Ally Bank is doing away with overdraft fees, and it could be an opening salvo for the industry facing mounting pressure in Washington for the decades-long practice.
Why it matters: Banks rake in billions fining customers who spend more money than they have in their account. It's one of many fees associated with banking — shouldered most often by those who can least afford it.
Driving the news: Digital-only Ally Bank is nixing overdraft fees entirely, after waiving them for a period during the pandemic. Previously, it dinged customers $25 each day the account was overdrawn.
But, but, but: The move isn't as Earth-shattering for Ally's business as it could be for others.
- The fees were a microscopic part (0.07%) of its revenue. Roughly 1 in 8 of its customers overdrafted, Diane Morais, head of Ally's consumer banking products, tells Axios.
The big picture: Low-to-moderate income Black and Latino households were responsible for $255 billion worth of interest and fees for financial services (including overdraft fees) — out of the $303 billion collectively spent nationwide last year, according to a report by the Financial Health Network.
What to watch: What the mega-banks do on overdraft fees.
- The backdrop: During a hearing last week, Sen. Elizabeth Warren (D-Mass.) asked big bank CEOs whether any automatically waived overdraft fees during the pandemic None of the CEOs had, though JPMorgan’s Jamie Dimon said the bank refunded fees when customers asked.
- Warren got crickets when she pushed for a pledge that the banks would refund those fees.
Of note: JPMorgan, Citigroup, Wells Fargo and Bank of America took in $4 billion from overdraft charges in 2020 — 27% less than the prior year, according to the Financial Services Forum, the industry's trade group.
- Overall, bank revenue from overdraft fees dropped for the first time in six years in 2020, the Wall Street Journal reports — citing data from Moebs Services.