Banking customers just caught a break.
Ally Bank announced Wednesday it is eliminating overdraft fees on all accounts.
“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,” Ally Financial CEO Jeffrey Brown said in a statement. “Eliminating these fees helps keep people from falling further behind and feeling penalized as they catch up.”
More from Personal Finance:
Budget basics for a new post-pandemic normal
Make these moves before you start post-pandemic spending
Prices are going up — here’s what inflation means to you
Overdraft fees are considered one of the most expensive and common checking account fines, since you can get dinged several times in a single day if you spend more money than you have in your account.
The Consumer Financial Protection Bureau found that 5% of checking account holders overdraft more than 20 times per year.
Further, the vast majority of the banking customers that pay overdraft fees are also considered “financially vulnerable” and disproportionately belong to minority groups, according to a separate FinHealth Spend report.
Those customers who are disproportionately impacted are typically those on the lower end of the socio-economic scale.Diane Moraispresident of consumer and commercial banking at Ally Bank
“There’s been a lot of attention on this topic,” said Diane Morais, president of consumer and commercial banking at Ally Bank, and “it will continue to be an area of focus.”
Although Ally has just under 2½ million banking clients, only about 1% have been subject to overdraft charges, Morais said.
“Those customers who are disproportionately impacted are typically on the lower end of the socio-economic scale,” she said.
Before the new policy went into effect, the online-only bank changed $25 for overdrawing an account. Going forward, smaller transactions will likely be approved even if there aren’t enough funds to cover the cost, but larger transaction may be declined, Morais said.
During the coronavirus crisis, federal regulators encouraged banking institutions to waive these fees to provide some relief to consumers experiencing severe financial strain, and many banks did offer such hardship accommodations, although only temporarily.
Still, the average penalty hit a record high of $33.47 in 2020. Altogether, Americans shelled out more than $12 billion in fees for bounced checks and overdrafts last year, FinHealth found.
Ally Bank also waived overdraft fees during Covid but then decided to permanently eliminate them across all accounts.