Investing News

Capital One Dropping Overdraft, NSF Fees for Consumers

Capital One announced on Dec. 1 that it will eliminate overdraft fees for all of its consumer banking customers starting in 2022. The benefit is available at many smaller financial institutions, but it’s a first for a major national retail bank. The news came on the same day as a report from the Consumer Financial Protection Bureau (CFPB), noting banks’ dependence on overdraft and non-sufficient funds (NSF) fees.

Key Takeaways

  • Capital One has announced that it will stop charging overdraft and NSF fees on its consumer banking accounts.
  • Customers can take advantage of overdraft protection at no cost.
  • The Consumer Financial Protection Bureau has released findings showing how dependent banks are on revenue from these fees and how they affect consumers.

Behind Capital One’s Decision to Drop Overdraft and NSF Fees

Capital One, the sixth-largest retail bank in the U.S., is the first top-10 bank to get rid of overdraft and NSF fees for its consumer banking customers. The fees remain in force for business banking customers.

In a statement, CEO Richard Fairbank remarked that, “Long ago, we set our sights on reimagining banking. Our award-winning checking accounts already feature no monthly fees and no minimum balance requirements. Eliminating overdraft fees is another step in our effort to bring ingenuity, simplicity, and humanity to banking.”

Customers will still have the choice of whether or not to take advantage of overdraft protection. Those who are currently enrolled will have their accounts automatically converted to a no-fee overdraft program when the new program launches in early 2022. Those who are eligible but have not yet enrolled in overdraft protection can do so at any time.

Finally, for customers who decide not to enroll in overdraft protection, any transaction that would overdraw their balance will be declined.

CFPB Report Highlights Banks’ Dependence on Overdraft Fees and the Impact on Consumers

On the same day as Capital One’s announcement, the Consumer Financial Protection Bureau (CFPB) released two reports on overdraft and NSF fees. The government agency found that those fees make up nearly two-thirds of the fee revenue reported by banks.

In 2019, that fee revenue amounted to $15.47 billion, the agency estimates. Among financial institutions with assets over $1 billion in 2019, three banks—Bank of America, Chase, and Wells Fargo—raked in 44% of the total fees reported that year.

The CFPB also noted that overdraft and NSF fees disproportionately affect a small number of banking customers. According to its findings, 9% of consumer accounts account for 80% of all overdraft revenue, with 10 or more overdrafts per year.

Small banks and credit unions aren’t off the hook, either. Researchers reported that 92.9% of smaller banks and 60.9% of credit unions also impose overdraft fees. Among those, the average overdraft revenue per account is just 6% and 11% less than at big banks, respectively.

While smaller online banks and fintech companies like Chime, Ally, and Discover have led the charge on dropping overdraft and NSF fees, Capital One’s decision to eliminate the fees for its consumer banking customers may lead to more major banks following suit. That would be a win for consumers, especially in low-income communities.