Ally Bank, the banking unit of auto and mortgage lender GMAC, on Monday denied competitors' complaints that it is paying excessive interest rates to attract deposits while on a government-funded lifeline.

Ally dismissed the allegations as an attempt to restrain competition and called a complaint last week by the American Bankers Association highly inappropriate.

The ABA, an industry trade group, wrote to bank regulators asking them to limit the interest rates that Ally pays, saying the bank is losing money and is growing deposits at an abnormally high rate.

GMAC LLC, stung by billions of dollars in losses at its auto finance and mortgage units, last month scrapped its own name from its banking unit, which it now calls Ally Bank, in an effort to gain customers.

ABA believes it is completely inappropriate, and indeed risky, for GMAC/Ally Bank to be allowed by the regulators to continue to pay rates well above the market, the ABA said in its letter to the Federal Deposit Insurance Corp.

The FDIC typically restrains struggling banks from paying above-market interest rates or accepting risky brokered deposits to stay afloat.

GMAC said Ally is among the best capitalized banks in the United States and has a stated commitment to provide leading rates.

While I find it highly inappropriate that the American Bankers Association would attempt to restrain competition in the banking industry, I am not surprised, said Al de Molina, chief executive of GMAC Financial Services, the parent of Ally.

Insurance giant American International Group Inc , which has borrowed about $85 billion in federal funds, has also been criticized by competitors. Other insurers say AIG has been able to charge lower rates after getting government help. Government watchdogs say the allegation is not supported by firm evidence.

GMAC's conversion to a bank holding company in December was a central part of the Detroit-based company's survival plan, and allowed it to get access to new government funding.

GMAC has received $12.5 billion in government infusions since December, including $7.5 billion last month. GMAC was among the 19 big U.S. banks subjected to government stress tests and was found to have by far the biggest capital shortfall relative to its size.

The lender suffered mounting losses in the past year after the housing bubble burst and consumers increasingly defaulted on their loans. The company is the preferred lender to buyers of vehicles from General Motors Corp and Chrysler, which are both in bankruptcy.

GM and private equity firm Cerberus Capital Management LP have stakes in GMAC, and the U.S. Treasury Department will get a 35.4 percent equity stake in it.

Ally is not a member of the American Bankers Association, which represents more than 95 percent of U.S. bank industry assets.

(Reporting by Karey Wutkowski; editing by John Wallace)