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FDIC Steps In to Keep Ally Bank’s Interest Rates Lower

This article was written by in Banking. 6 comments.


The American Bankers Association (ABA) has not been happy with Ally Bank. A few weeks ago, the organization on behalf of its member banks sent a letter to the Federal Deposit Insurance Corporation complaining about Ally’s interest rates. With Ally planning to receive bailout funds through its enrollment in the government’s Treasury Liquidity Guarantee Program (TLGP), the bank used the opportunity to offer higher interest rates on its savings, money market, and certificate of deposit accounts than its competitors.

The letter from the ABA admonished the FDIC for allowing Ally Bank, formerly GMAC Bank, to offer the highest rates or rates among the highest in the country in order to seek more deposits and grow their business. It is unfortunate that the ABA should want to see banks lower interest rates on savings products and to let FDIC force them to do so. Millions of people rely on savings interest for living, and banks should want to encourage higher rates whenever possible.

I do see where the ABA is coming from. Regulations such as interest rate limits, if imposed, should be imposed fairly to all banks. In any other situation, the ABA would be fighting regulation and be interested in competitive practices that allow the banks to set whatever rates they feel their business can handle.

The FDIC responded to the ABA’s complaint by sending a letter to GMAC, Ally Bank’s parent company, warning the bank to “focus on reducing Ally Bank’s overall deposit costs,” where “deposit costs” is a term we would recognize better as “interest rates.” Even before GM’s bankruptcy and the rebranding of the bank from GMAC Bank to Ally Bank, the bank offered one of the highest interest rates available, but now the high rates are unacceptable to the government.

The letter also stated that the amount of guaranteed debt available to GMAC from the government will rely on disclosure of Ally’s interest rates in comparison to the other top banks, signifying that Ally Bank should not find itself at the top of the list. SmartyPig, on the other hand, offers a significantly higher interest rate, though there are some strange restrictions when you compare the account with a traditional bank account.

So where does that leave customers?

  • It would be nice to be able to find a liquid savings option that pays consistently high interest rates.
  • The American Bankers Association should continue to focus on the needs of banks but shouldn’t try to stifle competition.
  • Customers of Ally Bank, lured by higher interest rates, will see some of those benefits disappear.

Should the FDIC continue going after banks, even if they are well-capitalized like Ally Bank and its parent GMAC, to prevent them from offering high interest rates to attract customers? Who benefits if the ABA and the FDIC win the fight against high interest rates?

Here are links to the letters mentioned above.

Letter from American Bankers Association to Sheila Bair, chairman of the Federal Deposit Insurance Corporation, May 27, 2009
Letter from Federal Deposit Insurance Corporation to Alvaro de Molina, CEO of GMAC, June 4, 2009

Updated February 10, 2011 and originally published June 16, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 6 comments… read them below or add one }

avatar FFB

So throw out capitalism, right? Ughh. When companies are lining up for bailout money the people who earnestly try to save are hurt with rates that don’t meet inflation. Instead of complaining maybe the other banks should works on ways to make their banking experience better to draw more customers?

I does seem a little sketchy to use government money to increase their market share but at least the money is going to the customer.

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avatar Olivia @Independent Beginnings

I think it is a bad move on the ABA’s part to try to force a bank to lower its interest rates. If Ally bank wants to use bailout money to give money back to the American people and they happen to grow as a business because of it, then good for them! We ought to be encouraging higher interest rates on savings accounts instead of discouraging them.

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avatar Steve

I will go against the crowd and say, I don’t think they should be using bailout money to offer a higher interest rate. That essentially amounts to a government subsidy of one business, which comes at the cost of other businesses. Of course that’s an argument against the bailout altogether…..

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avatar Matt Jabs

It is very disheartening to know the gov’t is exercising such broad control over private sector industry these days. It is not the America I grew up with, and lament for the “free market”.

Without exception, I loathe gov’t involvement & believe they should remove themselves from the equation as much as possible…but know they never will. Once gov’t gets its hooks into something, they NEVER let it go.

Let’s just say, for debate sake, that the gov’t didn’t want citizens to earn very much on their money (that would never happen right?)…so they impose rate sanctions on all private sector banks… I smell revolution.

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avatar Bible Money Matters

I hate how much the government is getting involved in everything right now, I’d rather that we let bad businesses fail, and good businesses take over where they left off. So – I’m not sure i think many of these businesses should be getting bailout money in the first place. With that said, if Ally Bank wants to take the bailout money and use it to give higher interest rates for their customers – so be it – I think it’s silly for the ABA to step in and try to take away their competitve advantage – and hurt customers who came there for that reason only.

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avatar alex

i understand everyome’s complains about governmnt involvment but in case of financial disaster or Ally going under you all will come to the FDIC requesting your funds back.

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