Detroit-based Ally Financial is eliminating overdraft fees. Ally is the first major bank in America to do that. It’s raising some eyebrows. Many banks rely to some degree on problems for their clients to help generate more money. The industry last year collected about $12 billion in overdraft fees. Ally Bank has used a different model than most banks for related fees. Overdraft fees were not a significant source of income for the bank.

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Overdraft fees have long been a sore spot for many people, and in recent years, a campaign issue for a growing number of politicians. Ally’s announcement makes mention of how overdraft fees impact black and latino customers. Some economists believe that is one of the reasons why many ethnic minority residents in America don’t use banks. An Ally executive acknowledges that overdraft fees can be a cause of anxiety for potential customers and eliminating the issue takes it totally off the table.

Ally Customers who conduct overdraft transactions are not getting off totally without consequences.  The bank indicates it will typically clear smaller transactions that may pus an account into what would have been overdraft fee territory.  Others that are larger amounts may simply be denied. Ally is allowing customers 6 days from the point an account is overdrawn to bring it back into positive territory.

An information release posted on the Ally website says, “If you do overdraft your account, the only difference is that we won’t charge you a fee. We also provide a free (and completely optional) overdraft transfer service. We’ll move money from your linked account, in increments of $100, should you overdraft.  Keep in mind, if you link a savings account for overdraft transfer service, those transfers count toward the limit of 6 withdrawals per statement cycle, but we’re continuing to reimburse excessive transaction fees as well.”