One of the most annoying features of banking in America has been eliminated by one financial institution. And it’s already receiving rave reviews from customers and promising a change for the entire industry. Overdraft fees are no longer charged by Ally Bank to any of its clients. Starting in April 2020, the bank will temporarily eliminate certain overdraft costs due to COVID-19 problems. This is a more permanent change for many big banks, and it is the first of its sort.
Ally CEO Jeffrey Brown stated in a message to customers: “Overdraft fees are a source of frustration for many consumers, but they are especially burdensome for others. It’s past time to put a stop to them.”
This is fantastic news for clients, and it might herald a sea shift for giant banks. Those who have long profited handsomely by charging tiny fees to large customer bases. Overdraft fees have long been seen as one of the most inconvenient and inevitable aspects of banking in the United States, but that perception may be changing.
What is an overdraft charge, exactly? Consider the following scenario: you write a check or are charged for a regular online payment, but your account balance is insufficient to cover it. Banks will often charge you an “overdraft fee” if you force them to pay the amount for you.
Why No More Fees?
Overdraft fees alone brought in $4 billion for America’s top four banks: Chase, Wells Fargo, Citi, and Bank of America. They make a lot of money only from overdraft fees, as you can see.
A bank may handle a rejected check for less than $1 and sometimes even less than that. Banks have progressed beyond passing on those costs to charging a huge, profit-driven multiple of their own costs.
Lower-income families are more likely to be harmed by these fees since they are more likely to be short on cash. According to a poll released recently, those who lost money during COVID-19 paid more than four times as many fees to institutions.
According to the Consumer Financial Protection Bureau, 5% of checking account customers overdraw their accounts more than 20 times each year.
Ally has consistently been called one of the finest online banks in the country. They receive high marks from customers across the board. Clark likes online banks over conventional banks, along with credit unions, since the excellent ones have low costs.
This isn’t the first time Ally Bank has taken such a step. Fees were removed by Discover Financial in 2019. Some banks that claim to have eliminated overdraft costs, simply do not accept overdrafts. Others provide “overdraft protection.”
Consumers will be pleased with Ally’s decision, and it may be a splash that will reverberate across the banking industry.
Overdraft fees have long been seen as part of the price of doing business with banks. However, this change with Ally shows that might not be the case much longer. After the wonderful reaction Ally got, it is likely that other banks might follow in its foot steps and eliminate their own overdraft fees soon.