Financial first: Ally Bank ends overdraft fees, citing impact | Business
NEW YORK • Ally Financial announced last week that it was ending overdraft fees on all of its banking products, becoming the first major US bank to end overdraft fees across all of its operations.
It’s a major move by Ally, one of the nation’s largest banks, and for the industry, which has relied on overdraft fees for decades to boost profits, often to the detriment of poorer Americans who don’t. can not afford to pay such fees in the first place.
Critics of the practice often cite what they call the $ 38 cup of coffee, where a bank customer uses a debit card to buy coffee, overdrafts and ends up paying a $ 35 fee on top of that. the $ 3 drink.
In her announcement, Detroit-based Ally specifically cited the impact of overdraft fees on black and Latino households, who are historically poorer than their white counterparts and are more often affected by overdraft fees. It is also a common reason why black and Latino households choose not to be banked, that is, without a bank account, in order to avoid the fees that often accompany these accounts.
“Overdraft fees can be a major cause for anxiety,” said Diane Morais, president of personal and business banking at Ally Bank, in a statement. “It became clear to us that the best way to relieve this anxiety was to eliminate these fees.”
The announcement concerns about 3.6 million checking, savings and money market accounts, the bank said.
Ally did not charge a significant overdraft fee. The highest amount charged to each client for overdrafting an account was $ 25 per day, instead of per transaction. Morais said about one in 12 Ally Bank customers had an overdraft at some point. Ally doesn’t expect the removal of the overdraft fee to have a major impact on the company’s earnings forecast for the full year.
Customers who overdraft with Ally will have their transactions approved at the discretion of the bank, with smaller transactions likely to be approved. Customers will have six days to bring the account back to positive territory.
The pressure to end overdraft fees has been building up for years. Politicians such as Rep. Katie Porter, D-Calif., Rep. Maxine Waters, D-Calif. and Senator Elizabeth Warren, D-Mass., have used their positions in Congress to push bank CEOs to reconsider their use of fees. Regulators such as the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency have also pushed banks to come up with solutions to stop charging customers $ 35 for an overdraft.
In response, the industry has moved away from overdraft fees, albeit reluctantly. Big banks like Bank of America and Wells Fargo now both offer products with no overdraft fees, although they have more limited functionality than their other accounts. Many banks suspended overdraft fees early last year when the pandemic hit. Other banks, like regional banking giant PNC, have introduced features into their banking products to help avoid fees in the first place.
However, Ally is the first major US bank to completely get rid of overdraft fees.
But banks still rely heavily on overdraft fees for their income. The industry raised over $ 12 billion in overdraft fee revenue last year alone, according to an industry study.
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