California bans state banks and credit unions from charging NSF fees

State Issues California NSF Fees Credit Union CFPB State Legislation

On September 24, the Governor of California signed AB 2017 (the “Act”) into law, prohibiting state-chartered banks and credit unions from charging NSF fees when consumers initiate transactions that are instantaneously or near instantaneously declined because of insufficient funds. The Act aims to protect consumers from abusive financial practices, adding Chapter 5.5 to Division 1 of the Financial Code, specifically Section 530. The law should go into effect on January 1, 2025.

The Act’s analysis highlighted that the Act attracted support in both the Senate and the Assembly. The Act, modeled after the CFPB’s proposed overdraft fee rule (covered by InfoBytes here) eliminates NSF fees charged by banks without labeling them as “abusive.” The analysis emphasized that the Act aims to protect financially vulnerable consumers from being charged fees for transactions that are declined almost instantly, as these fees are considered disproportionate to the actual costs incurred by financial institutions.