"Eliminating overdraft fees is another step in our effort to bring ingenuity, simplicity and humanity to banking," said Capital One Founder and CEO Richard Fairbank
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Capital One
Capital One
| Credit: Paul Taggart/Bloomberg via Getty

Capital One is saying goodbye to overdraft fees.

The bank announced on Wednesday that it will "completely eliminate all overdraft fees and non-sufficient fund fees" for customers — making them the first of the biggest retail banks in America to stop the practice, which has been heavily criticized by consumer advocates.

Starting in early 2022, all customers enrolled in overdraft protection will be automatically enrolled into a free overdraft protection service. For customers not enrolled in the service, transactions that would overdraw their account will be declined without a fee. 

Capital One, which is the sixth largest retail bank in the U.S., says they are "excited to offer this service for free." 

"Long ago, we set our sights on reimagining banking," Capital One founder and CEO Richard Fairbank said in a statement. "Eliminating overdraft fees is another step in our effort to bring ingenuity, simplicity and humanity to banking."

The practice of charging overdraft fees is lucrative — with the banking industry earning over $15 billion in overdraft fees in 2019, according to the Consumer Financial Protection Bureau Banks.

A Capital One company spokesperson told CNBC that eliminating overdraft fees will cost Capital One an estimated $150 million in lost revenue yearly. 

"Capital One's complete elimination of overdraft and NSF fees is a landmark moment for American families," Lauren Saunders, associate director of the National Consumer Law Center, said in the bank's press release. 

"This move by Capital One will have tremendous benefits for the most vulnerable consumers," Saunders added. "It's critical we keep working to make the banking system more inclusive and fair for all."

Ally Bank announced a similar move back in June, while pointing out that the overwhelming majority of customers impacted by these kinds of fees were "financially vulnerable" customers who were disproportionately Black and Latinx. 

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Earlier this year, Sen. Elizabeth Warren slammed the CEOs of JPMorgan Chase, Wells Fargo, Citi and Bank of America — the nation's four largest banks — for collecting a total of $4 billion in overdraft fees during the pandemic. 

Since Capital One's announcement, Warren has also encouraged other big banks to "do the same." 

On Wednesday, the Consumer Financial Protection Bureau said in a statement that banks "continue to rely heavily" on overdraft and non-sufficient funds revenue. 

Over 40% of total overdraft fees collected in 2019 were brought in by JPMorgan Chase, Wells Fargo & Co. and Bank of America, according to the CFPB.

JPMorgan Chase said in a statement that those numbers "don't reflect changes we made earlier this year to our overdraft services, which have already helped 1.7 million customers," a company spokesperson told CNN

PNC Bank and Bank of America have also introduced features to make customers less likely to overdraft, although neither have eliminated fees, per CNBC.