Capital One is the largest U.S. bank to end overdraft fees and insufficient funds
Capital One on Wednesday became the largest U.S. bank to announce it will drop all overdraft and insufficient fund charges for consumers, as regulators step up their oversight of institutions that rely heavily on overdraft fees.
The sixth largest retail bank in the United States unveiled the decision the same day the Consumer Financial Protection Bureau (CFPB) announced it would take action against banks whose practices it says benefit financially vulnerable consumers.
“Rather than competing for quality service and attractive interest rates, many banks have become addicted to overdraft fees to fuel their profit model,” CFPB director Rohit Chopra said in a statement. “We will take steps to restore meaningful competition in this market.” U.S. banks collected about $ 15.5 billion of such penalties from customers in 2019. And the average charge for overdrafting an account in 2021 was $ 33.58, an increase of 22 cents over the past year. over the past two years, according to a recent Bankrate poll.
For its part, Capital One said the move was part of its long-term goal to “reimagine the banking industry.”
“The elimination of overdraft fees is another step in our efforts to bring ingenuity, simplicity and humanity to banking services,” Capital One CEO Richard Fairbank said in a statement.
The bank already offers an overdraft protection service, which it will now extend free of charge to all its consumer banking customers, starting in early 2022.
For customers who are not registered, the bank will automatically refuse transactions that would overdraw an account.
Lauren Saunders, associate director of the National Consumer Law Center, called the elimination of Capital One’s fees “a historic moment for American families,” saying it protects financially vulnerable Americans and helps make the banking system more inclusive. High bank fees are particularly hard on low-income families and families of color, consumer advocates say.
“Capital One is the first bank in the top 10, the first with a true branch network and the first with significant overdraft income to end its use of overdraft and NSF fees,” said Sanders. “His decision is particularly significant given the significant benefits that flow from these often predatory fees.”
Hispanic and black households paid a total of $ 3.1 billion and $ 1.4 billion, respectively, in overdraft fees just last year, according to a recent report from the Financial Health Network, a research firm and of advice. The report also found that black Americans spent $ 800 million on checking account, money order, and check-cashing fees, while Hispanic families spent $ 1.1 billion on these services.
Previous research from the CFPB shows that about 9% of consumer accounts pay 10 or more overdraft fees per year, which is almost 80% of all overdraft income for banks.
The CFPB has said it will crack down on banks whose profitability is seen to be heavily dependent on overdraft fees. In recent years, the consumer protection agency has ordered TD Bank to pay $ 122 million in penalties and restitution for customers. He also ordered TCF Bank to pay $ 30 million in penalties and damages for practices it deemed “deceptive and abusive” towards consumers.