Ally Financial does away with fees. Will other banks follow?

How Brazil is reforming a public fund to finance broadband expansion

Ally didn’t earn significant fees from overdrafts compared with other banks. The most Ally charged each customer for overdrawing an account was $25 per day, instead of per transaction. Ally doesn’t expect that ending overdraft fees will have a major impact on the company’s full-year profit forecasts. “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. Eliminating these fees helps keep people from falling further behind and feeling penalized as they catch up,” Jeffrey Brown, CEO of Ally Financial, said in a statement.  “This will definitely appeal to younger and lower-income households who are most prone to overdrafts, for whom this is a significant issue,” says Greg McBride, chief financial analyst for Bankrate.com. “Some banks are willing to bypass some revenue to establish and build relationships with consumers.”

►Overdraft fees:Ally Bank ends them, first large bank to do so Last week, Ally Financial said it will eliminate overdraft fees for all of its banking products, making it the first major bank to end these fees across its entire business. The main reason for the fee elimination was how onerous it was to low-income people, Ally said.

A spending boom?:Lower-income Americans feel left behind It’s also a common reason why Black and Latino households choose to be “unbanked,” or living without a bank account in order to avoid the fees that often come with them.

Financial firms brought in an estimated $31.3 billion in consumer overdraft revenue in 2020, according to financial-data firm Moebs Services. “More online banks are moving in that direction and larger, more traditional brick-and-mortar banks have softened their stance,” toward charging fees, McBride said But, “they won’t eliminate overdraft fees anytime soon.”  But don’t expect all banks to walk away from overdraft fees in the near term, McBride said. Those fees remain a big source of income for many banks, he added. 

Overdraft fees vary from bank to bank, average $33.47, according to Bankrate’s 2020 checking account and ATM fee study. Overdraft fees can be a significant expense, particularly for low-income households. Those fees cost Americans $12.4 billion in 2020, according to the Financial Health Network, a data analytics company.

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