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Capital One to eliminate overdraft fees next year

The banking giant is the first of its size to eliminate the often criticized practice.

In this photo illustration the Capital One Financial
SOPA Images

Capital One said Wednesday that it will eliminate all overdraft fees and nonsufficient funds fees for consumer banking customers starting early 2022. It's the first US bank of its size to completely drop these fees, which cost consumers $12.4 billion last year alone, according to the Financial Health Network's 2021 FinHealth Spend Report (PDF).

Capital One will instead provide overdraft protection for free. If a customer overdrafts, the bank will cover the expense without assessing a fee. Customers currently enrolled in overdraft protection will automatically be enrolled in "No-Fee Overdraft" protection next year. Customers not currently enrolled may sign up for the service at any time. 

For customers who choose not to enroll, Capital One said transactions that would overdraw an account will be declined, but no fees will be assessed. 

"This move is projected to cost us $150 million a year in revenue," a Capital One spokesperson said. "Just like our products with no monthly fees and no balance minimums, we are not making up this revenue in any other way. This is an action we are embarking on for the sake of our customers and furthering our Mission to Change Banking for Good."

After a customer has overdrawn, they won't be able to overdraw their account again until they make a deposit, said the spokesperson. Once the customer deposits, that money will immediately go towards paying the overdraft, and whatever is left over will appear as funds in the account.

While there isn't a fixed cap on how many times a customer can overdraw, there is a dollar limit on how much they can overdraw their account by, which is "continually evaluated based on the customer's deposits history and risk profile, and can change throughout the year," according to the spokesperson.

The move comes after years of criticism from consumer advocate groups like the Center for Responsible Lending and well-known political leaders like Sen. Elizabeth Warren. The typical cost of these fees has risen in recent years. Today the average fee sits at $33.58 per transaction, according to a Bankrate study

Lawmakers in both the US House of Representatives and Senate proposed bills this year to limit overdraft fees to protect consumers, though those bills haven't seen movement since they were initially introduced.

While other financial institutions have dropped the practice, such as Ally Bank and Discover, Capital One is the first US bank of its size to eliminate overdraft fees.