Requires banks to report to the superintendent annually on the amount of revenue earned from overdraft fees; prohibits banks from imposing overdraft fees during a ten day grace period; regulates the imposition of overdraft and NSF fees.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A8266
SPONSOR: Zaccaro TITLE OF BILL:
An act to amend the banking law, in relation to overdraft fees charged
by banking organizations
PURPOSE OR GENERAL IDEA OF BILL:
This bill requires the annual reporting of overdraft fees and non-suffi-
cient funds fees by banking organizations and credit unions subject to
the authority of the Superintendent of the Department of Financial
Services who shall issue an annual report on such information and
imposes additional requirements regarding the imposition of overdraft
fees and non-sufficient funds fees.
SUMMARY OF PROVISIONS:
Section one: Adds a new section 37-b to the banking law requiring an
annual report on overdraft fees and non-sufficient funds fees.
Section two: Adds a new section 135 to the banking law requiring a ten-
day grace period before an overdraft fee or a non-sufficient funds fee
can be imposed.
Section three: Adds a new subdivision 10 to section 456 of the banking
law requiring a ten-day grace period before an overdraft fee or a non-
sufficient funds fee can be imposed. Also defines non-sufficient funds
fee and overdraft fees for purposes of the subdivision.
Section four: Adds a new section 6-a to the banking law regarding
improper practices relating to the imposition of certain fees
Section five: Provides for the effective date
JUSTIFICATION:
On July 12, 2022 the NYS Department of Financial Services issued a guid-
ance letter to all regulated depository institutions regarding deceptive
and unfair practices with regard to the imposition of overdraft fees and
nonsufficient. funds (NSF) fees. This legislation seeks to codify the
recommendations set forth by the department in that letter.
The department's guidance letter which follows sets forth the complete
justification for this legislation.
JULY 12, 2022INDUSTRY LETTER: AVOIDING IMPROPER PRACTICES RELATED TO OVERDRAFT AND
NON-SUFFICIENT FUNDS FEESTO: ALL REGULATED DEPOSITORY INSTITUTIONS
The New York State Department of Financial Services (the "Department"),
as part of its mission, continues to focus on making affordable banking
products and services available to underserved communities, including
low- and moderate-income individuals, immigrants, and people of color.
It is well documented that high and unpredictable bank account fees are
among the reasons that many households remain unbanked.ili It is there-
fore imperative that regulated depository institutions ("Institutions")
be transparent in the fees associated with deposit accounts and elimi-
nate onerous fees, in order to attract and retain consumers from these
underserved communities in the banking system.
Earlier this year, the Department issued Guidance encouraging Insti-
tutions to offer Bank On accounts, which, among other things, eliminate
overdraft and non-sufficient funds ("NSF") fees.EL The Department,
through the supervisory process, has identified several unfair or decep-
tive acts or practices regarding the imposition of overdraft fees and
NSF fees. The purpose of this Guidance is to alert Institutions that the
Department will evaluate whether Institutions are engaged in deceptive
or unfair practices with respect to overdraft and NSF fees in future
Consumer Compliance and Fair Lending examinations.
I. OVERDRAFT FEES RELATING TO AUTHORIZE POSITIVE, SETTLE NEGATIVE
("APSN") TRANSACTIONS
The Department has found that some Institutions charge an overdraft fee
on debit card transactions that do not exceed the account's positive
balance in cases where a subsequent, unrelated transaction lowers the
consumer's available balance to below the amount of the original charge
when the original transaction is presented for settlement. Stated
differently, some Institutions are charging consumers an overdraft fee
even though they had a sufficient positive balance at the time that the
transaction was authorized by the Institution. The imposition of over-
draft fees in such situations (referred to as "Authorize Positive,
Settle Negative" or "APSN" transactions) is unfair, because it causes
injury to consumers that consumers cannot reasonably avoid. Consumers
have no control over or involvement in the settlement and presentment of
debit card transactions, which typically takes place some days after the
consumer conducts the transaction. When an Institution authorizes a
debit card transaction on an account with sufficient funds to cover the
transaction, the consumer reasonably expects that they will not incur an
overdraft charge on that transaction. Furthermore, there is no benefit
to consumers or competition from an Institution's overdraft charges on
APSN transactions.
Given previous federal regulatory scrutiny of this topic,L31 the Depart-
ment understands that some Institutions may have already taken steps to
avoid this practice. To the extent that Institutions are currently
charging overdraft fees related to APSN transactions, the Department
expects those Institutions to discontinue the practice.
II. DOUBLE FEES ARISING FROM FUTILE OVERDRAFT PROTECTION TRANSFERS
Institutions frequently offer consumers an overdraft protection service
for a fee. This service automatically transfers funds from another
account held by the consumer at the same institution, such as a savings
account, to cover what would have otherwise been an overdraft trans-
action, thereby preventing the imposition of an overdraft fee. The
Department has found that some Institutions charge a fee for overdraft
protection transfers even where the transfer amount is insufficient to
prevent the actual overdraft. In those cases, the transfer fails to
prevent the occurrence of an overdraft and the imposition of an accompa-
nying overdraft fee.
The practice of charging a 'consumer both an overdraft protection fee
and a fee for the overdraft that the "protection" failed to prevent (a
"Double Fee") constitutes an unfair practice. A Double Fee injures
consumers by imposing fees. for a transfer that provides no value to the
consumer and is not reasonably avoidable by consumers, who have no
reason to expect that they will be charged a fee for an overdraft
protection transfer that does not in fact protect them against an over-
draft. The imposition of Double Fees offers no benefit to either consum-
ers or competition.
In addition, utilizing any disclosure that states that an overdraft
protection transfer (including any associated fee) serves to prevent an
overdraft, where it does not necessarily do so, is deceptive to consum-
ers. A consumer's interpretation that a fee for an overdraft protection
transfer will only be charged when the transfer actually protects
against the overdraft is reasonable, and any misrepresentation is mate-
rial to a consumer's choice about whether to enroll in an overdraft
protection transfer service. The Department expects that Institutions
will not charge Double Fees. Institutions may, however, continue to
charge an overdraft protection fee or an overdraft fee, consistent with
consumer disclosures.
III. NSF FEES RELATING TO REPRESENTMENTS
Institutions frequently charge an NSF fee in cases where a transaction,
including an Automated Clearing House ("ACH") transaction, is presented
for payment but is declined because the consumer has insufficient funds
in their account to cover the transaction. Where an Institution returns
a merchant's attempted debit entry because the consumer's account had
insufficient funds to cover the debit, ACH rules authorize the merchant
to "reinitiate" or "represent" the entry a maximum of two times in an
attempt to collect funds-La The Department has found that some Insti-
tutions charge a separate NSF fee for each -presentment, or represent-
ment, of-the same item, resulting in multiple NSF fees for a single
transaction ("Multiple NSF Fees").
The practice of charging a consumer Multiple NSF Fees is deceptive
'where the Institution's disclosures fail to disclose-expressly that
multiple fees may be charged "per item" or "per transaction." .
Further, it is deceptive when the Institution represents, that only one
NSF fee will be charged "per item" or "per transaction" without disclos-
ing that the same processed item may trigger Multiple NSF Fees. Accord-
ingly, the Department expects that Institutions currently charging
Multiple NSF Fees make clear, conspicuous, and regular disclosure to
consumers that they may be charged more than one NSF fee for the same
attempted debit transaction when that debit is represented after being
declined for insufficient funds. The Department considers "clear,
conspicuous and regular disclosure" to mean that Institutions will
include this disclosure in their regular communications with consumers
(e.g., in each account statement, rather than in account-opening materi-
als only) together with a direct point of contact for consumers who may
have been subject to Multiple NSF Fees.
The practice of charging Multiple NSF fees is also potentially unfair.
Consumers have no control over, or involvement in, the representment of
debit transactions and no way to avoid representments once a consumer
has attempted a transaction. The Department expects Institutions to take
immediate action to mitigate the risk that consumers are charged Multi-
ple NSF Fees. Steps that Institutions could take to address this issue
include limiting NSF fees that can be imposed during a certain time
period (e.g., a week), performing periodic' manual reviews to identify
instances of Multiple NSF Fees, and offering refunds to consumers when
Institutions become aware of individual consumers who have been charged
Multiple NSF Fees.
The Department recognizes that the unilateral elimination of Multiple
NSF Fees may be technically impracticable for some Institutions in the
short term, including in cases where their own software or the software
of their third-party service providers needs to be updated to allow for
automated identification of representments. Nonetheless, Institutions
are expected to update their internal systems and software and to work
with their third-party service provider(s), as appropriate, to resolve
this issue. The Department ultimately expects Institutions will not
charge more than one NSF fee per transaction, regardless of'how many
times that transaction is presented for payment.
Institutions should expect a review of all of the practices identified
in this Industry Letter to be included in Consumer Compliance and Fair
Lending examinations conducted by the Department. With respect to the
imposition of Multiple NSF fees, these examinations will closely review
what steps the Institution has taken to address the risk of Multiple NSF
fees in the short term, including what measures they have been able to
take unilaterally and which require cooperation from third-party service
providers to eliminate this type of fee entirely.
The Department is currently undertaking a broader review of practices
related to the imposition of overdraft and NSF fees and may in the
future issue additional guidance related to these practices.
(1) Federal Deposit Insurance Corporation, FDIC National Survey of
Unbanked and Underbanked Households, Executive Summary (2017), at 4,
available at
https://www.fdic.gov/analysis/household-survey/2017/2017execsumm.pdf.
(2) New York State Department of Financial Services, Industry Letter
titled "Offering Bank On Accounts as an Alternative to New York Basic
Banking Accounts"(Apr.15,2022),available at
https://www.dfs.ny.gov/industry guidance/industry letters/i120220415
offer ing bank on.
(3)See Federal Deposit Insurance Corporation, Consumer Compliance Super-
visory Highlights (June 2019), available at
https://www.fdic.gov/regulations/examinations/consumer-compliancesupervi
sory-highlights/documents/ccs-highlights-june2019.pdf;Consumer Financial
Protection Bureau, Supervisory Highlights (Winter 2015), available at
https://files.consumerfinance.gov/f/201503 cfpb supervisory-highli-
ghtswinter-2015.pdf.
(4) National Automated Clearing House Association, ACH Operations Bulle-
tin 12014: Questionable ACH Debit Origination: Roles and Responsibil-
ities of ODFIs and RDFIs (Sept. 30, 2014), available at
https://www.nacha.org/news/ach-operations-bulletin-1-2014-questionableac
h-debit-origination-roles-and-responsibilities).The ACH rules require
that representments include the description "RETRY PYMT," which allows
consumers and Institutions to identify representments. ACH Network Risk
and Enforcement Topics (Sept. 18, 2015), available at
https://www.nacha.org/rules/ach-network-risk-and-enforcement-topics
PRIOR LEGISLATIVE HISTORY:
New bill
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
None
EFFECTIVE DATE:
This act shall take effect on the sixtieth day after it shall have
become law.
STATE OF NEW YORK
________________________________________________________________________
8266
2023-2024 Regular Sessions
IN ASSEMBLY
November 15, 2023
___________
Introduced by M. of A. ZACCARO -- read once and referred to the Commit-
tee on Banks
AN ACT to amend the banking law, in relation to overdraft fees charged
by banking organizations
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. The banking law is amended by adding a new section 37-b to
2 read as follows:
3 § 37-b. Report on overdraft fees. 1. Every banking organization
4 subject to the examination authority of the superintendent shall report
5 annually, on or before March first, to the superintendent on the amount
6 of revenue earned from overdraft fees and non-sufficient funds fees
7 collected in the most recently completed calendar year and the percent-
8 age of that revenue as a proportion of the net income of the banking
9 organization. The superintendent shall publish a report containing such
10 data for each organization on the department's internet website.
11 2. The superintendent shall publish the first report required by this
12 section on or before August thirty-first, two thousand twenty-four,
13 covering data from the two thousand twenty-three calendar year, and
14 annually thereafter by March thirty-first of each year.
15 3. As used in this section:
16 (a) "Non-sufficient funds fees" means fees resulting from the initi-
17 ation of a transaction that exceeds the customer's account balance if
18 the customer's banking organization declines to make the payment.
19 (b) "Overdraft fees" means fees resulting from the processing of a
20 debit transaction that exceeds a customer's account balance.
21 § 2. The banking law is amended by adding a new section 135 to read as
22 follows:
23 § 135. Overdraft fees. 1. No banking organization shall impose an
24 overdraft fee or non-sufficient funds fee prior to a period of ten days
25 from the date of the subject transaction during which time period the
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD13438-02-3
A. 8266 2
1 member may deposit funds in an amount sufficient to cover the trans-
2 action.
3 2. For the purposes of this section:
4 (a) "Non-sufficient funds fees" means fees resulting from the initi-
5 ation of a transaction that exceeds the customer's account balance if
6 the customer's bank or trust company declines to make the payment.
7 (b) "Overdraft fees" means fees resulting from the processing of a
8 debit transaction that exceeds a customer's account balance.
9 § 3. Section 456 of the banking law is amended by adding a new subdi-
10 vision 10 to read as follows:
11 10. (a) Impose an overdraft fee or non-sufficient funds fee prior to a
12 period of ten days from the date of the subject transaction during which
13 time period the member may deposit funds in an amount sufficient to
14 cover the transaction.
15 (b) For the purposes of this subdivision:
16 (i) "Non-sufficient funds fees" means fees resulting from the initi-
17 ation of a transaction that exceeds the customer's account balance if
18 the customer's bank or credit union declines to make the payment.
19 (ii) "Overdraft fees" means fees resulting from the processing of a
20 debit transaction that exceeds a customer's account balance.
21 § 4. The banking law is amended by adding a new section 6-q to read as
22 follows:
23 § 6-q. Improper practices relating to the imposition of certain fees.
24 1. No banking organization shall charge overdraft fees on debit card
25 transactions that do not exceed the account's positive balance in cases
26 where a subsequent, unrelated transaction lowers the consumer's avail-
27 able balance to below the amount of the original charge when the
28 original transaction is presented for settlement.
29 2. A fee for an overdraft protection transfer, where such service is
30 available and enrolled in by the consumer, may only be charged when the
31 transfer amount is sufficient to cover an overdraft transaction. If the
32 amount transferred from another account of the consumer is not suffi-
33 cient to prevent an overdraft, then the banking organization may only
34 charge a single fee for the overdraft transaction and may not charge a
35 second fee for a transfer of funds which is insufficient to prevent the
36 overdraft.
37 3. Institutions shall not charge more than one non-sufficient funds
38 fee per transaction, regardless of how many times that transaction is
39 re-presented for payment by a merchant. Banking organizations shall
40 update associated software, or require the software update of their
41 third-party service providers, in order to prevent multiple fees from
42 being charged for a single transaction in violation of this subdivision.
43 § 5. This act shall take effect on the sixtieth day after it shall
44 have become a law.
