NY Dept. of Financial Services issues overdraft/NSF fee guidance (2023)

The New York State Department of Financial Services (DFS) has issued an Industry Letter providing guidance on overdraft and non-sufficient funds (NSF) fees to depository institutions that it supervises.

The DFS indicates that, through the supervisory process, it has identified several unfair or deceptive acts or practices regarding the imposition of overdraft and NSF fees. The Industry Letter is intended to alert institutions that the DFS “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.”

Authorize positive, settle negative (APSN) transactions.APSN transactions are situations where a bank charges an overdraft fee on debit card transactions when the consumer’s account had a sufficient available balance at the time that the transaction was authorized by the bank but a subsequent, unrelated transaction lowers the consumer’s available balance to below the amount of the original transaction when it is presented for settlement. The DFS deems the imposition of overdraft fees on ASPN transactions to be an unfair practice because:

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  • It causes injury to consumers that consumers cannot reasonably avoid since 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; and
  • There is no benefit to consumers or competition from an Institution’s overdraft charges on APSN transactions.

The DFS states that it expects any institutions that are currently charging overdraft fees on APSN transactions to discontinue the practice.

Double fees arising from futile overdraft protection transfers. The DFS describes a scenario in which an institution offers consumers an overdraft protection service that 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 transaction, thereby preventing the imposition of an overdraft fee. The DFS states that it has found that some institutions charge a fee for overdraft protection transfers even where the transfer amount is insufficient to prevent the overdraft and the imposition of an overdraft fee.

The DFS deems the practice of charging a consumer both an overdraft fee and a fee for overdraft protection that failed to prevent the overdraft constitutes an unfair practice because such “double fees”:

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  • Injure consumers by imposing fees for a transfer that provides no value to the consumer;
  • Are 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 overdraft; and
  • Offer no benefit to either consumers or competition.

The DFS also deems the use of 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 a deceptive practice. According to the DFS, 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 material to a consumer’s choice about whether to enroll in an overdraft protection transfer service.

The DFS states that it expects institutions will not charge double fees but confirms that institutions can continue to charge an overdraft protection fee or an overdraft fee, consistent with consumer disclosures.

NSF fees relating to representments.This situation involves NSF fees that are charged when a transaction such as an Automated Clearing House (ACH) transaction is presented for payment but is declined because the consumer has insufficient funds in his or her account to cover the transaction. If the institution returns a merchant’s attempted debit entry because of insufficient funds, ACH rules authorize the merchant to “reinitiate” or “re-present” the entry up to two times. The Department states that it has found that some institutions charge a separate NSF fee for each presentment, or representment, of the same item, resulting in multiple NSF fees for a single transaction.

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The DFS deems charging multiple NSF fees to be a deceptive practice when the institution’s disclosures do not disclose expressly that multiple fees may be charged “per item” or “per transaction.” It also deems it a deceptive practice for an institution to represent that only one NSF fee will be charged “per item” or “per transaction” without disclosing that the same processed item may trigger multiple NSF fees. The DFS states that it expects 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. To make “clear, conspicuous and regular disclosure,” according to the DFS, institutions must include this disclosure in their regular communications with consumers (e.g., in each account statement, rather than in account-opening materials only) together with a direct point of contact for consumers who may have been subject to multiple NSF fees.

The DFS deems charging multiple NSF fees to also be a potentially unfair practice and expects institutions to take immediate steps to mitigate the risk that consumers are charged multiple NSF fees such as limiting the 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 an institution becomes aware of individual consumers who have been charged multiple NSF fees.

The DFS acknowledges that the unilateral elimination of multiple NSF fees could be technically impracticable for some institutions in the short term, including in cases where an institution’s own software or the software of a third-party service provider needs to be updated to allow for automated identification of representments. Nevertheless, the DFS expects institutions to update their internal systems and software and to work with their third-party service provider(s), as appropriate, to resolve this issue so that ultimately consumers are not charged more than one NSF fee per transaction, regardless of how many times the transaction is presented for payment.

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The DFS indicates that institutions should expect a review of all of the practices identified in the 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, DFS examiners will closely review what steps an 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 measures require cooperation from third-party service providers to eliminate multiple NSF fees entirely.

The DFS concludes the Guidance by stating that it is currently undertaking a broader review of overdraft and NSF fee practices and may issue additional guidance in the future.

Overdraft fees continue to be a CFPB focus. Also, in a recent report on significant consumer compliance issues identified by FDIC examiners during consumer compliance examinations, the FDIC raised concerns about charging multiple NSF fees for the re-presentment of unpaid transactions. The FDIC indicated that the failure to disclose material information about re-presentment practices and fees can be deceptive and also potentially unfairand noted that it has required banks to provide additional restitution beyond what was agreed to in class action settlements.

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How do I get an NSF fee removed? ›

Bank policies vary, but an NSF fee can often be waived through an NSF reversal after the fact, especially if it's the first time that it's been assessed. Calling the bank's customer service line and requesting a refund is the best course of action for a consumer.

Why am I being charged an NSF fee? ›

You may be charged an NSF fee if you don't have enough funds available to cover a transaction. A common example is if you have a monthly pre-authorized bill and forget to deposit money into your account to cover the charge. Or you write a cheque and the recipient doesn't cash your cheque immediately.

How many NSF fees Can a bank charge in one day? ›

You can commonly expect banks to charge a maximum of 4 to 6 overdraft fees per day per account, though a few outliers do allow as many as 12 in one day.

How do you bypass overdraft fees? ›

5 Ways to Avoid Overdraft Fees
  1. Balance your checkbook. Keep track of your balance, transactions and automatic payments. ...
  2. Pay with cash. Or use your debit card. ...
  3. Create an artificial buffer. ...
  4. Use direct deposit. ...
  5. Link your checking account to another account.

Can I dispute an overdraft fee? ›

Some banks may refund an overdraft fee after you contact customer service and explain your situation, especially if you've been a loyal customer and rarely overdraw your account. Other banks might have a formal program that either waives or helps you avoid overdraft fees.

Can an NSF be reversed? ›

If you submit a payment for tuition and fees that is returned by your bank for nonpayment, the payment will be reversed and you will incur an Returned Payment fee.

What happens if you have an NSF transaction to your account? ›

An NSF fee is commonly charged by banks when an account lacks the funds needed to cover a transaction, and the bank does not allow the transaction to go through. The result may be in the form of bounced checks or denied electronic bill payments.

Are NSF fees legal? ›

After my bank froze my checking account, some of my checks were returned unpaid. Is the bank permitted to impose a non-sufficient funds (NSF) fee for these returned checks? Generally, yes. The bank may charge non-sufficient funds (NSF) fees if permitted by the terms of your account agreement.

Does an NSF affect your credit? ›

However, if you fail to provide the necessary funds or to pay any NSF fees charged by your bank, it could send the amount to collections. At that point, it becomes a debt you owe to your bank, and the collection account could become part of your debit report and your credit report.

How long can your account be negative before they charge? ›

If your balance remains negative for between 3-31 consecutive business days (each bank's policy will vary), you may be charged an extended overdraft fee even if you don't have any more payments scheduled to be taken out.

What is the max a bank can charge in overdraft fees? ›

Federal laws do not specify maximum amounts for fees that banks can charge for overdrafts. These decisions are made by the bank. Banks are required to disclose any fees when the deposit account is established, and they are required to give you advance notice of any increase in a fee.

How much do banks allow to overdraft? ›

An overdraft limit is the maximum amount that banks allow you to withdraw. For example, you might have a bank account balance of $5,000 with an overdraft limit of $500. It means that you can spend up to $5,500, but you can't withdraw or request for an added money if the payment exceeds the limit.

How many times can I get overdraft fees waived? ›

Keep in mind that if overdrafts are a frequent occurrence, it probably doesn't matter how polite or persistent you are. Banks will usually only waive fees once or twice. Read: Best Savings Accounts. ]

How long can you go without paying overdraft fees? ›

How long do you have to pay back an overdraft? This varies by bank, but you ordinarily have five business days to deposit enough money in your account to cover the overdraft. Beyond that, the bank may charge you additional overdraft fees.

What banks have eliminated NSF fees? ›

More recently, various big banks, online banks and credit unions have announced plans to lower overdraft fees or cut them entirely.
  • Alliant Credit Union. Alliant Credit Union stopped charging overdraft and NSF fees in 2021. ...
  • Ally Bank. ...
  • Bank of America. ...
  • BMO Harris. ...
  • Capital One. ...
  • Citibank. ...
  • Citizens Bank. ...
  • KeyBank.
11 Aug 2022

Do banks automatically resubmit NSF checks? ›

Generally, a bank may attempt to deposit the check two or three times when there are insufficient funds in your account. However, there are no laws that determine how many times a check may be resubmitted, and there is no guarantee that the check will be resubmitted at all.

How long does it take for NSF to make a decision? ›

Due to the large number of proposals received, the review and consideration process can take up to six months. Large or particularly complex proposals may require additional review and processing time.

What is the difference between NSF and overdraft fees? ›

The difference between overdraft and NSF fees is the success or failure of the transactions. Overdrafting will allow the debit to clear. With an NSF, sometimes called a bounced check, the transaction does not go through.

What is the maximum NSF fee by state? ›

State Allowed NSF Fees
21 more rows

How many times can you overdraft Wells Fargo? ›

Footnote 6 6 We charge no more than three overdraft fees per business day for personal accounts. We do not charge a returned item / non-sufficient funds (NSF) fee for items returned unpaid.

What happens if my bank account is negative for 2 weeks? ›

A negative account has profound implications; your account may be temporarily suspended or closed, and ChexSystem may record a closure on your record, making it harder for you to open new bank accounts in the future. In any case, you can make efforts to correct the issue and prevent it from happening again.

What happens if you overdraft your bank account and don't pay it back? ›

The bank may freeze your account until the overdraft is paid off. That would mean you could not get access to any money in the account, like your salary. Banks also charge a monthly fee and a setting up fee the overdraft, so it can be an expensive way to borrow money.

Will a bank ever write off overdraft? ›

Can you get overdraft debt written off? Overdraft debt is similar to many other kinds of debt and can be written off through insolvency solutions such as an IVA or Bankruptcy.

What banks let you overdraft the most? ›

NerdWallet's Best Banks for Overdrafts
  • SoFi Checking and Savings.
  • Alliant Credit Union High-Rate Checking.
  • Axos Bank® Rewards Checking.
  • Ally Bank Interest Checking Account.
  • One Spend.
  • Navy Federal Credit Union Free EveryDay Checking.
  • Capital One 360 Checking.
27 Jun 2022

What happens if I use my overdraft every month? ›

If you regularly go beyond your overdraft limit it will damage your credit rating. That's because it shows lenders you may be struggling financially.

What bank allows the most overdraft? ›

Banks with the best overdraft limit
  • Chime. ...
  • Chase Bank. ...
  • Wells Fargo. ...
  • U.S. Bank. ...
  • BBVA Compass. ...
  • PNC Bank. ...
  • SunTrust Bank. ...
  • Bank of America.
14 Apr 2021

Do banks automatically submit NSF checks? ›

Generally, a bank may attempt to deposit the check two or three times when there are insufficient funds in your account. However, there are no laws that determine how many times a check may be resubmitted, and there is no guarantee that the check will be resubmitted at all.

Do you have to pay for NSF? ›

Unfortunately, having insufficient funds when a payment comes in means you will need to pay a non-sufficient fund fee (NSF). Below we'll explain more about NSF fees—also called non-sufficient funds fees—and how to avoid them.


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