Capital One Eliminates Overdraft Fees

Advocates Call for All Banks to Follow Suit

Advocates at the National Consumer Law Center (NCLC) today applauded an announcement by Capital One that the bank will eliminate overdraft fees. NCLC further issued a call for other banks to follow suit and called on the Consumer Financial Protection Bureau (CFPB) to issue rules that would end overdraft fees.

“Capital One’s complete elimination of all overdraft and NSF fees is a game changer that should set the standard for the entire banking industry and encourage the CFPB to stop overdraft fees from being used as a high-cost form of credit that can reach or exceed the cost of triple-digit payday loans,” said Lauren Saunders, associate director of the National Consumer Law Center. “Capital One is the first top-10 bank, the first with a real branch network, and the first with significant overdraft revenue to make the hard choice to eliminate overdraft and NSF fees that harm the most vulnerable consumers and push them out of the banking system.”

Before COVID, Capital One collected about $150 million annually in overdraft fees. Larger banks collected even more: In 2020, JPMorgan Chase earned $1.5 billion in overdraft fees, Bank of America made $1.1 billion, and Wells Fargo collected $1.3 billion. Revenue from NSF fees is not specifically reported. Overall, banks collected nearly $12 billion in overdraft fees in 2019, according to a report by the Center for Responsible Lending.

“Overdraft and NSF fees are one of the leading reasons that people are unbanked, either because past overdrafts put the consumer on an account screening lists that prevent them from opening new accounts, or because the fees make it too costly to maintain an account,” said Chi Chi Wu, staff attorney at the National Consumer Law Center.

CFPB research in 2017 found that 79% bank overdraft and non-sufficient funds (NSF) fees are borne by only 9% of accounts. Frequent overdrafters tend to have low end-of-day balances, low or moderate credit scores, and low or moderate monthly deposits.

Unbanked consumers often turn to predatory forms of credit such as payday loans, which can carry interest rates in excess of 400%.