Ally Bank drawing attention, depositors

NEW YORK -- Its TV and print advertisements poke fun at the bait-and-switch tactics of other banks. Its interest rates on certificates of deposit have been the most generous in the industry.

Ally Bank's tactics have drawn in customers, but they've also irked rivals and gotten the attention of regulators. At the heart of the bank's aggressive wooing of depositors is this: As the rebranded banking unit of GMAC Financial Services, Ally Bank has the backing of billions of dollars loaned to GMAC by the federal government.

After the name change in May, Ally offered a 2.8 percent interest rate on 1-year CDs. That was more than double the national average of 1.23 percent, according to Bankrate.com.

Federal regulators have since intervened, after an industry group expressed concerns about Ally's ability to afford to pay such rates for deposits.

Still, company executives note that Ally's rates remain competitive. Ally currently pays 1.93 percent on a 1-year CD, much closer to the national average of 1.72 percent. And the bank continues to burnish its populist image in a national media campaign.

For its third quarter, Ally said retail deposits hit $15.9 billion. That's up from $14.5 billion, $11 billion and $7.2 billion in the previous quarters. Deposits are critical to GMAC, which uses them to fund auto loans and mortgages.

Yet Ally's growing deposits aren't sitting well with some.

In a May 27 letter to the Federal Deposit Insurance Corp., the American Bankers Association complained that Ally's rates could end up compounding its problems. The bank had just posted a first-quarter loss of $675 million.

The letter also pointed out that Ally's strategy was possible only because of the government bailout of GMAC.

"When you don't have a lot of skin in the game, it increases the willingness to take chances," said Wayne Abernathy, vice president of regulatory affairs for the ABA.

Troubled banks often go after deposits to "grow out of their problems," Abernathy said.

For the plan to work, however, the loans and other investments the bank makes need to pan out, meaning low default and charge-off rates.

"It's a thin margin. Sometimes it works, sometimes it doesn't," Abernathy said.

The ABA wasn't alone in its concerns.

Gina Proia, a GMAC Financial spokeswoman, declined to give specifics on Ally's dealings with the FDIC.

In June, however, the agency sent GMAC a letter that referenced the company's agreement to "focus on reducing Ally Bank's overall deposit costs."

GMAC's incentive to follow the FDIC's recommendations was strong. The agency in late May backed $7.4 billion in GMAC-issued debt, a rare move by the FDIC for a junk-rated company.

The June letter from the FDIC also cited GMAC's agreement to provide updates on how Ally's interest rates compare to national averages, and where they rank among the country's top 10 banks.

Meanwhile, Ally executives are staying on message. Sanjay Gupta, Ally's chief marketing officer, unfailingly cites the bank's unusually consumer-friendly approach.

"People always appreciate a good rate. But they're also looking for a bank they can count on," Gupta said.

It's a role Ally is eager to fill. In one of its TV ads, a banker gives a little girl a bike, but only lets her ride it on a small cardboard square.

The ad is meant to criticize the teaser rates and fine print that often accompany financial products.