If you ask anyone who’s had a negative experience with banks what in particular was so bad about them, I suspect that “overdraft fees” would be an overwhelmingly popular response. After all, the very idea of overdraft fees sounds like a stand-up comedy premise: “You don’t have any money so we’re going to take more of your non-existent money from you.”
What’s more, consumers have often complained about institutions being super shady with the way they post transactions, starting with the largest purchase so that more individual transactions are in the red and, thus, incur more fees. Personally, I’ve endured more than my fair share of overdrafts, with most of them hitting in my early 20s. Heck, I distinctly remember paying a total of $36.50 for a $1.50 candy bar (although a very kind and sympathetic teller at Wells Fargo actually took care of that one and a few others, slipping me a note that read “I reversed 5 O.D.s”). Given this experience, I’m always happy to see banks moving away from this practice — including Ally, which made the big announcement this week.
In an email to customers, Ally revealed that it was eliminating overdraft fees for its checking, savings, and money market accounts. Incidentally, the bank had already been crediting back customers who were hit with overdrafts in the past several months. This proactive practice being a courtesy during the pandemic. For now, this “post and reverse” process will continue but Ally says that “in a few weeks, they’ll be removed entirely.”
If you’re like me, this news may have you wondering exactly what Ally means when it says they’re ending overdraft fees. For example, while plenty of FinTech banking options waive such fees, more often than not this just means that transactions that would overdraw your account are declined. On the one hand, that’s a good thing… but on the other, it could mean that customers are forced to look into payday loans or similarly expensive products to make ends meet. Luckily, according to a report in the AP, Ally will continue to approve some overdrafts, although this will of course be at their discretion. They also note that smaller transactions are more likely to go through. Interestingly, AP points out that customers will have six days to bring their accounts back to positive territory, so I’m not exactly sure what happens if they don’t.
Even though Ally is still an online bank, which have traditionally had more attractive terms than their brick and mortar counterparts, this still feels like a pretty big move. Granted, it’s one that Discover Bank made nearly two years ago, but hey better late than never. Personally, I’m curious to see if perhaps more traditional banks begin to see the light and start easing their fee-fanatic ways. Hell may have to freeze over first but I’m actually fairly bullish on at least one or two of the big players trying compassion on for size. In any case, kudos to Ally for doing the right thing — and here’s hoping that more follow.