Online bank Ally will no longer charge overdraft fees on its consumer accounts, a move that comes as other financial institutions face increasing scrutiny for profits made off such fees during the pandemic.
Ally Bank customers won’t have to worry about the fees on products like savings, checking, and money market accounts, the company announced Wednesday, joining Discover Financial and fintech Chime as institutions offering products without overdraft penalties. Most major banks in the U.S. charge their customers a fee—often around $35—for initiating a transaction that requires more money than the consumer has in their account.
Ally stopped collecting overdraft fees last year as a pandemic relief measure for its customers, and bank executives said they decided now to waive Ally’s $25 fee entirely as a goodwill gesture. Research showing the fees disproportionately affected financially vulnerable people, as well as those who are Black or Latinx.
“Overdraft fees are a pain point for many consumers but are particularly onerous for some,” Ally Financial CEO Jeffrey Brown said in a statement. “It is time to end them.”
In 2020, banks collected $31.3 billion in overdraft fees, the lowest amount since 2005, according to analyst Moebs Services, as banks adjusted their policies during the pandemic. But 43% of households classified as “vulnerable” that had checking accounts said they still overdrafted in the past year, according to the 2021 FinHealth Spend Report, with the average household having done so 9.6 times.
Executives from Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo—the four largest U.S. banks—came under fire last week for their institutions’ overdraft practices during a Senate committee hearing. Sen. Elizabeth Warren (D-Mass.) claimed the banks made $4 billion from overdraft fees during the pandemic, and urged the CEOs to refund the money to affected consumers. (The bank executives said no.)