NYDFS Issues Guidance on Deceptive Overdraft Fees and NSF Practices

The New York Department of Financial Services ("NYDFS") issued guidance to banking entities on unfair and deceptive overdraft and non-sufficient funds ("NSF") fee practices.

In an industry letter, NYDFS alerted regulated 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."

NYDFS identified harmful practices, such as (i) "authorize positive, settle negative" transactions (where the client's account is positive when the charge is authorized and negative when the charge is paid), (ii) double fees arising from insufficient overdraft protection transfers and (iii) multiple NSF fees for the same declined transaction. The guidance was issued following an NYDFS review of check-cashing fees.