Ethical Banking For Students
By Reese Lopez
Published on July 16, 2021
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Students to Improve Banking Practices
The pandemic has highlighted existing inequalities in the U.S. and abroad. Billionaires boosted their fortunes while lower-income Americans suffered huge losses. This contrast has renewed the country's focus on social and economic inequality. Many consumers respond to this inequality by voting with their dollar. A study by the Association of Accounting Technicians found that ethical behavior influences 70% of consumer purchasing decisions.
Banks and other financial institutions play a major role in the economy. Through these institutions, students can exercise their values and make their consumer voices heard. By avoiding large corporate banks and choosing smaller local credit unions, students can support financial organizations that benefit communities, rather than wealthy shareholders.
This page offers an overview of ethical banking for students. Read on for information about moral banking, credit unions, and organizations working to improve banking practices.
Banks profit by charging interest and fees on financial services. A major portion of banking profits comes from loan interest. Banks pay customers interest on their account holdings, but they charge higher interest rates on the money they lend out. This enables banks to make money. If you maintain a savings account with a bank, your money constitutes a tiny piece of its overall financial holdings.
Loans help borrowers afford expensive necessities like homes and cars. However, many of the country's largest banks and financial institutions have been found guilty of unethical and predatory lending practices.
In 2012, the Department of Justice reached a $175 million settlement with Wells Fargo due to the bank's unfair lending practices toward Black and Latino/a borrowers. Banks have also misused service fees and other routine charges. In 2021, Bank of America settled a $75 million lawsuit that centered on its illegal overdraft fees.
Local Credit Unions
Credit unions work similarly to banks, offering banking, loans, and other financial services to members. However, members own their credit union. Banks operate as for-profit businesses, while credit unions operate as nonprofit entities. As a result, credit unions typically offer lower interest rates and reduced service fees compared to major banks. Credit unions provide ethical banking for students, enabling members to keep their money local and avoid giant corporate banks.
All credit unions maintain membership criteria. Most serve residents of a specific geographic area. Some credit unions may also serve employees of certain businesses or professions, such as teachers. Credit unions typically make exceptions for current members' other family members.
Credit unions enable students to keep their money in the community. They also offer more personalized service. However, their smaller size means credit unions may lack some of the services of larger banks. They also maintain fewer locations compared to large national banks.
Ethical Banking Certifications
Global Alliance for Banking on Values
The Global Alliance for Banking on Values (GABV) works to improve the banking system and increase economic and social stability worldwide. The GABV emphasizes banking transparency and progressive social values. The group includes 65 financial institutions worldwide. GABV members in the United States include Amalgamated Bank, Sunrise Banks, and the Vermont State Employees Credit Union.
GABV members must maintain a balance sheet of at least $50 million. They must also perform traditional financial services. These services include making loans, taking deposits, and processing cash payments. Member organizations must fulfill five primary criteria: financial regulation, core business values, independent stable governance, leadership commitment, and financial model sustainability.
GABV members generally maintain a progressive approach to banking policy. Member organizations may offer banking services to workers, community groups, and lower-income clients. In general, GABV membership indicates that an organization offers ethical banking for students.
B Corps
Global nonprofit organization B Lab administers B corp certification. This certification indicates that a company creates positive outcomes for its workers and customers, the community, and the environment. B corp certification offers no legal status or benefits. Instead, it serves as a statement of values.
Businesses that receive B corp certification typically prioritize social and environmental concerns. All kinds of businesses obtain B corp certification, including finance, consumer goods, and healthcare.
To qualify for B corp certification, a company must undergo B Lab's extensive assessment process. The certification assessment evaluates a company's governance and positive impact on its workers, communities, and the environment. Applicants must also meet legal requirements. Only around 1 in 3 companies that apply qualify for certification.
From a consumer perspective, B corp certification offers a high level of transparency and consumer trust. While these companies still subscribe to a profit-based model, B corp certification indicates a deep level of engagement with both worker equity and social concerns.
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