“The bank account is a cornerstone of a person’s financial life,” Fairbank said in a statement. “It is how people receive their paycheck, pay their bills and manage their finances. 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.”
The move comes as financial regulators have signaled a tougher stance on overdraft fees.
In a series of research reports released Wednesday, Consumer Financial Protection Bureau director Rohit Chopra said major banks are using such fees to pad their coffers at the expense of cash-strapped consumers. Chopra said the CFPB would take action to “restore meaningful competition to this market” unless more banks end overdraft fees voluntarily.
“Rather than competing on transparent, upfront pricing, large financial institutions are still hooked on exploitative junk fees that can quickly drain a family’s bank account,” Chopra said in remarks published Wednesday.
According to CFPB research, big banks rely heavily on overdraft and insufficient-funds revenue, which reached an estimated $15.47 billion in 2019. The agency pointed to JPMorgan Chase, Wells Fargo and Bank of America for bringing in about 44 percent of that total, which applies to banks with more than $1 billion in assets. For Capital One, ending the fees will cost it an estimated $150 million in annual fee revenue, according to CNBC.
In prepared remarks Wednesday, Chopra mentioned Capital One as an example of how many financial institutions recognize a need to phase out the overdraft fees. He likened their reliance on fee revenue to an addiction.
“Many in the market are anticipating that other large banks will also call it quits,” Chopra said. “The CFPB is not holding out hope that this will happen quickly, so we will be considering a range of regulatory interventions to help restore meaningful competition in this market, rather than allowing large institutions to rely on junk fees forever.”
The Consumer Bankers Association, a trade group, said leading financial institutions already are coming up with ways to help consumers avoid fees, such as real-time payment updates and alerts. The association expressed concern that some customers might turn to high-interest payday lenders for quick cash if overdraft protection is not available to them.
“Outside of overdraft, few options remain for consumers to meet their short-term liquidity needs within the well-regulated, well-supervised banking system,” CBA chief executive Richard Hunt said in a statement Wednesday. “CBA long has warned further restricting access to this service would drive many families to predatory payday lenders and other expensive venues.”
It’s unclear what the CFPB intends to do about the fees. Chopra said his agency is considering a range of regulatory interventions, although he did not specify whether the agency intends to issue any new rules. The CFPB is also considering issuing new policy guidance outlining overdraft practices it considers to be unlawful. He also pledged closer scrutiny of banks that rely heavily on overdraft fees, and tougher enforcement of those found breaking the law.
Carter Dougherty, chief communications officer for the advocacy group Americans for Financial Reform, said stronger rules are needed to protect consumers.
“A strong regulatory approach that offers solid protection to consumers is absolutely essential on overdrafts,” Dougherty said. “We can’t simply rely on the goodwill of banks, least of all the biggest banks in the country, to stop abusing customers.”