“Overdraft fees are extremely unpopular with consumers, and consumers now have more choices,” said Leigh Phillips, CEO of fintech nonprofit SaverLife and chair of the Consumer Financial Protection Bureau’s Consumer Advisory Board. “They used to only have mainstream options like banks and credit unions, or ancillary services like payday loans. Now neobanks and challenger banks are creating services that work well for a variety of consumers.”
With the rise of these new, smaller banks, as well as online and mobile-first banking services, the banking industry 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 significant fees, that bank could be more attractive to consumers.
“What we’ve found is that when we make these types of changes, our customers and potential customers take notice,” said a spokesman for Capital One. “We realized that while these policies are expensive in the short term, they pay off in the long run.”
Some financial institutions like 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 tap into if they overdraw their accounts. These features are provided free of charge 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.