Ally Bank lowered its CD rates twice in the past two weeks after the government threatened to withdraw government support from its owner if it paid savers too much.
How much is too much?
A letter from Sandra Thompson, director of the FDIC’s Division of Supervision and Consumer Protection, infers that she doesn’t want to find Ally products among the top-paying CDs or savings accounts, or even paying much more than average.
If Ally follows the FDIC’s edict it will be yet another blow to savers struggling to earn even a modest return on their money.
All of the online banks certificates of deposits and savings accounts have consistently ranked among the two or three best-paying in the country.
Here’s what seems to be going on.
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 $20 billion federal bailout — $14.5 billion in capital and $4.5 billion to guarantee GMAC debt.
Washington couldn’t let GMAC fail because it desperately needed the Detroit-based lender to keep financing the purchase of new cars and trucks at General Motors and Chrysler dealerships across the country.
On May 21, the Federal Deposit Insurance Corp. finalized the agreement to guarantee GMAC’s debt so that it could continue to borrow some of the money it needed to make those loans.
According to a letter from Thompson dated on June 4, that agreement required GMAC to reduce Ally Bank’s “overall deposit costs.” Translation: Stop paying top dollar for CDs and savings accounts.
But GMAC was just launching a big advertising campaign to introduce Ally Bank — the new name for what had been called GMAC Bank. Touting Ally’s high interest rates was a big part of that campaign, which also accused other banks of abusing customers with sneaky fees and terms.
Those other banks were not amused.
After they’d taken billions in federal bailout money, they’d slashed the interest rates on their CDs and savings accounts to record lows.
The American Bankers Association wrote a letter to the FDIC on May 27 complaining that Ally was pursuing “risky financial strategies” by paying top-dollar for deposits.
On June 4, Thompson told GMAC that it would decide how much of its debt the federal government would guarantee based on how much it was paying to raise money through Ally Bank.
It wanted Ally to report the interest rates it was paying on every type of deposit, whether those rates ranked among the 10 best rates, and how much those rates exceeded the average rates in Bankrate’s weekly survey of major banks and thrifts.
(Full disclosure: Bankaholic is part of Bankrate and the average rates we quote are from that survey.)
While GMAC has lowered its rates twice since it got that letter, it’s still paying well above average rates, placing third on yesterday’s ranking of the best savings accounts.
How long that will last, we don’t know. But it seems that the government (and the big banks that dominate the ABA) is out to make savers pay a huge price for a financial crisis they did nothing to create.