Capital One says it is abolishing all retail overdraft fees.
According to the McLean, Virginia lender, it is the largest U.S. bank to date to end the industry practice of charging customers a hefty fee, typically $ 25 to $ 35 per case, to allow transactions involving the balance of a customer.
The move will cost the bank an estimated $ 150 million in lost revenue per year, according to a company spokesman.
"We will completely eliminate overdraft and insufficient funds (NSF) fees for all of Capital One's consumer banking customers," CEO Rich Fairbank said in a memo to bank staff on Wednesday, calling it a "first for major banks in the US ".
For years, banks have been under pressure from consumer advocates to abolish overdraft fees because they often punish those who can least afford it: Americans struggling to survive. However, the rapid growth and soaring valuations of a new generation of fintech-enabled digital banks with toll-free models have put pressure on the industry.
In June, Ally Bank announced that it would drop its penalty fees. Other banks, including PNC Bank and Bank of America, introduced features that make a customer less likely to fall into an overdraft without completely eliminating the source of income.
While Ally is an online-only bank with no physical branches, Capital One has approximately 350 physical locations and 70,000 ATMs in states like New York, New Jersey, Texas, Maryland, and Virginia.
Overdraft fees are a lucrative source of income for the industry that is difficult for large banks to drop. The industry took in more than $ 14 billion in overdraft fees in 2019, Fairbank said in the employee statement. Capital One reportedly raised $ 131 million in service fees and other customer fees in the first nine months of 2021.
Senator Elizabeth Warren has criticized the industry, particularly JPMorgan Chase and its CEO Jamie Dimon, for the unpopular charges. When Warren was faced with the matter this year, Dimon refused to quit the practice.
CNBC asked the four largest US asset banks if they would reconsider their overdraft policies.
A Wells Fargo spokesman said Wednesday that the lender "continues to evaluate our products and services, including overdraft services, as the market moves". The bank also offers no overdraft accounts and automated features like notifications that reduce the likelihood of fees, he said.
Prior to the policy change, which will begin in January, Capital One was charging its clients overdraft fees of $ 35, capped at four such fees per day, or up to $ 140 per day. Then, in August, the bank limited overdraft fees to one day and abolished NSF fees, the bank said.
Customers who run into overdraft fees often accidentally trigger a cascade of such fees, adding to the financial blow, industry officials said.
"This move by Capital One will bring tremendous benefits to the most vulnerable consumers," said Lauren Saunders, assistant director of the National Consumer Law Center, in a statement. "It is crucial that we continue to work to make the banking system more inclusive and fairer for all."
Most of the time, when Capital One clients attempt transactions that are in excess of their balance, they will take advantage of the bank's free overdraft protection, the bank said. Customers who have paid the fees will be automatically added to the service early next year, the bank said. Those who unsubscribe from the service will simply be declined overdrawn transactions free of charge.
Much like fintech firms like Chime, who have developed a feature that includes up to $ 200 in no-charge overdraft protection, Capital One customers must demonstrate a steady stream of deposits in order to qualify for the service.
"We believe the vast majority of current banking customers, as well as the vast majority of overdrafts, are eligible for free overdraft protection," Fairbank said. "The same goes for our low- and middle-income customers."
Capital One was co-founded by Fairbank and started out as a credit card company in the 1990s before specializing in auto loans and deposits. It has total assets of $ 425.4 billion, good for a top ten spot among US retail banks.