Ally Bank Removes Overdraft Fees for Roughly 3.6M Accounts, Won't Use Them Going Forward

Amid an intensifying public backlash against banks charging overdraft fees during a global economic and public health crisis, Ally Financial announced it will end overdraft charges across its bank products, the Associated Press reported.

The decision is a significant one for Ally, one of the largest banks in the U.S., as well as the industry as a whole. About 3.6 million checking, savings and money market accounts will be affected, according to a bank spokesman.

Overdraft fees are a major source of revenue for banks, one that critics say primarily affects poorer Americans who can't afford to pay for overdrawing accounts. But Ally said it doesn't expect much of a detriment on the company's full-year profit forecasts.

Politicians, activists and consumers have fought for the end of overdraft fees for years, but the calls have escalated during the pandemic, which has devastated many Americans financially. The banking industry pocketed more than $12 billion in overdraft fee revenue in 2020 alone, according to industry research.

For more reporting from the Associated Press, see below.

Federal Reserve Chairman Jerome Powell testifies before a Senate Banking Committee hearing on 'The Quarterly CARES Act Report to Congress on Capitol Hill, December 1, 2020 in Washington,DC. Susan Walsh / POOL / AFP/Getty Images

Critics of the practice often cite what they call the $38 cup of coffee, where a bank customer uses a debit card to buy a coffee, overdrafts, and ends up paying a $35 fee on top of the $3 drink.

In Ally's announcement Wednesday, the Charlotte, North Carolina-based bank cited specifically the impact that overdraft fees have on Black and Latino households, which are historically poorer than their white counterparts and are hit with overdraft fees more often. It's also a common reason why Black and Latino households choose to be "unbanked," that is being without a bank account, in order to avoid the fees that often come with these accounts.

"Overdraft fees can be a major cause of anxiety," said Diane Morais, president of consumer and commercial banking at Ally Bank, in a statement. "It became clear to us that the best way to relieve that anxiety was to eliminate those fees."

Politicians such as Rep. Katie Porter, D-Calif., Rep. Maxine Waters, D-Calif. and Sen. Elizabeth Warren, D-Mass., have used their positions in Congress to push bank CEOs to reconsider their usage of overdraft fees. Regulators such as the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency have also pushed banks to come up with solutions to stop charging customers $35 for an overdraft.

In response, the industry has been inching away from overdraft fees, albeit reluctantly. Large banks like Bank of America and Wells Fargo both now offer products without overdraft fees, although they come with more limited features than their other accounts. Many banks suspended overdraft fees early last year when the pandemic struck.

Other banks, like regional banking giant PNC, have introduced features to their bank products to help avoid the fees in the first place.

However, Ally is the first big bank to get rid of overdraft fees altogether.

This image from video provided by the Senate Banking Committee shows JPMorgan Chase CEO Jamie Dimon testifying virtually to the Senate Banking Committee Wednesday, May 26, 2021. Uncredited/AP