No Fees Should Be the Norm

The COVID-19 pandemic gave many credit union executives time to pause and look at the overall financial health and needs of members, while adjusting the strategic positioning of the credit union.

According to the report "Updating Overdraft Protection to Meet Member Needs," published in August by the Madison, Wis.-based Filene Research Institute, since the advent of overdraft protections (ODPs) and NSF fees, banking has shifted from a primarily paper check system to a nearly all-digital one. The digital banking of today has given members better abilities to keep an up-to-the minute track of what's in their accounts. According to Filene's report, it has also benefited credit unions.

"From the operational side, the cost of processing NSF transactions and carrying negative balances for members have also gone down over the years as automation has provided greater efficiencies," the report stated.

With digital efficiencies being experienced by both credit unions and members today, research has shown that overdraft and NSF fees, to a wide degree, disproportionately impact Black and Hispanic consumers.

"Credit unions, with their reputation for serving consumers of modest means, may be unwittingly compounding the financial struggles of already vulnerable members via their ODP programs," according to Filene's research.

The disparity Filene's report referred to was reflected in the data of a number of credit unions around the country that charged overdraft and NSF fees. In 2020, and especially in 2021, more than 25 credit unions made the decision to drop or reduce those fees after realizing they were placing more financial burdens on members who were already struggling financially.

In August 2021, the Chicago-based Alliant Credit Union ($16.4 billion in assets, 694,474 members) announced it would no longer charge members for overdraft or NSF fees on all of its checking and savings accounts.

"Alliant has never relied on fees, unlike some other banks and financial institutions. Today, we go all-in for our members and eliminate overdraft fees all together," President/CEO Dennis Devine said at the time. "Our biggest priority is doing what's in the best interest of our members, and that means challenging historic norms like overdraft and non-sufficient funds fees."

In a statement to CU Times, Alliant said the change was "the latest in a long string of member-first initiatives by Alliant, putting the challenger bank in stark contrast with many profit-driven financial institutions that, over the past decade, have collected more in fees than they have paid out in interest."

Sumeet Grover

More than a year after the announcement, Alliant Chief Digital and Marketing Officer Sumeet Grover reflected on the way the fee eliminations have worked for members and the credit union.

"When we made this decision, it was as member-centric as could be," Grover said. "And now that we look back, over 30,000 Alliant members have financially benefited. So we are just so very proud of what we were able to pass back. We pride ourselves that Alliant is being savvy, selfless and socially responsible – this fits with our value system. So over 30,000 members have financially benefited by not being charged an overdraft fee, which could be $28 or an NSF fee of $25. So huge financial benefits have been passed through."

Grover said while revenue has been impacted, there is a bigger advantage for the credit union at play.

"The elimination of fees impacts Alliant's revenue. However, the advantage of being a credit union is we are here to serve our members, not shareholders. We've never been dependent on fees and we've always been focused on maximizing that financial benefit to our members. So not having that non-sufficient fund fee, overdraft fee and account maintenance fee with that checking account, it's a benefit we can provide to the members that is completely aligned with our member-first vision," he said.

Grover added, "There is an impact [to revenue], but it aligns with our mission. It aligns with how we plan and it works out really well."

Other notable fee announcements by credit unions in 2021 included:

• The $952 million, Pembroke Pines, Fla.-based Power Financial Credit Union eliminated all overdraft and non-sufficient funds fees for members with personal or business accounts.
• The $1.4 billion, Oklahoma City-based WEOKIE Federal Credit Union reduced its fees from $27.50 per occurrence to $15 per occurrence.
• The $4.9 billion, Madison, Wis.-based UW Credit Union reduced its overdraft and NSFs from $30 per occurrence to $5.
• The $137 million, Des Moines, Iowa-based Affinity Credit Union reduced ATM and debit card overdraft fees from $25 to $15.

In Austin, Texas, the $1.4 billion Amplify Credit Union (57,079 members) eliminated all fees on all deposit accounts in early 2022 after more than a year researching and strategically planning with executives.

Stacy Armijo

Amplify Chief Experience Officer Stacy Armijo recalled a meeting about fees in 2019 when CEO Kendall Garrison asked, "What if we just got rid of them?"

According to Armijo, the executives took their time and did not rush the announcement to the marketplace because they wanted to feel confident that the rollout to members would be smooth from a technical perspective, knowing they would not see a big influx of new accounts at the beginning.

Armijo said, "We want to get more interest in our credit union generally with respect to [offering] fee-free banking. We want more debit card swipes. So for those people that we attract to our credit union, we want them to open a checking account and activate a debit card because the way we are offsetting the lost fee income is through an improved cost of funds by having more core deposits and through increased interchanging costs. So between those two factors, we think we will actually come out net positive from a financial performance point of view."

According to Armijo, some people warned that dropping fees would result in a lot of low-balance accounts at Amplify. Those warnings were wrong.

"So the accounts that we're attracting have been between three and four times the minimum balances that we have in our projections," Armijo said. "What we're seeing is that everybody wants to avoid fees, but the people who are actually personally financially impacted by fees are the ones who pay them in your institution."

For Armijo and Grover, dropping or eliminating fees isn't about a credit union revenue stream – it's a socially conscious strategy.

"That's kind of how we want to focus on being socially responsible, helping our members during these inflationary pressure times, but in general, just focusing on providing the best possible returns," Grover said.

"We are bullish on the future of credit unions and also we believe credit unions have to be willing to do things differently if we want to earn our market share in the future," Armijo said. "We have to look at our business models and make sure that they reflect the way consumers want to bank."

Armijo said she views the no-fee-banking strategy as a short-term marketing advantage for Amplify in the Austin marketplace, because she hopes credit unions will adopt a no-fee approach industry wide.

"We hope that this is a market advantage for us, but we know that has an expiration date on it," she said. "We only want this to be an advantage for us for a little while. We want this to become the new normal."

She continued, "We have to be willing to place some bets on what we think we can be really good at and be willing to not bet on things that we can really be just OK at, so that we have enough resources to really be able to make the bets that we place to win. And I feel really strongly that credit unions are an excellent match for the value-driven nature of Gen Z in particular. And so if we can make our delivery match our intention, I think we could own that generation if we want."