Having a top ten U.S. bank pull the plug may not be a mortal blow for the controversial fees. Experts contend that even with the fees, the service adds value for consumers who need it. But business as usual is over for overdrafts. Washington is seizing the opportunity to take action. With the announcement by Capital One that it will be eliminating overdraft and non-sufficient funds penalties, the future of these much-maligned fees in the banking industry has reached a critical juncture.
The $425 billion-asset Capital One becomes the largest bank to eliminate the fees, and follows smaller institutions, such as digital-only Ally and Alliant Credit Union, as well as most fintech neobanks, in making such a move.
Beyond outright elimination of fees, a growing number of institutions have introduced programs to reduce the cost of overdraft/NSF fees. PNC’s Low Cash Mode, Bank of America’s Balance Assist, along with programs from Huntington Bank, Chase, Regions and others have all been efforts to change the nature of overdrafts.
The debate about overdraft fees — which raked in more than $30 billion for financial institutions in 2020 — has been intensifying for years, with many saying they disproportionately harm the financially disadvantaged and lower income consumers. They also generally draw the ire of consumers. As previously reported by The Financial Brand, a survey by Morning Consult found that 52% of adults believe overdraft fees are an unfair penalty on underprivileged consumers.
Capital One’s Overdraft Changes
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