Junk Fees are making the headlines. Many of these “junk fees” are designed to punish a member for bad behavior. Is this what the mission, “People helping People,” means? Using fees to punish members who have made mistakes, are financially stressed, or are struggling doesn’t fit this mission. This article will clarify what they are and how to avoid them.
Let’s define what “junk fees” refer to. Junk fees are commonly used to describe various hidden or unnecessary fees charged to consumers by financial institutions, such as banks or credit unions. These fees are often considered excessive or unjustified. They can add up over time, negatively impacting a consumer’s finances, doubling down on their monetary struggles, and adding to their financial anxiety and stress. Junk fees include various services, transactions, or account maintenance charges, often not adequately explained to customers upfront. The excuse, “The fee was disclosed on our website,” angers the consumer and never avoids the conflict.
Credit unions are owned by their members and aim to provide more consumer-friendly services and lower fees than traditional banks. However, to avoid falling into the trap of charging junk fees, credit unions can take several steps:
- Transparent Fee Disclosures – Credit unions should ensure that all fees associated with their services are disclosed to members. Most credit unions have their “fee schedule” on their website; some have it in their new member packets, but is that enough to be transparent? Ture transparency is designed to help members understand what they might be charged for and allows them to make informed decisions. This disclosure must be at the point of sale and an integral part of the products and services pages, not just in a published fee schedule. For example, as part of the credit union’s checking products tab, there should be a link to “fees associated with our checking accounts.”
- Simplified Fee Structure – A simple fee structure can reduce confusion for members. Avoiding unnecessary or consolidating fees can make it easier for members to understand their charges. Also, consider disclosing fees when a product is agreed on, not just buried in a fee schedule somewhere on the website.
- Regular Fee Reviews – Most credit unions periodically review their fee structure. This exercise should assess whether the fees are competitive and can be eliminated, reduced, or better justified, but also identify how this fee fits within the credit union’s mission and values. Is the fee serving the membership, not the income statement, and are members being unfairly or unnecessarily penalized? This can help prevent fees from becoming outdated, unjustified, or being considered a “junk fee.” It is no secret that “junk fees” penalize the marginalized and low-income members inequitably.
- Educational Resources – Providing educational resources to members about fees, how they work, and how to avoid them can empower members to manage their finances more effectively and understand when they might incur certain charges. This work can be proactive. Using data analytics and even AI, a credit union can quickly identify which member is financially harmed by the credit union’s fees. Once identified, the credit union can contact the members to offer strategies and tactics to minimize or eliminate these fees. These conversations can often turn into discussions on how the credit union can help this member manage their finances better.
- Waiving Fees – Credit unions might waive certain fees for specific groups, such as students, seniors, or members with certain account balances. This demonstrates a commitment to member well-being. A tactic the credit union might consider is waiving fees for members who sit down with a credit union professional to build a plan to attack their financial challenges.
- Member Feedback and Communication – Actively seeking member feedback and addressing fee concerns can show that the credit union values its members’ opinions. Communication channels should be open so members can inquire about fees and receive clear explanations. Fee complaints are fielded by call center and branch staff, but there is rarely a process to escalate these fee concerns to the decision-makers. A way to capture and segment these fee conversations by fee type and member segments will allow the credit union to be more proactive in making fee decisions that serve the member. This information would be invaluable as the leadership team is making fee decisions.
- Offer Fee-Free Services – To attract and retain members, credit unions can offer fee-free or low-fee services, such as free checking accounts, free ATMs, and low-cost wire transfers. I have observed situations where a member is charged for fees because they are in the wrong product. An example is a member who gets hit with consistent fees for too many withdrawals may benefit by moving their money to another savings product. Most credit unions have various checking accounts with different fee structures. It would be beneficial to ensure the member is counseled to move their balances to an account where the fee structure better fits how they use and access the product.
- Competitive Pricing – By regularly comparing their fees to those of other financial institutions, credit unions can ensure that their fee structure remains competitive and fair. But keep in mind the differences in the business models of different financial institutions. Some organizations are “fee-centric” and rely heavily on generating fees to drive their income statement. Other financial institutions are “fee-averse” and philosophically look at fees differently. The credit union must ensure they choose the competition based on philosophic and business model similarities.
- Digital Banking and Self-Service Options – Providing members with easy-to-use digital banking tools and self-service options can reduce the need for certain in-person transactions that might incur fees. Suppose a credit union uses data or AI to identify struggling members; a credit union professional can coach them on how to sign up and use self-service options, thereby saving them money.
- Community-Focused Approach – Credit unions often have a strong community focus. Prioritizing the financial well-being of their members over excessive fees can help build trust and loyalty within the community. A credit union should use social media and its website to actively publish how much money its members have saved in fees by using the credit union’s products and services – this could be seen as a differentiator.
Ultimately, the key to avoiding junk fees is putting the best interests of the credit union’s members first, making fee decisions based on your mission and values, proactively helping members avoid fees, and maintaining a commitment to transparency, fairness, and communication.