Three Things To Know About New York's New Overdraft Law

On August 19, 2021, New York state enacted legislation requiring banks to adopt check processing practices intended to minimize non-sufficient funds charges. These new requirements come amid a number of other initiatives aimed at providing relief to economically vulnerable consumers and those adversely impacted by the COVID-19 pandemic, including New York's relief from overdraft and other fees and proposed federal legislation seeking to address overdraft fees and marketing. New York's new law, which becomes effective on January 1, 2022, will have a potentially significant impact on banks operating in New York.

• What are the new requirements? The new law requires banks to pay checks either (i) in the order in which they are received or (ii) from smallest to largest dollar amount for each day's transactions. However, if a bank dishonors a check for insufficient funds but then receives checks in smaller amounts that could be covered by the existing account balance, the