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Capital One (COF) to Remove Overdraft Fees From Early 2022

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  • COF-PJ
  • ALLY
  • FITBO
  • RF-PC

Capital One COF has become the latest bank to announce the elimination of overdraft fees and non-sufficient fund (NSF) fees for its consumer banking customers. Effective early next year, the plan will end a practice that has drawn the ire of the U.S lawmakers at a Senate hearing this May.

Capital One will continue to offer free overdraft protection for customers who choose to avail this service. All customers presently enrolled in overdraft protection will be inevitably converted to No-Fee Overdraft on the launch date. Further, eligible customers who are not currently enrolled can do so at any time. For customers that are not enrolled, transactions that would overdraw an account will be declined and no fees will be charged.

The company CEO Richard Fairbank said, “Overdraft protection is a valuable and convenient feature and can be an important safety net for families. We are excited to offer this service for free.”

A company spokesperson noted that eliminating overdraft fees will cost almost $150 million annually in revenues. For the nine months ended Sep 30, 2021, service charges and other customer-related fees in Capital One’s Consumer Banking segment were $131 million. The same totaled $188 million, $298 million and $367 million for 2020, 2019 and 2018, respectively.

Capital One further noted that it is the only one among the top-10 retail banks in the United States to take the step of totally eliminating overdraft fees. So far, many smaller banks like Ally Financial ALLY, Fifth Third Bancorp FITB and Regions Financial RF, among others, have taken steps to either curb such fees or provided tools to their clients to limit the charges.

Earlier this June, Ally Bank — the digital bank and a division of Ally Financial — had eliminated overdraft fees on all accounts, effective immediately. All ALLY customers were entitled to the same, with no additional requirement or conditions to be fulfilled. Similarly, banks, including Fifth Third Bancorp and Regions, have undertaken steps to provide new low-fee accounts or limits on charging overdraft fees. For both FITB and RF, these fees constitute a large portion of total fee income.

Capital One’s decision to remove overdraft fees coincides with the Consumer Financial Protection Bureau (“CFPB”) report that shows banks greatly depend on overdraft and NSF fees. Per the report, these charges comprise around “two-thirds of reported fee revenue.” The CFPB director Rohit Chopra said, “Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model. We will be taking action to restore meaningful competition to this market.”

Though eliminating overdraft fees will somewhat dent Capital One’s revenues, the company is undertaking business expansion efforts to diversify the top line and strengthen operations. In sync with this, late last month, it acquired TripleTree, LLC, which will further enhance investment banking capabilities.

Shares of Capital One have jumped 51.6% over the past year, outperforming the industry’s rally of 42.8%.

Zacks Investment Research
Zacks Investment Research

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Currently, Capital One carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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Regions Financial Corporation (RF) : Free Stock Analysis Report

Fifth Third Bancorp (FITB) : Free Stock Analysis Report

Capital One Financial Corporation (COF) : Free Stock Analysis Report

Ally Financial Inc. (ALLY) : Free Stock Analysis Report

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