Capital One to Eliminate Overdraft Fees for All Retail Bank Customers

Capital One is removing all overdraft fees for retail banking customers, according to a memo distributed to employees on Wednesday.

It is the largest U.S. bank to end the industry practice of charging customers high fees, typically $ 25-35 per instance, to authorize transactions in excess of a customer’s balance, depending on the lender. based in McLean, Virginia.

The move will cost the bank an estimated lost revenue of $ 150 million per year, according to a company spokesperson.

For years, banks have been pressured to eliminate overdraft fees because they often punish those who can least afford them.

“We will completely eliminate overdraft and insufficient funds (NSF) charges for all customers of Capital One’s mainstream banks,” CEO Rich Fairbank told bank employees in the memo, calling it “a first for the big banks in the United States “.

For years, banks have been pressured by consumer advocates to eliminate overdraft fees because they often punish those who can least afford them: Americans struggling to make ends meet. The rapid growth and surging valuations of a new generation of fintech-enabled digital banks with toll-free models, however, has increased pressure on the industry.

In June, Ally Bank announced it was dropping punitive charges. Other banks, notably PNC Bank and Bank of America, have introduced features that make it less likely that a customer will end up in an overdraft, without completely eliminating the source of income.

While Ally is an online-only bank with no physical branches, Capital One operates approximately 350 physical locations and 70,000 ATMs in states such as New York, New Jersey, Texas, Maryland, and Virginia.

Overdraft fees are a lucrative source of income for the industry, and it has been difficult for the big banks to come down. The industry raked in over $ 14 billion in overdraft fees in 2019, Fairbank said in the employee memo. Capital One collected $ 131 million in service and other customer charges in the first nine months of 2021, according to the disclosures.

Senator Elizabeth Warren blasted the industry, and JPMorgan Chase and its CEO Jamie Dimon in particular, over the unpopular fees. Confronted with Warren this year about it, Dimon refused to end the practice.

Prior to the policy change, which will begin in January, Capital One was charging clients an overdraft fee of $ 35, capped at four of those fees per day, or up to $ 140 per day. Then, in August, the bank capped overnight overdraft fees and removed NSF charges, the bank said.

The banking industry raked in over $ 14 billion in overdraft fees in 2019.

Clients who dip into overdraft fees often inadvertently trigger a cascade of overdraft fees, compounding the financial blow, industry advocates have said.

“This move by Capital One will have huge benefits for the most vulnerable consumers,” Lauren Saunders, associate director of the National Consumer Law Center, said in a statement. “It is essential that we continue to work to make the banking system more inclusive and fair for all. “

Now, when Capital One customers attempt transactions over their balances, they will primarily use the bank’s free overdraft protection service, the bank said. Customers who paid the fee will automatically roll over to the service early next year, the bank said. Those who opt out of the service will simply see declined short trades at no charge.

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