Ally Bank has taken a step that could shake up the banking world. The digital financial services company is eliminating overdraft fees when customers overdraw their accounts. The bank says every customer is eligible and there are no requirements or restrictions.
"This is a significant advancement for consumers as we live out our mission and live up to our name - being a true ally,” said Ally’s CEO Jeffrey Brown. “Overdraft fees are a pain point for many consumers but are particularly onerous for some. It is time to end them.”
Ally suspended overdraft fees early in the pandemic. Based on overwhelmingly positive feedback from its customers, the bank decided to make the policy permanent.
"Nationwide, more than 80% of overdraft fees are paid by consumers living paycheck to paycheck or with consistently low balances – precisely the people who need help stabilizing their finances,” Brown said. “Eliminating these fees helps keep people from falling further behind and feeling penalized as they catch up."
Sore point with consumers
Overdraft fees are often a sore point with consumers posting reviews of their banks on ConsumerAffairs. Sheryl, a Comerica Bank customer, says overdraft fees are not reflected as pending charges in her online bank balance, causing her to go deeper into the red.
“So you think you are in the black, use your debit card, but fees have posted from before and now an entirely new set of overdraft fees are added,” Sheryl wrote.
More than a decade ago, banks routinely honored customer’s purchases when they overdrew their accounts but assessed a fee of around $35. Consumers complained that they could run up five separate $35 charges on a single shopping trip without knowing they had exceeded their account’s balance.
Congress passed a law in 2010 requiring banks to decline debit card sales when an account is overdrawn unless the customer has opted-in for the bank’s “overdraft protection.”
The 2021 FinHealth Spend Report found that 95% of consumers who paid $12.4 billion in overdraft fees in 2020 were classified as "financially vulnerable" and disproportionately Black and Latino.
Among those financially vulnerable households with checking accounts, 43% averaged 9.6 overdrafts during 2020, resulting in annual overdraft fees of hundreds of dollars per household on average.
Overdraft fees are a major profit center for large banks but new data shows the amount of overdraft revenue banks collected declined sharply in 2020, dropping for the first time in six years. Ally Bank has decided it can operate without that revenue. If it results in a surge in new customers, other banks may follow.