Ally ditches overdraft fees, citing consumer harm
Ally Bank is scrapping overdraft fees permanently, explaining that the penalty charges prompt customer anxiety and disproportionately affect people of color.
The bank, a unit of the $181.9 billion-asset Ally Financial in Detroit, had previously waived overdraft fees early in the pandemic. Ally Bank grew quickly over the last decade as many consumers flocked to online savings accounts, and has long been far less reliant on overdraft fee revenue than many other large and mid-sized banks.
Ally CEO Jeffrey Brown said in a press release Wednesday that eliminating the fees “helps keep people from falling further behind and feeling penalized as they catch up.”
“Overdraft fees are a pain point for many consumers but are particularly onerous for some. It is time to end them,” he said.
Brown’s comments follow similar remarks last year from PNC Financial Services Group Chairman, President and CEO William Demchak, who said the industry should become “less reliant on some of the gotcha fees that historically have supported the industry.”
PNC and other banks have rolled out options aimed at minimizing customer fees in recent months, though few banks have done away with overdraft charges entirely.
At two congressional hearings last week, the CEOs of the nation’s largest banks faced criticism from Democrats for overdraft fees, with Rep. Carolyn Maloney, D-N.Y., saying that they “hit those who can afford them the least the hardest.”
The Consumer Financial Protection Bureau is widely expected to take a tougher stance on overdraft fees during the Biden administration than it did previously.
Banks collected an estimated $12.4 billion in overdraft fees in 2020, according to a report by the nonprofit Financial Health Network that Ally cited. Those fees disproportionately affected Black and Latinx families, and 95% of consumers who paid them were either “financially coping” or “financially vulnerable,” the report found.
“Overdraft fees can be a major cause of anxiety. It became clear to us that the best way to relieve that anxiety was to eliminate those fees,” Diane Morais, president of consumer and commercial banking at Ally Bank, said in the press release.
In the first quarter of 2020, Ally reported $1 million in overdraft fee revenue, which was around one-thousandth of a percent of its total deposits. Other big banks with large checking franchises collect sums from overdraft fees that are orders of magnitudes larger as a percentage of their deposits.