New York regulators are urging lenders to curb overdraft fees levied on consumer accounts as part of the state agency’s push to reform banking practices considered unfair and deceptive.
New guidance from the New York State Department of Financial Services, issued Tuesday, aims to set “clear expectations” about the charging of fees for nonsufficient funds and overdraft account transactions, according to a NYSDFS statement.
Eliminating the use of “improper or unfair” banking fees is a “critical component of financial health and stability,” Superintendent Adrienne Harris said in the statement. Harris added that the guidance seeks to protect the “most vulnerable consumers of banking services” — low- and moderate-income clients, people of color and immigrant communities.
The state agency addressed three fee policies in particular which regulators are seeking to end:
- Overdraft charges when the consumer’s account shows sufficient funds at the time of transaction
- “Overdraft protection” fees that automatically transfer funds from another account but still does not cover the transaction
- Double-charging accounts after a merchant takes multiple attempts to collect failed transactions
The guidance is aimed at more than 50 community banks out of the 159 New York state-chartered banks as well as at 15 credit unions. Evidence of the kinds of fee practices targeted by the department was found in one or more regulatory exams of those 65 institutions, according to a source familiar with the state’s review.
A group of congressional Democrats, led by Rep. Carolyn Maloney of New York and Sen. Elizabeth Warren of Massachusetts, are optimistic that an overdraft bill will be taken up in the House later this month.
The New York Bankers Association said the trade group “strongly supports” access to affordable banking services but noted that some of the new requirements in the guidance may be “technically impractical,” according to an emailed statement from association President Clare Cusack.
“This guidance has the potential to unduly disadvantage New York’s state-chartered banks since the additional disclosure and other requirements may not be consistent with those applicable to federally chartered banks,” Cusack said.
She added that the association supports New York regulators in promoting the agency’s Bank On program which provides certified accounts that do not charge overdraft fees “for the purpose of bringing underserved consumers into the banking system.”
The guidance comes amid heightened scrutiny of New York-chartered lenders’ practices. A new state law targeting overdraft fee practices took effect on Jan. 1 requiring state-chartered banks to pay checks for consumer accounts in the order they are received, or from the smallest to largest dollar amount for each business day’s transactions.
In May, Gov. Kathy Hochul of New York directed the department of financial services to study New York’s underbanked communities and households to better understand how to improve access to financial services. State legislators passed a bill authorizing the agency to study and prepare a report related to overdraft fee practices.
And last month, state regulators unveiled a proposal that would create a “new fee methodology,” which would evaluate the needs of licensees and consumers who use check-cashing services.
