Banking Fees for Workers, Deals for Bosses
Posted October 13, 2018 12:05 p.m. EDT
Updated October 13, 2018 12:13 p.m. EDT
Working as a dishwasher at the Philadelphia Marriott Downtown, Amos Troyah made about $30,000 in a recent 12-month period. Roughly $2,000 of it was spent on an especially frequent expense: fees on his checking and savings accounts at the Marriott Employees’ Federal Credit Union.
The fees came in increments like $6 and $10 — minimum-balance fees, excess-transaction fees, automatic money-transfer fees. On occasion, they were joined by that pooh-bah of personal finance charges, the overdraft fee, at a hefty $35.
Thousands of Marriott workers around the country are on strike, complaining that stagnant wages and unsteady hours have made it difficult to stay afloat. At a time when they are under particular pressure, the credit union may be adding to their struggles. Other employees said Troyah’s experience with fees was common.
For more affluent Marriott employees, on the other hand, credit union membership can be a very good deal. Typical interest rates on car loans and mortgages obtained through the credit union are below the national average, according to financial filings. And better-paid employees less frequently need services that incur high fees, like overdraft protection.
What’s more, while the credit union is officially independent from Marriott, the board that oversees it consists primarily of Marriott managers who may not always be sensitive to the inequities these policies impose.
The Marriott workers’ experience is a stark example of trends that are increasingly bearing down on the nearly 100 million people nationwide who have credit union accounts.
Credit unions — not-for-profit institutions that are owned by their depositors and receive a federal tax subsidy — were long considered a way to democratize banking. They were meant to serve workers who lacked access to the same financial services as middle managers or executives. Many early credit unions were managed by workers from small offices off factory floors. With the money made on loans, often to better-paid workers, they could offer checking and savings accounts at little or no cost.
This philosophy largely persisted into the 1990s, even as credit unions grew larger and hired professional managers. “You had this relationship with people you were serving that you never lost track of,” said Randy Chambers, the president of Self-Help Credit Union in North Carolina, which has merged with a handful of smaller credit unions across the state.
Some credit unions still see their mission in such terms. But in recent decades, many have subtly shifted their approach. As falling interest rates made loans less lucrative, credit unions largely turned to fees to help replace the lost income. Over the past quarter-century, the average value of the fees collected for every dollar of interest income has risen to nearly 17 cents, from just under 7 cents.
For credit unions harder pressed to fund their operations, that figure can get much higher. The GE Credit Union of Connecticut makes 34 cents in fees for every dollar of interest on loans, according to last year’s regulatory filings. The Montgomery County Employees Federal Credit Union in Maryland makes 44 cents.
But even against this backdrop, Marriott is an outlier. It takes in 52 cents in fees for every dollar of interest income.
As a result, some Marriott workers find themselves in a kind of financial double jeopardy: Low pay from Marriott keeps their account balances minimal, and those modest balances lead to more fees, crimping their assets further.
“The money gets into my account, and they take it out when I overdraft,” Troyah said. “They are robbing me.”
‘You Ought to Pay’
On its own, raising more income through fees is defensible. For example, in a given month, only a minority of accounts typically go into the red. Not charging overdraft fees or minimum-balance fees is, in effect, a decision to ask other members to subsidize that minority.
“People came around to the idea of it not being all that fair to do it that way,” said Mike Schenk, chief economist at the Credit Union National Association, an industry trade group. “That you ought to pay for the services you use.”
But the effect in many cases is that the people least able to bear the costs of operating a credit union are gradually paying more of them.
Overdraft fees in particular have provoked controversy within the credit union world. “We have a hard time taking seriously any depository institution claim to trying to serve the underserved, making credit available to financially distressed people and charging those same people $30 to $35 for overdraft,” said Rebecca Borné, senior policy counsel for the Center for Responsible Lending, which is affiliated with the Self-Help Credit Union.
The Marriott credit union, whose membership of about 32,000 includes housekeepers, dishwashers and cooks, would seem to fill that bill. While fees can be an issue for any credit union with financially strapped members, Marriott’s are unusually high: more than 1.7 percent of the credit union’s assets. That is three times the percentage generated by fees at credit unions serving workers at Safeway, Publix and Nordstrom — broadly similar service-sector employers.
Glenn Newton, the credit union’s chief executive, said that looking at such measures can be misleading because the modest wealth of his members leads to low average deposits. That leaves the credit union with less money for generating income. In effect, he said, the credit union must pay the same costs per member as other credit unions but has fewer ways to offset those costs. He urged adjusting the analysis to account for the small deposits — say, by considering how much greater its assets would be if its average deposit was more typical of the industry. That would bring the fee ratio in line with other service-sector credit unions.
As a practical matter, however, the fees that an average Marriott credit union member pays across all services — $94 last year — are far higher than at these other institutions, and higher than at credit unions of a similar size.
Fewer Hours, More Temps
Jose Ramirez Paredes makes just over $13 an hour cleaning banquet rooms and other public areas at the Baltimore Marriott Waterfront. Ramirez Paredes said through an interpreter that he helped support his stepson, as well as a daughter and two grandchildren living nearby. He sells Amway products on the side to cover his expenses, which include a mortgage and a car payment that together cost him about $1,000 per month.
But even so, he often falls short. The August statement for Ramirez Paredes’s credit union account shows more than $800 in overdraft fees so far this year. Newton said that overdraft fees had declined by nearly 10 percent between 2013 and last year, and that he believed such cases were unusual.
Workers like Ramirez Paredes and Troyah say their financial problems are heightened by Marriott’s decision to rely more on temps and less on full-time employees, who have seen their hours cut back and their annual earnings fall. According to Rachel Gumpert, a spokeswoman for UNITE HERE, the union that represents the company’s striking workers, a central issue in the dispute is that workers are having to hold down multiple jobs to support themselves because they aren’t receiving enough hours at the hotel chain. Ramirez Paredes says that even though he is considered a full-time employee, he is frequently assigned to work only three or four days per week, sometimes as little as one day. (If his hours in a six-month period fall too much, he will lose his full-time status.) Troyah’s W-2 forms show that his income declined from about $34,000 in 2016 to about $28,000 in 2017 because, he says, Marriott cut his hours.
Both men said that they had asked their managers why they didn’t receive more hours and that the managers had told them business was slow. But that claim was at odds with the presence of workers dispatched from staffing firms. Marriott declined to comment.
The Math of the Mini-Loan
Lekesha Wheelings, who has worked as a line cook at the Philadelphia Marriott Downtown for the past 12 years, says that she makes just over $19 an hour but that she, too, is sometimes sent home early and ends up with fewer than 40 hours per week.
Wheelings, who lives with her eldest daughter and supports twin 17-year-old children, said she made nearly $45,000 in 2016 but only about $39,500 last year because she worked less.
To cope with the strain in her personal finances, Wheelings has at times resorted to what is known as a mini-loan from the credit union, a six-month loan of up to $500 with an 18 percent interest rate — generally the legal limit for federal credit unions — and a $35 application fee. Including the fee, the effective annual interest rate on such a loan is about 40 to 50 percent. Some consumer-finance experts say banks and credit unions should be allowed to expand higher-interest lending so they will have an incentive to serve members who are high credit risks. “On a $500 six-month loan, even if underwriting and origination are very, very simple, that’s not profitable,” said Alex Horowitz of the Pew Charitable Trusts, of the 40 to 50 percent annualized rate. The alternative for many borrowers would be payday loans, which commonly charge annualized rates over 300 percent.
But even more reasonably priced short-term loans can hurt those with the most precarious finances, making them more likely to run up fees on the checking side. “If someone can’t afford more debt, the expectation is that it would increase their overall financial burden and lead to more overdraft fees,” Borné said of the mini-loans.
During the months in which she was repaying a mini-loan beginning in late 2014, the Marriott credit union deducted at least $450 in overdraft fees from Wheelings’s checking account, according to her statements. The loan repayment left less money for such expenses as an $8.47 Netflix subscription and a $17 membership in a legal assistance service, but the overdraft protection allowed them to glide through each month, at a steep markup.
Wheelings says she plans to keep using the credit union but would like to pay fewer fees. Ramirez Paredes, alarmed by the fees, says he plans to close his account.
Big Mortgages for Some
By contrast, more affluent workers, including some executives at Marriott, appear to benefit at little cost from the credit union, securing favorable interest rates on car loans and mortgages while largely avoiding heavy fees.
Public records show that several current and former executives have obtained large mortgages from the credit union. They include Don Cleary, the Canada president for Marriott International, who received a $1 million mortgage in December 2016; William McGowan, a longtime design and project manager ($875,000 in December 2014); Michael Rhoads, senior director of international accounting ($825,000 in November 2016); and Norman Jenkins, a former senior vice president ($765,000 in February 2017).
The most common rate that the Marriott credit union reported for mortgages in the fourth quarter of last year was 3.38 percent, below the market average at the time, according to data collected by the Federal Reserve Bank of St. Louis.
Rank-and-file workers often can’t obtain loans with such low rates, however, widening the disparities. In contrast to the car loans below 2.5 percent that the Marriott credit union currently advertises for those with sterling credit, workers with only fair credit — a FICO score in the low 600s — can pay more than 8 percent. Those with poor credit can pay more than 12 percent if they can get a loan at all. And the credit union approves few mortgages, period. “The proper comparison isn’t whether or not an hourly associate has access to the same loans or interest rates as a company executive,” said Newton, the chief executive. “Rather, it’s whether the credit union offers value to the members, based on their individual credit profile, versus what they could have received at other financial institutions.”
Newton said the loans the credit union does offer to low-paid workers, like the mini-loan, are a more affordable option than products they could obtain elsewhere, such as payday loans.
Credit unions are legally separate from the companies whose employees they serve. But there is often significant overlap between managers of the two organizations.
At the Marriott credit union, five board members are Marriott employees with “vice president” in their title; three are employees with “director” in their title. The only “on property” employee on the board is the general manager of the Bethesda Suites Marriott in Maryland.
While any member can run for a seat on a credit union’s board, many boards are stacked with company executives and those with financial expertise to oversee their increasingly sophisticated operations.
Some credit unions take steps to make sure they remain sensitive to the needs of members. The State Employees’ Credit Union in North Carolina maintains a local advisory council composed of workers at each of its more than 250 branches, in addition to its board. The local bodies meet with managers four times a year and are apt to give them an earful if they encounter fees or lending policies that workers regard as unfair. That approach is relatively uncommon in the industry, although Newton said the Marriott credit union had periodically sought feedback from members in surveys.
“Members should elect the board to look after their own interests, and one of those should be balancing who pays for what,” said Jim Blaine, who ran the State Employees’ Credit Union for decades before retiring in 2016. But in practice, he added, “you can have a board of senior managers who truly don’t understand that 75 percent of people live paycheck to paycheck.”