Coming together to eliminate overdraft fees

Adam Davis, vice president of financial health, inclusion and liquidity, and his colleagues had put building blocks in place for years to prepare for the removal of overdraft fees.

Capital One reduced overdraft fees of customers they acquired through other banks. There was “Next Day Grace,” in which customers had until the end of the next business day to make their bank balance positive.

“There are so many customers that live paycheck to paycheck or have one moment in their life when they need a financial break,” Adam said. “We were already providing some help, but we wanted to do more. It was important to show our associates that we are changing banking for good.”

In 2021, the Retail Bank team put together a plan to remove overdraft fees entirely. Founder and CEO Richard Fairbank approved the plan. Their work culminated in January 2022 when Capital One eliminated overdraft fees and non-sufficient funds for customers.

“It sounds so simple that you can snap your fingers and we can eliminate overdraft fees,” Adam said. “The reality is—no bank has ever done this. We had no idea how this would change our customers’ use of the service. We had to make sure we were comfortable with the risks.”

Collaborating to end overdraft fees

A team of approximately 140 associates—including business and data analysts, product managers, public relations specialists, tech teams and legal counsel—figured out how to implement zero overdraft fees and what it meant for customers.

Jason, a senior director for Retail Bank, worked with a team of business analysts to determine how customers would behave with no overdraft fees. Would customer debt increase or decrease because there are no fees as a deterrent?

Jason studied metrics on how often overdrafting helps customers meet their needs. He used forecast modeling to determine if Capital One could afford to make that decision and how much customer losses could change if there were no overdraft fees.

“I like doing things that haven’t been done before,” Jason said. “I want to deal with those unknowns. It’s exciting to lead change.”

Mack, a senior business manager for Retail Bank, helped Jason with his forecasting by providing customer insight. Mack spent nearly three years with Capital One creating products and policies that help customers who overdraft because they needed additional money in a short amount of time. He has also volunteered for a decade as a personal finance coach.

“The fact we can pitch customer-oriented ideas like removing overdraft fees is why I work at Capital One,” Mack said. “I understood the customer pain points and what overdraft as a product was trying to solve. Overdraft is often a necessary service, but an expensive one. They deserve some leeway.”

Associates working on the project met every day for four months. They shared what was going well and the impediments they faced. They sought approval from community advisors, legal experts and senior leaders.

“We moved quickly, but we were never in a hurry,” Adam said. “No decision was made independently. We collaborated on everything. This was one of the smoothest and most well-run projects I’ve been part of in my career.”

Responses to overdraft fee eliminations

Work wrapped up quickly. On Dec. 1, 2021, Capital One announced we would eliminate all overdraft fees beginning Jan. 13, 2022. Adam noticed immediate ripple effects.

Congresspeople announced their support and praise. Colleagues, family and friends messaged him. People who worked on the project sent tweets that applauded the decision. Other financial institutions followed Capital One’s lead in making overdraft changes that benefited customers.

“We believed it was going to be positive, but we didn’t quite expect how many people would be fans of the decision,” Adam said. “It was so amazing and satisfying to say we launched this thing. What’s really been validating is how many candidates have been excited about this.”

Praveen Sharma was already interested in Capital One because of our data-driven work and culture of belonging. The elimination of overdraft fees was the piece of validation that convinced him to join the enterprise in February 2022 as a senior vice president and head of Retail Bank Product.

“I believe in proof, not promises,” Praveen said. “Getting rid of overdraft fees was proof that Capital One steps up to do the right thing and has the product and tech to make industry-leading moves.”