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June 16th, 2009

Update1 Ally Bank: The New Gray Area in Banking

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UPDATE 1: Ally bank has lowered the interest rate on their one year CD to 2.35% from 2.80% after the American Bankers Association (ABA) voiced their concern to the FDIC. The ABA claimed that Ally’s rates were above the normal market value, and was merely an attempt from a struggling bank to attract depositors.

Ally claims their rate reduction had more to do with market conditions than pressure from Federal agencies. Formerly GMAC Bank, Ally passed the Treasury’s stress test and was deemed healthy by Federal standards. Agencies like the ABA rebuked Ally’s “healthy” status, saying that the bank’s public financial reports reveal that the bank is on shaky ground. Add in the fact that the government owns a controlling stake in Ally’s parent company and the whole situation just got a lot grayer :

When the bankers association filed its complaint, it said Ally’s rates on 1- and 2-year CDs “are generally the highest in the nation. At the same time, the banks’ public financial reports have shown the bank to be losing money. … This aggressive deposit strategy is particularly egregious when it is used by a troubled bank in which the government holds a controlling interest. Such a bank is significantly shielded from investor and market influences that might otherwise act as a brake on risky financial strategies.”

The ABA’s fight to subdue a risky marketplace could represent a new battle between the “haves” and “have nots.” Companies, agencies, and independent institutions are possibly beginning to realize a stark difference in the way Federally-supported banks are treated as opposed to their independent competitors.

Original story, “American Bankers Assoc. Seeks to Eliminate Competition,” published on 6/3/09

At least that’s what Ally Bank says. The American Bankers Association (ABA) is lobbying the Federal Deposit Insurance Corporation (FDIC) to investigate Ally Bank’s above-market interest rates. Ally’s website is advertising a one-year CD with a 2.80% annual percentage yield. Formally known as GMAC Bank, Ally says their consumer-friendly rates are designed to “make money with customers, not off customers”:

“This aggressive deposit strategy is particularly egregious when it is used by a troubled bank in which the government holds a controlling interest,” said ABA president and CEO Edward Yingling in a May 27 letter to Federal Deposit Insurance Corp. chief Sheila Bair. “Such a bank is significantly shielded from investor and market influences that might otherwise act as a brake on risky financial strategies.”

Wayne Abernathy, a spokesman for the ABA, said the group wrote the FDIC to make sure that “regulators are ready to enforce discipline” in a case where the government’s big stake insulates management from the risk of investor flight.

GMAC, which changed its name to Ally on May 15, has received over $20 billion in Federal funding from both the TARP as well as a Federal debt guarantee program.

Ally’s Al de Molina says he’s not surprised that the ABA is striving to limit competition in the banking industry. He adds that his competitors should look for new ways to compete with the competition instead of trying to stop it.

While Ally has been no stranger to quarterly losses, an FDIC spokesperson says there is little they can do right now about Ally’s rates:

Regardless of what anyone might think about Ally’s practices, regulators have limited recourse in dealing with banks in good standing that are deemed well-capitalized — as Ally is.

He noted that the agency acted last week to restrict the amount of interest banks that are deemed less than well capitalized can pay to their customers.

Who’s in the wrong here? Should Ally be commended for their consumer-friendly rates, or are they wrongfully gambling with taxpayer money?

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9 Responses to “Update1 Ally Bank: The New Gray Area in Banking”

  1. Ah, Citicorp can’t get away from the government either…sweet bliss! « Unasked Advice Says: June 12th, 2009 at 12:45 pm

    [...] American Bankers Assoc. Attempts to Restrain Competition (hsh.com) [...]

  2. Dale Says: June 19th, 2009 at 10:47 am

    I just received (6/16) a Fed Ex letter from GMAC offering to refinance our home at 4.875%. Whatever the government did it worked!

  3. Tim Manni Says: June 19th, 2009 at 11:18 am

    Sounds good Dale. Just remember GMAC changed their name to Ally about a month ago. Just make sure the source is legit.

    Best of luck,
    Tim

  4. Dale Says: June 19th, 2009 at 11:19 am

    Thanks! What happens if Ally goes under, what happens to people who have existing mortgages with them. Does the Gov. assume them?

  5. Tim Manni Says: June 19th, 2009 at 11:32 am

    Hey Dale,

    Well if any bank goes under their assets will be immediately taken over by the FDIC until another banks wants to take the entity over, or the FDIC will remain in charge. Obviously your deposits are covered, and so is your mortgage. You’ll still have to make payments, but if you’re in the middle of refinancing, you’ll likely have to revert to the original terms of the loan.

    Great hearing from you,
    Tim

  6. Wyett Says: July 6th, 2009 at 1:10 pm

    Above market interest rates… Hmm…, is the ABA protesting Dollar Savings Direct with it’s 2.00%-3.00% rates?

    Wyett

  7. Tim Manni Says: July 6th, 2009 at 3:53 pm

    Wyett,

    Thanks for commenting. I’m not sure if they’re investigating ‘Dollar Savings Direct’ or not. What are the 2-3% interest rates for?

    -Tim

  8. keri Says: November 3rd, 2009 at 10:44 pm

    I am tired of Ally being bombarded with BS about the rates! Here is a company trying to stand by the consumers side at all times and because other bans can’t compete they gota scream and holler and try to take them down! Its not fair that Ally be forced to lower their rates when they are a stable bank trying to do the right thing! Other banks should follow their lead instead of trying to push them out of it!

  9. Tim Manni Says: November 4th, 2009 at 11:28 am

    Hey Keri,

    Thanks for commenting. I haven’t followed up with this story in quite some time (maybe it’s time to), but I don’t think Ally was ever formally forced to lower their rate…although they did, then blamed it on market conditions.

    To be honest, no bank is offering anything attractive for CD rates. Raising rates was a tactic for generating competition, but that desire doesn’t seem to be worthwhile at the moment.

    Please feel free to comment again soon, thanks,
    Tim

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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