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Capital One eliminates overdraft fees

Bank Capital One will no longer charge an overdraft fee in a change that is expected to cost the bank an estimated $ 150 million in annual revenue.

The bank made the announcement on Wednesday around the same time the Consumer Financial Protection Bureau (CFPB) released a study on banks’ “deep reliance” on overdraft fees.

Capital One clients enrolled in overdraft services will automatically convert to overdraft at no charge when the program launches in early 2022, the bank said in its statement. Customers who are not registered can register at any time, he said, adding: “For unregistered customers, transactions that would result in an overdraft on an account will be refused and no fees will be charged.”

Capital One currently charges clients an overdraft fee of $ 35 if they are enrolled in its next day grace program. Under the current rules, customers could be charged a fee up to four times a day for overdraft of more than $ 5 on their account.

“The elimination of overdrafts and associated charges should have a beneficial impact on clients who in the past may have struggled to make ends meet,” said Mark Hamrick, Senior Economic Analyst at Bankrate and Bureau Chief from Washington. “Now it will be fascinating to see if other major players follow Capital One’s lead.”

JPMorgan Chase, Wells Fargo and Bank of America – three of the largest banks in the United States – accounted for $ 5.3 billion (44%) of the total of $ 12 billion in overdraft and insufficient funds (NSF) charges by banks with more than $ 1 billion in assets in 2019, CFPB said Wednesday in a press release announcing its findings. The industry as a whole collected $ 15.5 billion in revenue from overdraft fees and NSF.

“Rather than competing on transparent upfront prices, large financial institutions are always addicted to operating costs which can quickly drain a family’s bank account,” CFPB director Rohit Chopra said in a statement. Wednesday.

Capital One’s move comes a day after the Federal Deposit Insurance Corp. (FDIC) reported that banks’ net income rose $ 18.4 billion, or 35.9%, in the third quarter, compared to the same quarter a year ago.

Overdraft fees are expensive

According to a previous CFPB study, less than nine percent of consumers are charged a fee for 10 or more overdrafts per year, and these consumers account for about 80 percent of bank overdraft receipts.

Bankrate’s 2021 current accounts and ATM fees study found that the average insufficient funds fee was $ 33.58.

Ally Bank also reduced overdraft fees

Although Capital One is the largest bank to remove overdraft fees, online-only competitor Ally Bank said in June it had removed overdraft fees. In her announcement, Ally noted that she does not charge overdraft fees on debit card transactions and does not charge more than one overdraft per day. The rules differ, but banks typically charge up to three to five overdrafts per day, if more than one overdraft occurs during the day.

“There is no doubt that these fees can add up, at a time when an individual or household faces financial pressures,” said Hamrick of Bankrate. “By avoiding costly fees, people will be freed from a potential trap as they strive to achieve their personal financial goals.”

Learn more:

  • What are overdraft fees and how can you avoid them?
  • What is overdraft protection?
  • 8 ways to avoid monthly verification fees

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