The memo distributed to employees on Wednesday said Capital One is eliminating all overdraft fees for retail banking customers.
It is the largest U.S. bank yet to change its practices of charging customers a hefty fee, typically from $25 to $35 per instance, for allowing transactions that exceed a customer's balance, according to the McLean, Virginia-based lender.
The bank will lose $150 million in lost revenue per year because of the move, according to a company spokeswoman.
For the past decade, banks have been under pressure from consumer advocates to abolish overdraft fees because they often punish those who can't afford to pay them, and the Americans struggling to make ends meet, according to Rich Fairbank, CEO of the bank's employees in the memo. Pressure on the industry is added due to the rapid growth and rising valuations of a new crop of digital banks with no-cost models.
In June, Ally Bank said it was dropping the punitive fees. Other banks, including PNC Bank and Bank of America, have introduced features that make it less likely that a customer will trip into overdraft, without removing the revenue source completely.
Capital One maintains about 350 physical locations and 70,000 ATMs in states like New York, New Jersey, Texas, Maryland and Virginia, while Ally is an online-only bank with no physical branches.
Overdraft fees are a lucrative revenue source for the industry, and have been hard for big banks to drop. The industry reaped more than $14 billion in overdraft fees in 2019, Fairbank said in the employee memo. Capital One took in $131 million in service charges and other customer fees in the first nine months of 2021, according to disclosures.
Sen. Elizabeth Warren lambasted the industry, and JPMorgan Chase and its CEO Jamie Dimon on the unpopular fees. When confronted by Warren this year on the matter, Dimon refused to change it.
Before the policy change, Capital One charged customers $35 overdraft fees, which are capped at four such fees per day, or up to $140 daily. The bank also capped overdraft fees at one daily and eliminated NSF fees in August.
The financial hit is compounded by the fact that customers who dip into overdraft fees often inadvertently trigger a cascade of fees, according to industry advocates.
Lauren Saunders, associate director of the National Consumer Law Center, said in a statement that Capital One will have tremendous bene ts for the most vulnerable consumers. It is important that we continue to work to make the banking system more inclusive and fair for all. The bank said that when customers try transactions that dip beyond their balances, they will mostly use the bank's free overdraft protection service when they try transactions that dip beyond their balances. Customers who paid the fees will automatically be rolled over to the service early next year, the bank said. Overdrawn transactions will be declined at no fee for those who opt out of the service.