The news: Ally revealed two measures it is taking to provide customers with short-term assistance if they incur overdrafts
- This deployed Cover drafta new tool that gives people up to $100 to cover overdraft on certain transactions in their checking accountswith 14 days for customers to clear their amounts.
- In an email to depository customers outlining the product changes, the bank said it was remove long delays for some deposited checkswhich previously applied to “anyone with a history of repeated overdrafts.
More on this: Customers will generally be eligible for CoverDraft 30 days after depositing a total amount of at least $100 into their checking accounts. Ally points out that the tool has no hidden fees, direct deposit requirements, minimum balance or interest.
CoverDraft can be used for overdrafts resulting from charges such as automatic payments, debit card purchases, transfers or checks initiated before overdraft occurrences and transfers made at outside banks.
Ally said the product also has limitations:
- CoverDraft cannot be used to cover ATM overdrafts.
- This does not cover sending money to others via Wiring or Zelle.
- The bank may discontinue the service or suspend the use of customers.
- The repayment of the overdraft is at the discretion of the company.
The bigger picture: CoverDraft and the elimination of long check delays are part of Ally’s broader drive to provide customers with liquidity alternatives to overdraft fees:
- This completely eliminated fees in June 2021, after temporarily suspending them due to the coronavirus pandemic.
- The new tool is designed to provide a second layer of protection by complementing the bank’s existing overdraft transfer service, which taps into linked Ally savings accounts.
- Ally plans to provide customers with additional support later this year.
Why these movements are vital: These changes are essential for Ally to move beyond waiving overdraft fees, as this only solves part of consumers’ liquidity problems – they are still at risk of being late on some bills.
- Trade groups, including the American Bankers Association (ABA) have recently underlined this compromise in a letter to the Consumer Financial Protection Bureau (CFPB) where they called on the regulator to suspend an impending crackdown on fees. The associations asked the office to collect data on the needs that generally push people towards overdrafts.
- Offering options to cash-strapped consumers is almost a competitive norm among incumbent US banks. For example, paycheck early access is to become commmon and small loans are to earn traction.
- This also corresponds to the feelings of consumers. A JD Power survey shows that people are more than twice as likely to switch banks if they’ve had to pay a fee of any kind in the past three years compared to those who haven’t. However, 81% of customers responded that they were convinced that banks could help them improve their financial health.
Ally could continue its overdraft options campaign by investing in real-time payments (RTP) technology, which can to improve the short-term cash flows of people:
- A November 2021 Javelin study found that 54% of consumers surveyed felt that RTP could help avoid late fees.
- Thirty-seven percent said technology could allow them to wait until the last minute to pay, giving them time to have enough funds on hand.
- Ten percent responded that RTP means they won’t have to take out loans or credit card debt to pay their bills.
- RTP adoption has been slower than expected among U.S. banks, according to American Banker, citing most of a group of two dozen lagging banks with plans in 2021. The slowness gives Ally and others more time to invest in the space.