New York enacts law to curb overdraft fees

Starting Jan. 1, banks chartered in New York must abide by a new law that’s meant to curb overdraft fees.

Outgoing Democratic Gov. Andrew Cuomo on Thursday signed a bill that requires banks offering consumer checking accounts to pay checks in the order they are received, or from smallest to largest dollar amount for each business day's transactions.

Bloomberg News

Banks may still decline to pay checks if the amount of money is greater than the balance in the account, but they must pay any smaller checks that can be paid with the existing funds in the account. Until now, banks have been able to decline both the initial check and all subsequent checks, even if there has been enough money in the account to pay for the smaller checks.

The legislation applies to state-chartered banks, but not national banks based in New York. There are about 80 state-chartered banks in New York, according to the Federal Deposit Insurance Corp. They include M&T Bank in Buffalo, New York Community Bancorp in Hicksville, Signature Bank in New York City and dozens of community banks.

The new law comes at a time when banks across the country are evaluating overdraft policies and, in some cases, making changes that range from eliminating overdraft fees to developing products that offer less costly options to customers who live paycheck to paycheck.

For instance, Ally Bank in Detroit is no longer charging overdraft fees, Cincinnati-based Fifth Third launched a low-cost deposit account designed to help customers avoid fees, and Synovus Financial in Columbus, Georgia, is making product changes that are expected to reduce its overdraft fee income.

Reforms are being called for at the federal level as well. In June, Rep. Carolyn Maloney, D-N.Y., who chairs the House Oversight Committee, introduced a bill called the Overdraft Protection Act that would curb the number of times that banks can collect overdraft fees.

New York’s legislation was approved by the state Senate and Assembly in March. The bill was sponsored by Sen. Neil Breslin, D-Delmar, and Assemblyman Tom Abinanti, D-Westchester.