Capital One To Drop Overdraft Fees

Capital One is staring at a loss of $150 million in revenue annually as it decides to eliminate all consumer overdraft fees. Customers will no longer be charged hefty fees for transactions exceeding their balance, typically $25 to $35 per transaction. Capital One Financial Corporation is an American financial services company focused on credit cards, auto loans, banking and savings accounts. It is headquartered in McLean, Virginia, and primarily operates in the United States. Approximately 350 physical locations and 70,000 ATMs are maintained by Capital One.

Founded in the 1990s as a credit card company, Capital One diversified into auto loans and deposits in the early 2000s. It has $425.4 billion in total assets, making it one of the ten largest retail banks in the US. Capital One aspires to change banking for good by bringing humanity, ingenuity and simplicity to banking by combining a top-notch bank experience with strong customer support. Its checking and savings accounts earn solid rates and will not charge monthly fees. Capital One offers flexible overdraft options, though its overdraft fees are high.

Bank of America said customers who paid overdraft fees will be automatically enrolled in a free overdraft protection service early next year. Customers who opt out of the service will simply have their overdrafts declined. In recent years, consumer advocates have been pushing banks to eliminate overdraft fees because they usually punish those who can least afford them: Americans who are struggling to make ends meet.

The rapid growth and surging valuations of a new crop of fintech-enabled digital banks with no-fee models have added pressure to the industry, however. Earlier this year, Ally Bank announced it would discontinue the punitive fees. Other banks, including Bank of America and PNC Bank, introduced features that would reduce the likelihood of customers going into overdrafts, without eliminating it entirely. Ally is an online-only bank without physical locations, but Capital One maintains over 350 physical locations and 70,000 ATMs throughout states such as New York, New Jersey, Texas, Maryland, and Virginia.

The industry earned more than $14 billion from overdraft fees in 2019, according to Fairbank’s employee memo. Overdraft fees have been a lucrative revenue source for big banks, something they have struggled to eliminate over the years. According to disclosures, Capital One earned $131 million in service charges and other customs fees in the first nine months of 2021. Capital One’s policy change will begin in January and will allow customers to overdraw up to a maximum of four times a day, or $140.

Overdraft fees are passed on to customers, increasing their financial burden, industry advocates said. In a statement, Lauren Saunders, associate director of the National Consumer Law Center, said this move by Capital One would benefit the most vulnerable consumers. “It is imperative that we continue to work to make the banking system more equitable and inclusive for all.”

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