Capital One announced it will completely eliminate all overdraft fees and non-sufficient fund fees for its consumer banking customers in a move the banking institution calls a “landmark moment for American families.”
In addition, Capital One said it will continue to provide free overdraft protection.
Capital One is America’s sixth-largest retail bank and the only top-10 retail bank to make this move for all of its consumer bank products, it said in a statement.
It’s the largest U.S. bank yet to end the industry practice of charging customers a hefty fee, typically $25 to $35 in each instance, for allowing transactions that exceed a customer’s balance, according to CNBC. The move will cost the bank an estimated $150 million in lost revenue per year.
“The bank account is a cornerstone of a person’s financial life,” Richard Fairbank, Capital One’s founder and CEO, said in the statement. “It is how people receive their paycheck, pay their bills and manage their finances. Overdraft protection is a valuable and convenient feature and can be an important safety net for families. We are excited to offer this service for free.”
The move was lauded by many, including by Rep. Carolyn Maloney, who tweeted: “I’m happy @CapitalOne has decided to permanently ditch predatory overdraft fees. This will help keep Americans, especially communities of color who are disproportionally hit with these fees, from being penalized when they can least afford it.”
Capital One’s move came on the same day the Consumer Financial Protection Bureau announced it would be enhancing its supervisory and enforcement scrutiny of banks that are heavily dependent on overdraft fees.
“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.”
The CFPB said that banks continue to rely heavily on overdraft and NSF revenue, which reached an estimated $15.47 billion in 2019, according to a statement.
JPMorgan Chase, Wells Fargo and Bank of America brought in 44% of the total reported that year by banks with assets over $1 billion. The CFPB found that while small institutions with overdraft programs charged lower fees on average, consumer outcomes were similar to those found at larger banks. The research also notes that, despite a drop in fees collected, many of the fee harvesting practices persisted during the COVID-19 pandemic, according to the statement.
Previous CFPB research has shown that overdraft presents serious risks to consumers, with under 9% of consumer accounts paying 10 or more overdrafts per year, accounting for close to 80% of all overdraft revenue. Yesterday, the Federal Deposit Insurance Corporation released data revealing that insured banks earned $69.5 billion in the third quarter of 2021, up 36% from the prior year.
Capital One said that customers can choose whether or not to access overdraft protection. All customers currently enrolled in overdraft protection will be automatically converted to No-Fee Overdraft on the launch date in early 2022, according to the statement.
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This article originally appeared on GOBankingRates.com: Capital One Ditches Overdraft Fees Amid Increased Regulatory Scrutiny of the Practice