Richard Fairbank is the CEO of Capital One.
Capital One is eliminating all overdraft fees for retail banking customers.
It is the largest U.S. bank yet to end the practice of charging customers a hefty fee for allowing transactions that exceed a customer's balance.
The move will cost the bank an estimated $150 million a year.
Rich Fairbank, the CEO of Capital One, told the bank's employees Wednesday that they will no longer have to pay overdraft and non-sufficient funds fees.
For years, banks have been under pressure from consumer advocates to eliminate overdraft fees because they often punish those who can least afford to pay them. The rapid growth and surging valuations of a new crop of digital banks with no-fee models has added pressure to the industry.
Ally Bank said in June that it was dropping the fees. Bank of America and other banks have features that make it less likely for a customer to go into an overdrawn account.
Capital One has about 350 physical locations and 70,000 ATMs in states including New York, New Jersey, Texas, Maryland and Virginia.
Overdraft fees are a lucrative source of revenue for the industry, but it has been difficult for big banks to drop them. In the memo, Fairbank said that the industry earned more than 14 billion in overdraft fees in 2019. In the first nine months of the year, Capital One took in $131 million in service charges and other customer fees.
Elizabeth Warren lambasted the industry and the CEO of JP Morgan Chase on the unpopular fees. When confronted by Warren this year, he refused to end the practice.
Capital One charged customers $35 overdraft fees, capped at four per day, or up to 140 daily, before the policy change. Industry advocates say that customers who dip into overdraft fees often inadvertently cause a cascade of fees.
The National Consumer Law Center said in a statement that the move by Capital One will benefit the most vulnerable consumers. We need to keep working to make the banking system more fair for all.
Capital One customers will use the bank's free overdraft protection service when they attempt transactions that dip beyond their balances. The bank said that customers who paid the fees will be automatically rolled into the service early next year. Those who opt out of the service will have their transactions declined.
Similar to Chime that pioneered a feature that extends up to $200 in no-fee overdraft protection, Capital One customers have to demonstrate a stream of steady deposits to qualify for the service.
Fairbank expects the majority of current bank customers as well as the majority of overdraft users to be eligible for free overdraft protection. The same is true for our low and moderate income customers.
Capital One started out as a credit card company and later branched out into auto loans and deposits. It has a top ten rank among U.S. retail banks.
