Capital One Is Latest Bank to Ditch Overdraft Fees

04-Dec-2021 Intellasia | BangkokPost | 5:02 AM Print This Post

Capital One Financial Corp. said it will stop charging customers overdraft fees, making it one of the largest banks to do so.

The fees, which are charged when customers don’t have enough money in their accounts to cover payments, are a source of income and criticism for banks.

For years, politicians and consumer advocates have said the fees disproportionately affect Black families and those with low and moderate incomes.

A report released in June by Financial Health Network, a research firm, found that Black households and those with low-to-moderate incomes were almost twice as likely to incur overdraft fees as white households or those with higher incomes.

Online bank Ally Financial Inc. eliminated its overdraft fees in June, saying that they hurt people living paycheck to paycheck. Some other banks have introduced products and features that are more lenient on overdrafts.

Capital One didn’t give a reason for why it is scrapping its fees now. In a letter to employees, chief executive Richard Fairbank said Capital One wants to reimagine banking and help customers succeed.

The bank will lose out on about $150 million a year in revenue, a Capital One spokesman said. That is a tiny part of its total annual revenue, which was at $28.5 billion last year.

The bank currently charges $35 for overdrafts, according to its website.

Capital One said it will stop charging the fee early next year, as well as a $35 nonsufficient funds fee charged when a transaction is denied.

Those enrolled in its overdraft protection service will be automatically switched to a no-fee service next year. For those who aren’t enrolled, the bank will reject any transactions that would cause an account to be overdrawn at no cost. Those not currently enrolled can apply for the no-fee service, the bank said.

During the Covid-19 pandemic, some banks waived overdraft fees or offered refunds.

Financial firms brought in an estimated $31.3 billion in consumer overdraft revenue in 2020, according to financial-data firm Moebs Services Inc., down nearly 10 percent from a year earlier.

At a May Senate committee hearing with US bank chief executives, Sen. Elisabeth Warren (D., Mass.) criticised JPMorgan Chase & Co. for collecting nearly $1.5 billion in overdraft fees in 2020.

On Wednesday, the Consumer Financial Protection Bureau criticised JPMorgan and other big banks for the amount of fees they have been collecting, threatening regulatory action against banks that are “heavily dependent on overdraft fees.”

JPMorgan CEO Jamie Dimon had said the bank waived fees upon request for those stressed by the pandemic but also said they would look again at the fees.

The bank earlier this year quietly made changes aimed at limiting the cost of overdraft, a spokeswoman said Wednesday.

Customers can now withdraw up to $50 before incurring a fee, instead of just $5, and the bank eliminated the related fee for insufficient funds that had helped pile up the charges.

“These changes reflect our continuous efforts to offer the best, most competitive products and services our customers want,” the spokeswoman said.

https://www.bangkokpost.com/business/2225931/capital-one-is-latest-bank-to-ditch-overdraft-fees

 

Category: Thailand

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