We may (finally) be seeing the end of overdraft fees

Capital One is the biggest bank to eliminate overdraft fees, which make the company $150m annually.

The overdraft fee.

We may (finally) be seeing the end of overdraft fees

It’s the bane of our existence.

While we hate it, US banks feast on the charge: The industry made an eye-watering $14B+ on overdraft in 2019 [insert unprintable words].

The practice may be coming to an end

On Wednesday, Capital One announced it will eliminate overdraft, per CNBC. The bank — which charges customers $25-$35 for conducting transactions that exceed their balance — makes $150m a year on the hated fee.

With ~350 physical locations and 70k ATMs, Capital One is the biggest US bank to ax overdraft. Moving forward, it will:

  • Place customers who’ve paid overdraft into a fee-draft protection service next year
  • Decline transactions for customers without overdraft protection

Overdraft fees have long been a point of contention

Earlier this year, a group of Democrat senators sent a letter to JPMorgan demanding that the bank return $1.5B in overdraft fees it made during COVID. JPMorgan’s CEO Jamie Dimon said “no.”

In what is probably not a coincidence, the Consumer Financial Protection Bureau (CFPB) said on Wednesday that it’s increasing oversight of banks that rely on overdraft.

Capital One’s move…

… could signal an industrywide change.

There is precedent for this: In 2019, brokerages (TD Ameritrade, Charles Schwab, Interactive Brokers) all got rid of trading commissions in quick succession so as to stay competitive.

If history repeated itself, then [insert fist pound].

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Topics: Finance

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