Why banks are eliminating overdraft fees | Personal finance
“Overdraft fees are deeply unpopular with consumers, and consumers now have more choice,” says Leigh Phillips, CEO of fintech nonprofit SaverLife and chairman of the Consumer Advisory Board of the Consumer Financial Protection Bureau. “Previously, they only had mainstream options like banks and credit unions or fringe services like payday loans. Today, neobanks and challenger banks are creating services that suit a variety of consumers. .”
With the rise of these new, smaller banks, as well as online and mobile banking, the banking industry has had to find more ways to compete for new customers. Overdrafts can be stressful and expensive, and if a bank can help customers avoid these potentially large fees, that bank could be more attractive to consumers.
“What we’ve found is that when we make these kinds of changes, our customers notice it and potential customers notice it as well,” a Capital One spokesperson said. “We realized that these policies, although costly in the short term, pay off in the long term.”
Some financial institutions, such as Chime and SoFi, have gone so far as to offer consumers a certain amount of money – similar to a line of credit – that they can draw down if they overdraw their accounts. These features are provided free with qualifying account activity. For example, Chime’s SpotMe feature can give customers up to $200 to cover the cost of a transaction instead of overdrafts, and SoFi offers customers up to $50.