Ally Financial, a digital-only bank, announced Wednesday that it will eliminate all overdraft fees permanently after waiving them temporarily during the pandemic, pointing to the disproportionate way the fees hurt people living paycheck to paycheck and people of color.
Previously, Ally charged a $25 penalty for each day a customer attempted a transaction or transactions on an overdrawn account, including a returned or paid check, though the fee was not imposed for a single debit card or ATM transaction on an overdrawn account.
The bank had temporarily waived overdraft fees during the pandemic.
The permanent change will apply to some 3.6 million checking, savings and money market accounts, the Wall Street Journal reported.
“Overdraft fees can be a major cause of anxiety,” Diane Morais, Ally Bank’s president of consumer and commercial banking, said in a statement Wednesday. “It became clear to us that the best way to relieve that anxiety was to eliminate those fees.”
95%. That’s the portion of consumers who paid a cumulative $12.4 billion in overdraft fees last year that were categorized as “financially vulnerable,” according to data from the 2021 FinHealth Spend Report cited by Ally. Those consumers were also disproportionately Black and Latinx, Ally said.
During a Senate committee hearing on Wall Street oversight last week, Senator Elizabeth Warren (D-Mass.) criticized the heads of the country’s largest banks for collecting billions of dollars in fees in 2020 despite guidance from regulators that encouraged them (but did not require them) to waive the fees entirely during the pandemic. Warren singled out Jamie Dimon, the billionaire CEO of JPMorgan, over the nearly $1.5 billion in overdraft fees his bank collected during the pandemic. During the hearing, Dimon refused to commit to eliminating the fees.
Fintech companies, on the other hand, are competing with each other to offer the most competitive overdraft protection services. Last month, digital banking startup Chime announced it would double the maximum amount its customers can overdraw their accounts to $200. The digital bank Dave recently upped its cash advance feature from $75 to $200.
On Tuesday, the Biden Administration announced several initiatives designed to close the racial wealth gap in the United States (some of which were already included in his infrastructure proposals). Among other things, he called for a 50% expansion of federal contracting with small, disadvantaged businesses, a new $10 billion Community Revitalization Fund to support infrastructure in communities of color and an investment of $31 billion in minority-owned small businesses.
What To Watch For
The Consumer Financial Protection Bureau is expected to ramp up enforcement and tighten regulations under the Biden Administration. Sen. Sherrod Brown (D-Ohio) told NBC News in March that the CFPB “is going to be an agency for people of color — who are more likely to be hit with larger student loans and are more likely to face debt collectors and have to rely on payday lenders — to fight back.” He added: “…an agency for those who are hit hardest by debt and by the remnants of Jim Crow and of redlining.”
Overdraft Fees Are Getting the Boot at Ally Financial (Wall Street Journal)
World News || Latest News || U.S. News