New state guidance imposes overdraft/NSF restrictions on state-chartered credit unions

The Department of Financial Services issued a new guidance for New York-regulated banking institutions in an effort “to promote financial inclusion by prohibiting unfair and deceptive overdraft and non-sufficient funds fee practices.”

The guidance only applies to state-regulated institutions. As a result, state-chartered credit unions and banks will be evaluated for compliance with these new requirements, which go far beyond corresponding limitations for federal charters as part of fair lending and consumer protection audits.

DFS stated that the guidance informs all regulated depository institutions of the need to avoid the following practices:

  • Authorize positive, settle negative (APSN) transactions: Charging consumers an overdraft fee even though the consumer had a positive account balance sufficient to cover the transaction when it was authorized by the institution.
  • Double fees arising from futile overdraft protection transfers: Charging a fee to consumers for an “overdraft protection” transfer from a consumer’s other account that is of an insufficient amount to avoid an overdraft, resulting in the consumer being charged both an overdraft fee as well as a fee for the “overdraft protection” transfer.
  • Representment fees: charging a consumer more than one NSF fee for the same declined transaction, without adequate disclosures, where the merchant re-presents the same transaction to the banking institution in a second or third attempt to collect funds.

New York Credit Union Association leadership is currently reviewing this guidance and will provide additional context as it becomes available.

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