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Seeing Overdraft Fees through an Equity Lens

Acts of Bravery Campaign for Be Brave Month

By Paul Kundert, UW Credit Union President/CEO

Checking account overdraft fees, estimated in the billions each year, lately are getting renewed scrutiny. Our Wisconsin based financial institution provides checking services to more than 230,000 people, placing us in the top 1% of credit unions in the U.S. This volume of transaction services could produce significant levels of overdraft income, but we took steps more than ten years ago to drastically curtail it. The reason overdraft fees can add up quickly is because of the way financial institutions structure their processes, so we made some important changes. This can get technical, but please stay with me as I mention a few basics before getting to the important point.

We set our systems not to charge a fee if the account is overdrawn by only a small amount (up to $10). Then we set a limit of one fee per day, if four checks bounce in a single day, we would charge only one fee, not four. Then we arranged our practices so there are no overdrafts or fees resulting from debit card swipe transactions. Finally, we do not stack fees and do not add any additional fee for an account being in a negative status. The result? Our fee income per checking account is multiples less than the industry benchmarks.

We have tremendous satisfaction knowing that we are doing the right thing, but I’ll admit that over the years I have been puzzled by the fact that few other financial institutions in our markets felt enough competitive pressure to follow our approach. The banking business is usually highly competitive in most every way, with each financial institution hustling to win consumer approval through perks, special services, rates, and catchy advertisements.

I think there is an explanation for this puzzle, and it rests in the reality that the most economically disadvantaged people in our communities, often people of color, may not have the spare time to shop around for alternatives, nor the clout to move the financial industry. As a result, there are no market forces driving institutions to improve their practices and fees. I’ve never experienced poverty, but time spent volunteering has given me an opportunity to understand something about it. Being poor is demanding and exhausting. Scholar Eldar Shafir described it with the analogy that the wealthy have a "big suitcase" which allows them to pack casually, without a lot of thought. The poor, however, have a "small suitcase" which must be packed intently and with great care. The packer of a small suitcase must carefully consider the size of each new item and what will need to be removed each time they want to put something else in. This is a great example of what it means to look at an issue through an equity lens. If the fees are too much, some may ask, why don’t people take the time to search for a better deal? That is big suitcase thinking, not small suitcase thinking.

So, how does this change? Allyship. A simple inquiry at your financial institution about overdraft fee practices and how those practices impact low-income consumers in your community will send a message. And, with enough of those inquiries, that message will reach the corner office.

As you consider what you can do as an ally for economically disadvantaged individuals in your community, we’ll also continue to put some more pressure on, too. We’ve taken an additional step this month to cut our remaining overdraft fee by more than 80% to $5.

Let’s make change happen.

Paul Kundert

Based in Madison, Wisconsin UW Credit Union is among Wisconsin’s top financial institutions and the state’s leading residential mortgage lender by loan volume.