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Thanks to a new state law, Californians who try to withdraw money but don’t have enough money in their bank accounts won’t find themselves in a deeper financial hole by having to pay a fine.
The law targets cases in which banks charge customers when their withdrawals are immediately rejected, such as at an ATM, due to insufficient funds. It goes into effect on January 1st.
The 2017 Congressional Bill applies to state-regulated banks and credit unions. Gov. Gavin Newsom signed it in September. The bill is supported by several consumer advocacy groups, including the California Low-Income Consumers Coalition and the East Bay Community Law Center, which refer to fines for insufficient funds as “junk fees” and argue that it would be uneconomical to eliminate them. This will protect consumers who are in a vulnerable position.
The bill’s author, Tim Grayson, said when he introduced the bill in May that it would “help prevent high fees in the banking industry.” Grayson, a Democrat from Concord, is a senator-elect who served in Congress until the end of the legislative session in 2024.
The bill’s sponsor, the Consumer Federation of America, said typical fees for insufficient funds are $30 or more.
The California Credit Union Federation initially opposed the bill, saying credit unions “do not charge these types of fees,” but ultimately took a neutral stance. However, the state Office of Financial Protection and Innovation found that many credit unions derive revenue from insufficient funds fees. A 2022 state law would require agencies to collect data on fees from banks and credit unions.
Grayson’s legislation is similar to rules applied to federally chartered banks by the Consumer Protection and Treasury Department, the federal watchdog overseen by President-elect Donald Trump.
In line with a growing national movement to eliminate junk fees, Newsom also signed another bill addressing overdraft fees. Senate Bill 1075 would cap credit union fees for lack of funds at $14 unless a lower federal limit is established. This will become law in 2026. And he signed Assembly Bill 2863. It makes it easier for consumers to cancel their subscriptions and requires companies to get consent from customers before charging them for renewals or before free trials end. It will come into effect from July 1st.
