The nation’s sixth-largest bank is doing away with all overdraft fees. Capital One made the announcement Wednesday in a statement released to the media.
"Eliminating overdraft fees is another step in our effort to bring ingenuity, simplicity and humanity to banking," Capital One CEO Richard Fairbank said.
In jettisoning the monetary penalty, Capital One says it is “reimagining banking.”
In addition, Capital One will expand its overdraft protection service next year, making it available to all of its customers. For customers who opt not to enroll, the bank will automatically decline any transactions that would overdraw an account.
The bank’s decision comes at a time that the Consumer Financial Protection Bureau (CFPB) is cracking down on practices it considers to be predatory against lower-income families.
“Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model,” CFPB Director Rohit Chopra said in a statement. “We will be taking action to restore meaningful competition to this market.”
According to a survey by Bankrate, the average overdraft charge is currently $33.58, an increase of 22 cents over the past two years. Banks in the U.S. bolstered their coffers with an estimated $15.5 billion in 2019 alone sheerly through overdraft charges.
National Consumer Law Center associate director Lauren Sanders told CBS News that Capital One’s decision is a “landmark moment for American families,” and that it helps eliminate what could be exclusionary practices.
“Capital One is the first top-10 bank, the first with a real branch network and the first with significant overdraft revenue to end its use of overdraft and NSF fees,” Sanders said. “Its decision is especially meaningful given the major profits that come from these often-predatory fees.”
A report by the Financial Health Network showed that families of color were particularly impacted by exorbitant overdraft charges with Hispanic households paying $3.1 billion in penalty fees in last year alone. Black families paid $1.4 billion in the same time frame.
Further CFPB research discovered that about 80% of all revenue generated by overdraft charges come from about 9% of all consumer bank accounts.
As a result, the regulatory body is planning a crackdown on institutions that are too dependent on overdraft fees for their income, a revelation that could at least partially be informing Capital One’s decision.
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