Exclusive: Another major financial institution drops overdraft fees
âWe believe this is the right thing for our customers to do,â Alliant CEO Dennis Devine said in an interview. “And that puts pressure on the rest of the market to do the right thing.”
Chicago-based Alliant, which was founded in 1935 as a United Airlines credit union, described the move as a way to differentiate itself from traditional lenders and grow its base of more than 600,000 customers.
Devine conceded that the elimination of the overdraft fee will “of course” hurt Alliant’s earnings.
âAny decision to reduce fees to zero will have an impact on revenues,â he said. “But we didn’t rely on fees like some other financial institutions have in the past.”
CEO: “It’s time to end” overdraft fees
In Ally’s June statement on eliminating its fees, CEO Jeffrey Brown said overdrafts are a “pain point for many consumers but are particularly onerous for some,” adding: “It’s time to end it “.
Some in Congress agree with this sentiment.
New York Democrat hopes more banks will follow Ally and Alliant
Maloney, a Democrat from New York, applauded Alliant’s decision, but added that more needed to be done to end what she described as an “abusive” practice.
“Overdraft charges hit the hardest on those who can afford them,” Maloney said in a statement to CNN Business. “I am pleased that more and more financial institutions are recognizing the damage these fees inflict on their customers and are taking steps to eliminate them – I hope more banks and credit unions follow suit.”
The Consumer Bankers Association, which represents major retail banks, opposes the Maloney legislation.
“Restricting access to overdrafts, as required by this legislation, would only push consumers into predatory payday lenders or pawn shops, which do not offer the same security and soundness as well-regulated banks. and well supervised, âRichard Hunt, CBA President and CEO. said in a June statement.
According to a study by Pew Charitable Trusts, about 5% of current account holders overdraft more than 20 times a year. At $ 35 per customer, that equates to over $ 700 per year in fees per customer, a significant amount given that many of these customers often live paycheck to paycheck.
“Overdraft fees have been detrimental to consumers for a long time,” said Alex Horowitz, research director of the Pew Consumer Credit Project.
Horowitz said Pew’s research found that about half of currently unbanked U.S. households previously had bank accounts – and overdraft fees are one of the main reasons they left the system.
“Overdraft charges take customers out of the banking system. It’s bad for consumers, but it’s also bad for banks,” Horowitz said.
“We have no branches”
Of course, it’s easier for digital lenders like Ally and Alliant to end these fees. Online banks do not have to deal with the large expenses associated with physical branches, including real estate and staff.
But even for Alliant, eliminating overdraft fees was not an easy decision. Devine acknowledged that there was some internal dissent as they debated this decision.
âWe are now in a position that most institutions are not. This is going to create a discussion,â Devine said. “But it helps us in the long run.”
Dennis Kelleher, CEO of financial reform group Better Markets, praised Alliant in an email for acknowledging that “scamming clients with foreclosure fees is a bad business model.” He attributed the fintech competition to the evolution of the financial sector.
“The only question,” Kelleher said, “is when the dinosaurs on Wall Street will be forced to do the right thing by their customers.”