks Committee. The legislation requires consent for check and debit overdraft coverage, restricts annual overdraft fees to $100, and restricts certain overdraft advertising practices. We will monitor this bill and any new bills related to Governor Hochul’s policy statement.
In 2021, NY also passed a law requiring banks to process checks in the order received or from smallest to largest dollar amount, pay smaller check amounts after dishonoring a larger check if funds are sufficient, and provide written disclosure of the check posting order (as we blogged about here).
Governor Hochul budget’s focus on overdraft and NSF fees aligns with the CFPB’s continued focus on overdraft and NSF fees as evidenced by the CFPB’s Fall 2022 rulemaking agenda (as we blogged about here). Overdraft and NSF fees will continue heightened regulatory attention in the coming year from both federal and state regulators. Financial institutions should continue to review their fee and posting order practices to avoid any potential claims for unfair, deceptive, and abusive practices. Ballard Spahr has previously helped many clients with such reviews.
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