Ally Bank lowers rates after ABA objects

Ally Bank reduced many of its deposit rates today, about a week after it was attacked for offering better-than-average returns by the American Bankers Association.

How petty can the lobbying group for the nation’s biggest banks get?

It all began when the ABA wrote a letter to the Federal Deposit Insurance Corp. on May 27, asking it to stop Ally from offering what it called above-market rates on certificates of deposit.

Why?

The association has two axes to grind with Ally — and the government.

First, the Treasury Department allowed Ally’s troubled owner, auto financing giant GMAC, to become a bank holding company earlier this year so that it could qualify for a federal bailout.

Then the $20 billion Washington gave GMAC was enough to buy a controlling interest in the finance company, creating a “government-owned” competitor for the ABA’s privately-owned members.

Now, the ABA says, GMAC and Ally Bank are using that unfair advantage to offer higher rates than its members to attract more deposits.

“Such a bank is significantly shielded from investor and market influences that might otherwise act as a brake on risky financial strategies,” ABA president and CEO Edward Yingling said in the letter. (Click here to read Fortune Magazine’s report on the ABA’s effort.)

The hypocrisy of the nation’s biggest banks pointing an indignant finger at someone for pursuing “risky financial strategies” is laughable.

It was their risky financial strategies that nearly wrecked the world economy.

And these are the same banks than have stuffed their vaults with hundreds of billions of dollars from the U.S. Treasury Department and Federal Reserve.

All of the cheap capital and loans they’ve received from the government have enabled them to offer ridiculously low interest rates and thumb their noses at savers.

Who’s being shielded from the market?

The government’s made sure they don’t need our lousy deposits.

And while Ally’s rates have been quite good, they have not been off the charts. It’s been paying no more than many community banks and credit unions around the country.

Ally, for example, was offering 2.65% APY for a 24-month CD. But you could have gotten a better deal from Quantum National Bank in Milton, Ga., which is still paying 2.97% APY, and Tennessee Commerce Bank in Franklin, Tenn., which is offering 2.87% APY.

The 2.80% APY on 12-month CDs was heavily promoted in Ally’s advertising. But it wasn’t that much better than the 2.63% APY you can still get from Corus Bank in Chicago, or the 2.78% APY from Melrose Credit Union in Briarwood, N.Y.

So what is this really all about?

The big banks didn’t want GMAC to get any of their bailout money in the first place. And now that GMAC has taken a government handout the big banks are using that an excuse to try and stop it from offering consumers better interest rates than its biggest members.

It’s possible that Ally only offered those rates to put more oomph behind the advertising campaign promoting its new name (it was called GMAC Bank until last month).

It’s possible that Ally would have lowered its rates without being pressured by the ABA. (Ally didn’t blame the ABA for the cuts and it certainly isn’t the only bank to cut rates this week.)

But the association should still be ashamed of itself, and savers take it on the chin again.

Ally Bank reduced the rate on its 12-month CD to 2.49% APY, the rate on its 24-month CD to 2.55% and its savings account from 2.25% to 2.05%.

Click here to compare that to the best CD rates from dozens of banks.