New York State Requiring Banks to Take Actions to Prevent Overdraft Fees


Legislation (S.1465/A.1073) Requires Banking Institutions that Maintain Checking Accounts to Pay Checks in the Order they Are Received

Banks May Dishonor Checks Due to Insufficient Funds but Must Honor Smaller Checks if Customer Is Able to Pay

Governor Andrew M. Cuomo signed legislation (S.1465/A.1073) requiring banks to take several actions that prevent overdraft fees. The legislation requires banking institutions that maintain checking accounts to pay checks in the order they are received. If a bank receives a check for a greater amount of money than the balance in the account, it may decline to pay the check. However, the banking institution must honor any smaller checks that can be paid with the existing account balance.

“The COVID pandemic had a devastating effect on our economy and as a result, many New Yorkers still struggle to pay their bills, and the arbitrary overdraft fees that banks have continued to issue only add insult to injury,” Governor Cuomo said. “This legislation will require banks to take several actions that reduce the opportunities for charging overdraft fees and keep more money in New Yorkers’ pockets. We continue to face the economic impacts of the COVID-19 pandemic and this commonsense bill will help many of the state’s residents who need it most.”

Under current law, if a banking institution receives a check for a larger amount of money than the funds in the account, it will not only dishonor that check, but all subsequent checks, even if there are sufficient funds in the account to pay them. This legislation requires banks to honor subsequent checks if they can be paid using funds in the account.