The Roanoke-based credit union Freedom First has become the latest financial institution to stop offering no-strings-attached free checking accounts.
The credit union switched about 20,000 of its more than 60,000 members from its basic “Freedom Checking” accounts to its new “Freedom Perks” accounts on May 1. The new accounts carry benefits such as credit monitoring and roadside assistance but, starting June 1, will charge a $7 monthly fee unless a customer maintains a $2,500 average daily account balance or is under age 21.
As Freedom First and other financial institutions have enacted such requirements, they have raised concern among some who argue that people with low incomes struggle to meet the requirements or pay the fees.
“A lot of people say it’s very expensive to be poor. This is just another example of that,” said Jay Speer, executive director of the Richmond-based Virginia Poverty Law Center.
Freedom First spokesperson Jaime Clark said that the credit union anticipates that even customers who are charged the fee will ultimately save more money from the perks, which include special deals from local businesses, a cellphone protection plan, fuel savings and more.
“From some of the feedback that we’ve heard, I think a lot of members are touching base with us to have a conversation to find out more,” Clark said of members’ response to the account changes.
She acknowledged that “certainly some people are potentially not happy and could be interested in looking at other options.”
New requirements
A Freedom Perks account’s average daily balance requirement means that a member could have a balance below $2,500 some days as long as it was sufficiently above $2,500 on other days to maintain the average.
The new Freedom Perks account joins the credit union’s two other checking options, each of which doesn’t require a minimum balance but charges a $9 monthly fee unless a member has at least $1,000 in direct deposits each month. Those accounts offer benefits such as cash back or higher interest rates.
“Our goal is to provide our members with an account that makes the most sense to them,” Clark said.
Clark said she could not provide a number of Freedom Perks account holders who likely will have to pay the new $7 fee, noting that it can fluctuate based on whether a customer maintains the required balance.
Freedom First operates 13 branch locations in the Roanoke, New River Valley and Lynchburg regions. Among Roanoke-based credit unions, Freedom First’s total deposits of approximately $1 billion rank it below Member One — which in January announced plans to merge with the larger Richmond-based Virginia Credit Union — but above Roanoke Valley Community and Blue Eagle, according to data from the National Credit Union Administration.
When banks are included, that deposit figure is surpassed by Truist Bank and Wells Fargo, whose deposits total $2.8 billion and $1.8 billion, respectively, just within the Roanoke metropolitan statistical area, according to the Federal Deposit Insurance Corp.
Credit unions are nonprofit entities owned by their members, while banks are for-profit businesses owned by public or private shareholders.
Data about the size of larger credit unions, such as Navy Federal, within the Roanoke metro area was not available from the NCUA.
Freedom First is not alone in requiring account holders to maintain minimum account balances or meet a direct-deposit threshold to avoid fees.
Bank of America’s most basic checking account requires customers ages 25 and older to keep a $500 minimum daily balance or pay a $4.95 monthly fee. For its basic checking account, Wells Fargo charges a $10 monthly fee to customers 25 and older unless the customer maintains at least a $500 balance or has $500 in qualifying deposits; it offers exceptions for college students and the military.
But not every retail financial institution has eliminated no-strings-attached free checking.
For example, the Roanoke Valley Community Credit Union and the Lynchburg-based Central Virginia Federal Credit Union offer free checking accounts without minimum balance requirements or monthly fees. So do online banks such as Varo, which has no physical bank branches but offers withdrawals through participating ATMs.
Greg McBride, chief financial analyst for the personal finance website Bankrate.com, said it’s common for banks to institute such requirements for checking accounts but less typical for credit unions to do so.
Nonetheless, McBride said, “credit unions have costs, too.”
“That’s how they’re able to provide the products and services to the members that they do,” he said.
The impact of account fees
The presence of a minimum account fee was the most common reason given in a 2021 FDIC survey asking “unbanked” households why they had no bank account. About 2% of Virginians are unbanked, according to that study.
A separate 2021 report from the Federal Reserve said 5% of all Americans were unbanked while another 13% were “underbanked.” The latter term means a person has a bank account but also uses alternatives such as check-cashing services or payday loans.
Speer, of the Virginia Poverty Law Center, said that financial institutions adopting minimum account fees likely leads more people to use such alternative services, which carry their own fees.
Speer said many people likely would be unable to maintain the $2,500 average daily balance required by Freedom Perks.
As evidence, he pointed to the prevalence of “earned wage access” services — sometimes called “instant pay” or “on-demand pay” — where a person can access their wages before the pay is actually deposited in their account.
“There are very few people that could keep that amount of money in their bank account,” Speer said of the $2,500 average daily balance requirement. “Very few.”
Speer said that generally, credit unions can be beneficial to communities. For example, he said, credit unions often can offer their members vehicle loans at lower interest rates than could be found elsewhere and can advise members on whether a vehicle’s listed price is fair.
But when it comes to minimum account balance requirements, he said, “Sometimes I wonder why we even have credit unions. They’re supposed to be nonprofits serving the community and then they go and do stuff like this.”
McBride, of Bankrate.com, said that he doesn’t think account requirements pushing customers away is a large-scale issue because most will be able to meet the requirements to avoid the monthly fee.
“Some of these waivers, they are fairly low hurdles for a lot of consumers to clear,” he said.
And if a customer doesn’t like an account’s requirements, the customer can explore other options from the same financial institution or look elsewhere.
“There are plenty of options out there for a no-strings-attached, completely free account, or one that can become free with a pretty low hurdle,” McBride said.
Blacksburg resident and U.S. Navy veteran Michael Hudson said he has been a Freedom First member for nearly 30 years. With the change to his free checking account, he has begun exploring other banking options.
Hudson’s income comes from Social Security and disability. He said the Freedom Perks required minimum balance could imperil his eligibility for assistance programs, such as Medicaid, that cap how much money a person is allowed to have on hand.
Hudson said he first heard about the May 1 account change in mid-April, when he received a letter, dated April 1, that the credit union sent to its members.
“There was no democratic involvement in the process to either introduce this as an idea or to implement it,” Hudson said. “I’m disgusted with it, really. It’s a betrayal.”
Hudson noted that Freedom First has spent money on expansions and renovations, such as at its South Main Street branch in Blacksburg.
“If that’s where our money is going instead of serving customers trying to make it on the margins, then they’re missing the point of being a credit union,” he said.
But serving unbanked and underbanked residents is a specific goal of at least one Freedom First branch — the credit union opened its West End Roanoke location in 2014 as part of a larger revitalization project and with a stated goal of serving “people of modest means,” according to a news release at the time.
Today, Clark said, that branch “provides us with the opportunity to educate and empower people within the community” while offering programs focusing on second-chance loans, affordable housing, and a small loan program that serves as an alternative to payday loans.
“Prior to our branch opening, this area was classified as a banking desert making it difficult for many members in the community to have easy, regular access to a financial institution,” Clark said.
Clark noted that Freedom First is a local, not-for-profit credit union competing against large banks, many of which have out-of-state ownership.
Policies such as those that come with the new Freedom Perks accounts are necessary to support a local credit union, she said.
“We really are coming from the standpoint that we really think it’s essential to have strong, locally chartered financial institutions in Roanoke and Southwest Virginia,” Clark said.