Capital One became the largest US bank to eliminate all consumer overdraft fees
From January 2022, Capital One scrapped all consumer overdraft and NSF fees, walking away from an estimated $150 million a year in revenue.
What was changed
Before the change, Capital One charged $35 per overdraft, capped at four fees a day — up to $140 daily. In August 2021 it capped overdraft fees at one per day and eliminated non-sufficient funds fees, and that December CEO Rich Fairbank told employees the bank would "completely eliminate overdraft and NSF fees for all Capital One consumer bank customers," calling it "a first for major banks in the U.S." The new policy took effect in January.
The stakes were big: the US banking industry reaped more than $14 billion in overdraft fees in 2019, Fairbank's memo noted, and Capital One took in $131 million in service charges and other customer fees in the first nine months of 2021. Ally Bank dropped the fees in June 2021; PNC and Bank of America softened features without giving up the revenue; JPMorgan's Jamie Dimon refused to end the practice when Sen. Elizabeth Warren confronted him.
From January, overdrawing customers default into a free overdraft protection service — modeled on fintechs like Chime's up-to-$200 no-fee feature, and requiring a steady stream of deposits to qualify. Customers who opt out simply have transactions declined at no fee. The National Consumer Law Center's Lauren Saunders called it tremendously beneficial for the most vulnerable consumers. Capital One, a top-10 US retail bank with $425.4 billion in assets, about 350 branches and 70,000 ATMs, estimated the forgone revenue at roughly $150 million a year.
Why it worked
Overdraft fees punish Americans struggling to make ends meet, drawing years of pressure from consumer advocates.
Rapidly growing digital banks with no-fee models, like Chime and Ally, added competitive pressure on the industry.
As the largest US bank to act, Capital One could differentiate its consumer franchise while rivals hedged.
What can be applied
When a revenue stream depends on the customers least able to pay, being the first big player to walk away can be worth more than the revenue.
Aftermath
The elimination took effect in January 2022, with fee-paying customers automatically rolled into free overdraft protection. Asked by CNBC, Wells Fargo said it was still evaluating overdraft services, and JPMorgan pointed to ending NSF fees and raising overdraft thresholds — stopping short of elimination. Fairbank expected the vast majority of customers, overdraft users and low- and moderate-income customers to qualify for the free service.