Overdraft fees are a cash cow for many banks that offer checking accounts. But Ally Bank has decided it can live without them.
The self-described largest online bank in the nation has ended overdraft fees on all accounts, effective immediately.
In a press release, Jeffrey Brown, CEO of parent company Ally Financial, says the move is a “significant advancement for consumers”:
“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.”
Ally cites figures in the 2021 FinHealth Spend Report showing that Americans paid $12.4 billion in overdraft fees in 2020, with 95% of those fees incurred by people who are considered financially vulnerable or financially coping, meaning they “struggle to spend, save, borrow, and plan,” according to the report. Such customers are disproportionately Black and Latino, Ally says.
Among financially vulnerable households with checking accounts, 43% reported being charged at least one overdraft fee in 2020, with such households averaging 9.6 overdrafts, the FinHealth Spend Report found.
CNBC reports that overdraft fees typically are between $30 and $35 for each overdraft that occurs.
Ally’s decision to end overdraft fees may seem surprising, since the fees generate so much cash for banks. But Ally is not alone in ending overdraft charges.
For example, the KeyBank Hassle-Free Account and Discover Bank Checking Account do not charge overdraft fees, which are sometimes also referred to as insufficient funds fees.
You also can avoid overdraft fees by simply not opting in to — or, if you already have, by opting out of — overdraft protection. Under federal law, a bank generally cannot charge you overdraft fees without your consent.
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