Overdraft fees take over at Ally Financial
Customers who overdraw their accounts will no longer be subject to a $ 25 penalty, the bank is expected to say on Wednesday. The change applies to some 3.6 million checking, savings and money market accounts at Ally’s online banking. Typically, Ally would bill every day a customer tried to buy something when their account was over $ 10 in the red, except for debit card transactions.
Ally decided to eliminate the fees after positive customer feedback when she temporarily suspended the fees in the first months of the Covid-19 pandemic, said Diane Morais, president of personal and business banking services. ‘Ally Bank. Last summer’s protests for racial justice also led to the decision to waive the fees, she said. The fees disproportionately affect people who live paycheck to paycheck, Ms. Morais said, and the bank also looked at research that found overdraft fees disproportionately affect black households and latinos.
“We have come to the conclusion that these charges are a great source of stress and anxiety for consumers,” Ms. Morais said. “It became clear to us that the best way to relieve this anxiety was to eliminate these fees.”
Many major banks were lenient with overdraft fees when the pandemic hit, most waiving fees when customers asked for help. Last year, bank overdraft receipts fell for the first time in six years, according to financial data firm Moebs Services Inc.
Still, companies collected $ 31.3 billion in fees in 2020, Moebs calculates. Many analysts are forecasting an increase in overdraft fees this year. Some banks are already less willing to give it up, and the stimulus checks and other government measures that have inflated people’s current accounts are expected to run out of steam.
For banks, overdraft fees are a source of strong criticism, but they are also generally a small source of income. Ally, for example, collected $ 5 million in overdraft fees in 2020, or 0.07% of its total income. The bank said it had never imposed overdraft penalties on customers on debit transactions.
Senator Elizabeth Warren (D., Mass.) Criticized America’s largest banks at a Senate committee hearing last week for collecting fees after the pandemic.
“These are roughly the millions of families across this country who, over the past year, have seen their paychecks interrupted and challenged with additional expenses,” Ms. Warren said in an interview. “And these giant financial institutions had the chance to step in and help these families and none of them did.”
The country’s four largest banks collected nearly $ 4 billion in overdraft fees in 2020, down about 28% from 2019.
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When the pandemic hit, regulators including the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. encouraged financial institutions to work with clients, including eliminating overdraft fees. The guidelines did not require banks to stop charging fees. Some analysts expect the Consumer Financial Protection Bureau to try to limit overdraft fees during the Biden administration.
Ally automatically waived the fee between March and July 2020. Typically, customers who have overdrawn their accounts with the bank have six days to replenish them. After that, customers need to deposit money before shopping.
Black households and those with low to moderate incomes are almost twice as likely to incur overdraft fees as white or higher-income households, according to a report by the Financial Health Network, a research company funded in part by financial institutions. Customers can accumulate a fee, typically around $ 30, for each day their account remains overdrawn and for each withdrawal made during that time.
Many banks offer overdraft protection services, including automatically transferring money from other accounts or waiting to charge a fee until the account is overdrawn by a set amount. But few of them have completely removed the fines. In 2019, Discover Financial Services eliminated all account fees for its more than one million customers.
Write to Orla McCaffrey at [email protected]
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