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Can I Trust Banks with My Money?

“If you’re not paying for the product, you are the product.” – Today’s guest, Vrinda Gupta

The banking industry has come under intense scrutiny in recent years and for good reasons. Banks are a tool, but like any financial tool, if you don’t know how to use them and ask the right questions, this same tool that can be so helpful in your financial journey can be just as harmful.

Today, we welcome back Vrinda Gupta, owner and founder of Sequin –– banking for women, by women –– to talk about all the ways that banks make money off a lack of financial literacy and targeting already vulnerable communities. In the episode, we dive into banking fees, loan processes, systemic factors, and the question on everyone’s mind –– can I trust my bank?

Vrinda shares:

• How banks actually make money (it’s not JUST fees)

• The best questions to ask when opening a new bank account

• Why women and minorities end up paying more in fees than their white male counterparts

Resources:

What Credit Companies Don’t Want You to Know

Sequin

Vrinda’s Instagram

Bonus Ep: Are Banks Unsafe?

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Transcript:

Vrinda Gupta:

If you are not paying for a product, you are the product. And that is very much the mindset of banks. It is all these fees where they say, “Okay, here’s a free checking account,” but then there are all of these gotchas that you need to know about. It does disproportionately affect women and minorities.

Tori Dunlap:

Hello, Financial Feminists. Welcome back to the show. I am so excited to see you. If you are an oldie but a goodie, welcome back. If you are new to the show, hi, my name is Tori. I am a money expert, a Financial Feminist, of course, a New York Times bestselling author, and also the host of this show, which is the number one money podcast for women in the world. If you like it here, if you want to hang out some more, hit subscribe. If you are that person who listens to one episode of a podcast and you’re like, “That’s great,” but you don’t subscribe, if you subscribe to shows, I can’t tell you how much that supports whoever’s creating the show. So literally just hitting a button is the easiest thing you can do to support our show and make sure it keeps running, so thank you.

Okay. The cool thing about doing this show weekly now for over a year is that sometimes we get to bring back some great guests. And if you’ve been with us for some time or you’re one of those that’s gone back and maybe perused the catalog, today’s guest will be no stranger to you. Vrinda Gupta is the CEO and co-founder of Sequin Banking, banking designed by women for women. She’s a globally recognized credit expert who helped launch the popular Chase Sapphire Reserve credit card at Visa, Inc … I have one of those cards … and received her MBA from Berkeley Haas. Vrinda lives in San Francisco, California and is a proud first generation Indian immigrant. We brought Vrinda back because her first episode on credit cards is still one of our highest rated and top performing. Y’all loved that episode about all of the behind the scenes stuff with credit cards, and we were so excited when she pitched us to come back and talk more broadly about the banking industry.

Why? Well, women and minorities are disproportionately paying avoidable banking fees 18% more than men. That’s equal to over $214 per year in avoidable overdraft, monthly minimum, and late fees.` So we sat down to talk with Vrinda about all the ways banks make money and how they often take advantage of a lack of education to keep you in the dark about fees and charges you might not need to pay. We also talked more about how banks loan money, what questions to ask when opening a new account, if banks are even safe anymore and so much more. So, let’s go ahead and get into it.

But first a word from our sponsors.

I am so excited to have you back. You are our second ever returning guest.

Vrinda Gupta:

Oh my gosh.

Tori Dunlap:

I was telling you before this about how a bunch of people loved your episode. We talked all about the things credit card companies don’t want you to know, how to boost your credit score … We’ll link the first episode down below. But since the last time you were here with us, can you give us an update on your company Sequin and also the most surprising thing that you’ve learned about getting your company off the ground and growing it?

Vrinda Gupta:

Yeah, for sure. And again, thanks so much for having me. I love everything that you’re doing and these conversations are so important, and I’m glad to those who listened to the previous episode, I hope it helped. So, thanks so much.

Just as an update on Sequin and what we’re up to, last time we were here, we were really focused on credit, and one of the things that we had launched previously was our Sequin card with the idea that you could have a debit card that built credit. And the other piece that I love even more about Sequin is that we always design with our members’ needs in mind. One of the things we kept on hearing was opening up a new line of credit is actually not solving my problem. And from my knowledge at Visa, the best way to build credit is to optimize your existing credit behaviors and optimize those, pay off debt, build credit, travel hack rewards, do all of those things, but opening up new lines of credit is not necessarily the best way for you to build credit.

So we ended up sunset-ing that product, and I love so much what we’ve built instead. And this answers the question, Tori, about what was the most surprising thing. As I mentioned, we started off thinking a lot about credit as it affects women, as it affects minorities, and the problem starts so much sooner than just when you need credit. And I think it’s a great segue into this topic today where really the inequities start with your first bank account, or with banking, and there are a lot of hidden fees and a lot of fine print that you need to think about.

There’s a lot to think about in terms of actually growing your every dollar. We started off saying, “Okay, let’s build a checking account and let’s have you earn interest on every single dollar.” Also, that’s going to allow us to help you in your credit life as well. So when we understand your income, we can also say, “Okay, this is your existing credit, these are your credit cards. You can plug those into Sequin and we can also help you pay off debt. We can help you build credit.” And the tool is actually smart enough to know which one you need to do. So, we’re really excited about this full financial view product that actually grows your money, doesn’t charge you surprise or hidden fees and actually helps you with your credit life alongside a community.

Tori Dunlap:

Yeah, so let’s talk more about that because I remember the first time I opened a bank account. I was really young. I was running my vending machine business and I think I was in my local bank when I was nine years old and opened a savings account, and then a couple years later I opened a checking account. And I remember when back in those days you opened a CD at like 4%, especially at the time. Crazy. And we’re seeing interest rates similar to that, but because inflation is so high. But I digress. With banks, can you give us the rundown on how banks make money in the first place? How does that work?

Vrinda Gupta:

Absolutely. And I love this vision of little Tori with her vending machine.

Tori Dunlap:

She was very excited to get a bank account. She felt like a real adult, even at nine.

Vrinda Gupta:

I love that. I love that. So I love this question, Tori, on how exactly banks make money, and I love it for two reasons. So the first is you probably have your life savings in financial institutions, and hopefully none of us are stashing our cash in a mattress. That is unsafe and your money is not growing. So hopefully most of your money is in financial institutions. And the second is if you know what to look for in terms
of banking fees and you know what to look for in terms of ways to grow your money, then you’re actually one, able to protect yourself so you’re not paying hundreds of dollars in avoidable banking fees a year. And, you can make the financial system actually work in your favor, which is what we’re all here to do.

There are three key ways that commercial banks … I say commercial banks because I think that’s probably going to be the most relevant for our audience here is your personal bank account. You get a dollar. Where do you put that? You put that in a bank account. So the three ways that commercial banks make money is first on interest. Every single dollar that you put in your bank, they’re actually lending that out with high interest. And if you think about a credit card for example, those interest rates can be 24% on average. So every dollar you’re putting in, they’re lending it out, they’re making 24% when someone pays that back and then they are giving you 0.01% as a thank you.

Not 1%, 0.01%. So I digress, but that’s the first way is interest. So every single dollar you put in the bank, they lend it out. When it gets paid back, they get interest. The second way, and this is the one I am screaming from the rooftops is fees. So, it’s so important to read the fine print and there is a myriad of fees … and actually I’m going to pull up my notes because I made a list of few of the fees here, and this is not exhaustive, but is some of the fees to look out for. The first is inactivity fees, overdraft fees, I think a lot of us are unfortunately very familiar with those, and I read a study that banks made $15 billion in overdraft fees a year. And that’s, I think, on the low end.

Tori Dunlap:

Can I pause you right there? Can we explain what each of these fees are? So you said inactivity fee, I’m assuming that’s just like there’s not activity in your bank account, but then you get charged for it, right?

Vrinda Gupta:

Yeah, exactly. Yeah, let’s do that. Let’s break this all down. Okay, so inactivity fees, it’s exactly what Tori said. Your bank account is dormant for a few months, it’s usually around six months and then the bank, this just says, “All right, I’m going to close this account. Too bad.” And they close it and they send you a check and you’re like, “Okay, I didn’t even know,” but that is something that they can do and they will charge you a fee when they do that. So, that’s one.

Second, overdraft fees. So that is you don’t have enough money in your account, a transaction goes through and then the bank says, “Okay, we can either decline this transaction or we can lend you some money in the meantime, but we’re going to charge you up to $35 each time you do that.” Even if it’s $1, you get charged $35. And I want to say again, banks made $15 billion in overdraft fees. Unfortunately, women and minorities pay most of those. Women are paying $214 a year on average, and that is more if you are a minority. The numbers get worse. And we’re paying 18% more than men in overdraft fees.

I have a personal vendetta against overdraft fees just because they catch you when you don’t know. It’s like I didn’t realize I didn’t have money in my bank account. And most of the time, it’s an accident. So at Sequin, we don’t even allow you to overdraft. We text you every single time you make a transaction. We actually let you know how much is in your bank account, and that was a personal experience getting charged an overdraft fee and saying, “But I had money. I just didn’t realize I hadn’t transferred it in.” So anyway, that’s my rant on overdraft fees.

Tori Dunlap:

And we found in the research too that the average checking account holder paid $8 a month in fees, and that includes service charges, ATM fees, overdraft penalties. And if you were white, you were paying $5. If you were black, you’re paying $12, again on average, and then if you’re Hispanic, you’re paying $16. So just to have the bank account where it’s your own money, you’re paying fees in order to keep up the account in order to gain access to your money through ATMs. It’s crazy how quickly it adds up.

Vrinda Gupta:

It’s wild, Tori. And I think the thing that I always tell our Sequin banking members, and I love having your platform to say this, is if you are not paying for a product, you are the product. And that is very much the mindset of banks where either you’re paying with data … in the case of social networks, et cetera, that’s most common. But with banks, it is all these feeds where they say, “Okay, here’s a free checking account,” but then there are all of these gotchas that you need to know about. And I’m sure we’ll talk about this and unpack it, but it does disproportionately affect women and minorities, and all the stats that you just shared, that’s what we see as well.

Tori Dunlap:

So when somebody’s opening a new bank account, what kind of questions should they be asking themselves?

Vrinda Gupta:

Yeah, absolutely. So when you’re opening a checking account, the main questions I always say to ask your bank is one, how do I waive any monthly maintenance fees? What do I need to do in order to avoid this fee, which can be $12 to $15 a month? And so, one of those and a key one is your monthly minimum balance requirements, so how much do I need to keep in the bank account every single month in order to not pay that fee? And that amount on average is around $1,500. It is not a small amount and is something to be aware of. And if you don’t keep that amount, then you can be charged the fee. That is one.

The second is there are minimum initial deposit requirements. Some of them say if you spend a certain amount in a month, around $500, then you don’t need to pay the monthly maintenance fee. Just understanding how do you avoid the fees and what are those fees? So, that’s one. The second question, and especially in our high interest rate environment right now is what is my APY, which is annual percentage yield? How much interest am I earning on every single dollar? And that should be a question that you are asking whether it’s a savings account, whether it’s a checking account because you should be earning interest on every dollar. So those are the two questions amongst many others but where I recommend to start.

Tori Dunlap:

I have more questions about banking, and especially banking being racist towards minorities and sexist towards women. I want to caveat, though, by asking one question in the middle, which is it’s going to be very easy to listen to this episode and be like, “All banks are terrible. I’m never going to put my money in a bank again.” And I want to highlight what you’re saying is as long as what’s going on and as long as you are finding the bank that is right for you, we don’t want the conclusion of this episode should not be never open a bank account or take all of your bank account money out and put it under a mattress, right?

Vrinda Gupta:

Absolutely not. That would be the worst outcome of all of the outcomes. So, it’s so important to put your money in bank accounts for multiple reasons. Safety. If you have yo
ur money and cash somewhere, there’s no way to track that. You lose your money and it’s gone. And, I’ve actually heard stories of so many women that has actually happened to and it is terrifying. So that’s one, but the second is if you aren’t making your money work for you in a bank account, then not only is every single dollar worth less because of inflation, and by the way inflation is at all time highs, but also you’re not growing that money. So you are literally losing your money by just keeping it, and you really need to be thoughtful on how to make that money work for you. Banks, like other free products, have fees and that is how they make their business work. The goal here today is for you to not be the one that’s funding their business, especially when there are fees that you can avoid.

Tori Dunlap:

Totally. I just wanted to level set really quickly because it’s very easy for me to be a listener of this episode and think like, “Okay, I’m just going to pull all of my money out of the bank account and not use it.” That’s the conclusion as opposed to the finance expert part of me, which is like, “No, you just need to go in understanding the landscape of it all.”

Vrinda Gupta:

Yeah, absolutely. And I just want to plus one that. I really hope a very negative outcome of this talk here would be, “I pulled all my money out.” You just want to make financial institutions work for you because if you do that, it is so powerful and that’s how you build wealth is by being within our financial system. It’s very important to partake in that.

Tori Dunlap:

To transition into some of the other things about banks and some of the other things that banks might not want us to know, you found in your research, and we did in ours as well, that women and minorities tend to pay more in banking fees. But something that we found digging even deeper is that it’s much more than an educational issue. I think a lot of us, and we’ve even talked about it on this show, the concept of the fallacy of financial literacy that people believe, “Okay, we just need financial education in schools. We need to teach kids about money.” And I think you and I both would agree that that would be helpful, however, that would not change the structure or the systemic issues at play.

And we know specifically if we’re talking about Black Americans that there is this massive, of course, wealth divide, but specifically Black owned banks have been targeted, have been burned down over and over, and there’s this systemic discrimination preventing them from even existing in the first place. So how have you found that societal repercussions of racism have affected the banking industry and what, if anything, can be done at an individual level for us to push back against that?

Vrinda Gupta:

Absolutely. I think people forget that that was the case. There were instances of Black owned banks being burned down, which is so horrible to think about. And you think about women, minorities being able to be rejected legally from bank accounts and credit cards and business loans until the 70s, and the history of that. I think the piece that has remained constant is that money is power and the fact that there are other populations like minorities, like women, who are growing in so much spending power now, and the power is shifting, I think that is scary to those who have traditionally been in power. And so, I think it is so important to, as we’re talking about, understand how to make financial systems work for you and don’t be the one to be paying avoidable fees. Don’t be the one to be not growing your money and not optimizing your wealth.

That’s one piece. But I think a second piece that we don’t always think about as well is there still is such a disparity in terms of income. There are wealth gaps that do come from just systemic bias over generations. And I think you and I, and all the listeners know that just by writing something into law, it doesn’t fix the problem. It just, “Okay, that was bad. Let’s not do that.” But there are so many downstream impacts of that. Gatekeeping education is one forensic them, but there are other pieces that if you do have a wage gap, for example, then you might be more likely to pay a fee. A bank is not saying, “Oh, if you are a woman or if you are Black or if you are a minority, then we’re going to make you pay a fee,” but it is these kind of implicit factors that do contribute to perhaps you not having more ideal outcomes.

And so, I think what is really important is looking for institutions that understand that. I look around, I don’t see a lot of founders who look like me, a woman of color. There are a few FinTechs that are Black owned. And I think ultimately going back to the money is power, being able to support those companies I think is extremely important.

And the second piece is when you put persons in power that have actually had the experiences that you do, they’re going to be able to identify that “Wait, that is disproportionately affecting people like me.” For example, with the overdraft fees. At Sequin, I said we’re not going to have those. We’re going to text you every single time you make a transaction so you know how much is in your account? And you can understand that that product and service is truly being designed with your needs in mind.

So yeah, I think it’s great to support a mission, tell your friends, but ultimately I think money again is power and being able to put your dollars behind products and services that you really agree with and that align with your values, I think that is the most powerful thing that you can do at the individual level.

Tori Dunlap:

We talked last time on the show, and something I want to highlight specifically with banks is this huge population of largely Black and Brown people who are underbanked or unbanked, and that it comes from one, not having as much money to put in the bank, but really you’ve been saying this entire time, fees. If you already don’t have a lot of money and there is some maintenance fee where you have to have a certain amount of money, you’re less likely to put your money in a bank.

Then on top of all of this is this feeling of distrust for banks that is of course not unfounded if you’re worried that the bank will get attacked or burned down. So when we’re thinking about this feeling of distrust around banks and also banking deserts where literally there’s geographically not any banks available, this un and underbanked crisis, what other ways do banks discriminate or use predatory practices that we might not even think about?

Vrinda Gupta:

Yeah, absolutely. And I do also want to say something about the fees in that I think that the challenge isn’t the fact that banks are charging fees. They are offering a free service and there’s a way that they need to make their business models work, and perhaps there’s a way to make that-

Tori Dunlap:

We work with banks as our partners. I have banks that I use. You’re a business under capitalism, I get you have to make money at some point. Yeah, totally.

Vrinda Gupta:

Yeah. No, for sure. And the point I was making was it’s just really important to know what those fees are so you can either avoid them or you can budget for them as well. I’m not saying that you should say, “Okay, I’m going to budget for an overdraft fee.” That is not really solving the root of the problem, but I think the point I’m trying to make is that hidden fees are what really can derail your financial plan if you have a certain budget that you’re working towards, or especially if you are in a period of your life where you’re living paycheck to paycheck, it’s really important to know, “Okay, how much am I going to be paying at the end of the day?” So I think just the knowledge of what are fees that I could be paying given that that is the case, do I want to bank with this institution? Do I go somewhere else?

Just being really thoughtful about those fees so you can budget for them is really, really important. Again, not to say you should be paying banking fees, but just know what the fine print is. So, that was a point there.

But yeah, I talked about fees really affecting folks who might be lower income and might be living paycheck to paycheck. We’ve talked about this I think in the previous episode about implicit biases even in credit scoring. The Equal Credit Opportunity Act in 1974 made it illegal for a creditor to discriminate based off of a variety of factors, and I actually have them written down because I think what is interesting about it is that this needed to be put into law in the first place. And it means that all these populations were discriminated against before. So it says it is unlawful to discriminate on the basis of race, color, religion, national origin, sex, marital status or age provided the applicant has a capacity to contract the applicant’s use of a public assistance program to receive all or part of their income, or the applicant’s previous good faith exercise of any right under the Consumer Credit Protection Act.

So these are all populations that make up a lot of the population of the United States, and it’s something I think to be cognizant of. When you think about the fact that it was 1974, that was just not that long ago. It still blows my mind, and when you think about when banks were actually founded, it means that all the algorithms, all of their products and services were geared towards white men that owned property, and so everyone else who’s even trying to get credit, some of those factors that go into your credit can implicitly bias against you because they’re not trained on data stats that actually represent these populations who were left out of the narrative. So one of those factors, and we talked about this previously and it’s still very true, is this idea of credit utilization. Credit utilization, the percentage of your credit line that you’re using at any time, the higher, the worse essentially.

And if you are a person who needs to rely on credit a little bit more, then you are viewed as more risky, even if you are paying off that loan on time at the end of every month. The fact that you even used more of that during the month can be used against you, and that can be seen as more risky. And who are the people who are using credit? Well, it’s the same folks who are systemically biased against. It’s women, it’s Black folks, it’s the Hispanic community. There’s just so much that’s baked in. So even though it’s illegal now to say if that population, then there are still ways that there’s bias that’s built into the system.

Tori Dunlap:

Totally. And the stat that you mentioned in the Credit Act of 1970 … was it ’74? Right?

Vrinda Gupta:

’74, yeah.

Tori Dunlap:

That was the year … I talk about this in my book. That was the first year a woman could open a bank account in her own name without a male cosigner. And then, I believe a credit card or a business loan came 10 years later. My parents were alive and kicking in the 70s. It’s just crazy to think about how recently that was.

Vrinda Gupta:

Yeah, it’s not ancient history at all, and I don’t recall if we talked about this last time, but Hillary Clinton talked about this where she was trying to get a credit card and they asked for Bill and she said, “Well, I make more money than him, so I’m not sure why you need my husband.”

Tori Dunlap:

Also, I’m Hillary Rodham Fucking Clinton. I’m allowed to open a bank account.

Vrinda Gupta:

I know, I know. Yeah, it’s bizarre.

Tori Dunlap:

So there’s one part of banks that we’re talking about, which is the I’m putting my money as a user into the bank. I am taking a certain amount of money, or maybe taking my paycheck and putting it in a bank account, whether that’s a checking or a savings account. The other big part of banks is asking banks for money, getting lent money. You can imagine that the stats for minority folks are not great. Black owned banks were 12% more likely to loan to Black business owners, but of course other banks were less likely to give loans, whether business loans, personal loans to Black folks, to other minorities.

Let’s talk about the lending side of it. Is there any regulation about lending? And if not, or if it’s not robust enough, could there be more regulation? And then how does even a bank work when you ask for money or when you’re getting a loan? Maybe let’s first break down just the lending part of banks. What happens? Maybe just talk about personal loans and then maybe business loans?

Vrinda Gupta:

Yeah, absolutely. When you go to a bank or any creditor to ask for a loan, the first question they’re going to ask is about your credit worthiness. And that is exactly what it sounds is do they one, want to extend you a loan and two, if they do, at what interest rate do they want to extend that to you at? And that’s where your credit score comes in. This number that looks at every single other time you have borrowed, how did that go? And if it went well, and we can talk about what well means, if it went well, then you’re more likely to one, be given the loan and two, be given that loan at better interest rates, lower interest rates. So effectively, the cost of the capital that you’re borrowing is lower and then you have more money in general.

That’s the simple way to put it. They’ll determine your credit worthiness, and that’s for personal loans. For business loans, it depends on the type of business that you are. Many times business credit will actually be tied to your personal credit, and that actually builds these loops of, “Okay, well if you are a person who does not have great personal credit for whatever reason, then that can actually extend into whether or not you get capital for your business as well.” And we saw that really rear its ugly head with the PPP loans during the pandemic where women and minorities were actually less likely to get PPP loans because it was connected to our personal credit.

So that is something that is little known is that your personal credit can really affect your business credit as
well. There are ways to build business credit. There’s business credit cards. The underwriting works largely similarly where have you borrowed before and did you pay it back, and how credit worthy is your business? And the benefit of doing that is that you’re able to separate your personal finances from your business finances, and let’s say something goes wrong with your business credit, then you as an individual are protected and are not necessarily liable for that amount of money. However, it does vary business by business and it varies structure by structure, so definitely read the fine print. Don’t take this as a blanket statement.

Tori Dunlap:

That was super, super helpful. Again, I know I asked you four questions in one. So transitioning, we’re seeing that if you’re a minority, if you’re a woman, you’re less likely to get approved for that loan. Is there any regulation for that? And if not, could there be?

Vrinda Gupta:

So this is all under the Equal Credit Opportunity Act of 1974 where it’s the same one. It became illegal to discriminate based off of the certain demographic factors that they listed. That being said, the factors that go into lending can bias against you implicitly. We talked about credit utilization, we talked about wage gaps, et cetera. So those can impact you getting credit at fair rates or at lower rates. So, that’s one piece.

But I’ve spent a lot of time thinking about this, Tori, at Sequin because initially one of the ideas was okay, why don’t we create our own credit underwriting model? And I actually looked at some research in, I believe it was Brazil, don’t quote me on the country. But somewhere where they didn’t have this regulation and they actually took into account gender, and they were able to extend more credit because actually it was affirmative action almost, where they said, “Okay, women are actually better to lend to and we do pay back more often so we can take that into account and actually make a more equitable scoring system,” which is illegal in the US, which I still think in general is a good thing.

But, I don’t know where I land on the side is is that a positive? Is it a negative? I think going back to the world where women could be rejected or banks could be burnt down, that’s not the world I want to go back to. So, hard to say. It’s a big question and it’s something that is hotly debated in the credit world.

Tori Dunlap:

This is one of my biggest flexes ever. I am pulling my own book. I’m finding my own book to pull a stat … Hold on … because what you just said, I’m trying to remember the exact … because we found it in our research about basically blind credit. So one of the things they were trying to prevent of course was, “Okay, we’re not going to lend to Black folks. We’re not going to lend to women. But okay, if we do it blind then it doesn’t matter.” But like you said, the factors are still there. And of course, I can’t find it off the top of my head, or just can’t remember where it is in the book. Anyway, I’ll find it after.

That’s part of the problem is with this affirmative action you’re talking about. It actually in a way assists individuals better to know, “Oh, okay, if they are black folks and they don’t have as good credit, that’s not their own personal issue,” because when you blind the process, you still have the same factors at play. So if you’re just looking at person A versus person B, person A has a higher credit score, a higher net worth, they’re more likely to get a loan, and then you realize of course that person A is a straight white man versus person B is a minority.

Vrinda Gupta:

Yeah. I mean, it’s one of the reasons that the hack that I always share, especially for women and for my minorities, is to pay off your credit card every single week, if possible, because that makes sure your credit utilization never looks too high. It’s basically hacking the factors that go into your credit. And, it’s really effective. I think even some of the listeners, she had over 100 point credit score increase just by paying off that credit card once. Yeah, it’s a complex issue for sure.

Tori Dunlap:

And asking for a credit line increase, I think, was the other thing. Okay, I found it. It’s on page 122. So even in technology as advanced as machine learning, we see massive gender discrepancies. In 2019, when the investment firm Goldman Sachs launched the Apple Card, it relied on a gender-blind credit card approval process. Good in theory, but in practice, gender can easily be discovered from other variables such as lower net worth. So because women have historically been given less credit, the algorithm continues that pattern. And then people of color, too, received lower credit lines. So it’s like even when you make the data anonymous or you do this blind, the discrepancies are still there so they continue receiving less credit, less access to money, less access to capital.

Vrinda Gupta:

Absolutely. Yeah, that was a big deal because … So the way that that entire Apple Card scandal happened was there was a tech entrepreneur who he and his wife both applied for the Apple Card, and she got [inaudible 00:34:36] his credit line even though they made similar amounts of money. And so, I actually tweeted at him and I said, “That is why what we’re building at Sequin needs to exist.” And he retweeted it, and we went viral around that. But in addition to what you mentioned, one of the other factors was that women and minorities are more likely to have the bulk of their credit history be made up of someone else’s credit, so you’re an authorized user on a parent or a partner’s card, and it doesn’t build your credit as effectively.

And, that’s what was happening in a lot of the discrepancies as well with the Apple Card and Goldman’s underwriting.

Tori Dunlap:

We talked about that in the previous episode that you were on, so I’ll have people listen to that. But can you just give us the TLDR of that? Because I think that was one of my most powerful takeaways is that women are either as a spouse, they’re the secondary authorized user on the card, but the card’s not in their name, or they’re building their parents’ credit. So just give us the TLDR of that.

Vrinda Gupta:

Yeah, the TLDR was I got rejected from the credit card that I helped build at Visa, the Chase Sapphire Reserve because I was building credit under my dad’s credit card, and I had no idea that that wasn’t going to be as effective to build credit. And it got me credit visible. The one time I say it’s good to be an authorized user is if you as a parent have good credit behaviors and you want to build credit for your under 18 child. That is a good way to build their credit. Again, if you are responsible. We don’t want to generationally transfer bad credit behaviors.

But the second that person turns 18, it is so important to have credit history in your own name because that is what is going to ultimately be the way that creditors are going to be looking at you is when were you the primary person and when were you on the hook to make the payments? And that’s how I can dete
rmine your credit worthiness.

Tori Dunlap:

I think that was one of the biggest takeaways for me and then also for our audience is it’s like you’re making all these smart financial choices, you’re doing all of this work, but ultimately it’s benefiting somebody else. And hopefully it’s benefiting somebody you love, but at the same time that that’s not your own credit score. That’s not benefiting your financial life, it’s benefiting somebody else’s.

Vrinda Gupta:

And I like to see okay, yeah, it’s benefiting someone you love, but I can’t help but be jaded in terms of the women who I talk to, and the minorities who I talk to in our Sequin community, that goes badly more than it goes well in that there’s just so many instances of financial control and financial abuse. And, “Okay, we got a divorce and now I am left with nothing.” Or, “I’m left with his bad credit behaviors.” And I just always say, regardless of how happy you are, and I hope you remain this happy forever, it is so important to have one, a bank account in your own name, and a credit card in your own name that you use responsibly so you’re building credit and you have a bank account where it’s just you, and then you can figure out how to manage your finances together. But I always say you need to do you, build credit in your own name and have a bank account in your own name.

Tori Dunlap:

Could not agree more. We’ve talked about it many times here. You just need a small amount even of your own money and your own credit. What else do banks not want us to know? Any other things?

Vrinda Gupta:

It’s so funny, I was thinking about this, and I think the simple way to say it is we’re onto to them. I just want to sit and laugh with you about it.

Tori Dunlap:

We’re in there. Don’t think you can give me that.

Vrinda Gupta:

Yeah, but that’s the thing. For a long time, and still today, I think both you and I are on a mission to change with our companies is banks have profited off of women and minorities throughout history in various ways, even when we weren’t supposed to have bank accounts. As I was doing research, I just learned that even when women could not have credit cards or bank account in your own name because the husband was the only one who was considered a legal citizen, and you were his property … It makes me want to throw up saying these words out loud … but even then, if something happened to the husband and he didn’t pay off the debt, you were still on the hook for the debt.

Tori Dunlap:

Yes. It’s the same thing as student loans even-

Vrinda Gupta:

I just gasped.

Tori Dunlap:

… now. If you have a co-signer on your student loans … this is really morbid and really terrifying. If you have a co-signer on your student loans and you die, the co-signer still has to pay for them.

Vrinda Gupta:

I know, I know.

Tori Dunlap:

Crazy.

Vrinda Gupta:

It’s awful. That’s why I say we’re onto them, right? Because women and minorities, we’re going everywhere. I wish it were at least 50/50. I want it to be everything, but we’re so far from that today. And I think in terms of avoidable fees or in terms of growing your money and just being educated about the financial system and the way that it works and how to make it work for you, being able to participate in banking in a way that is advantageous to you is just so important. And, I don’t want to keep on seeing these stats that women and minorities are paying 18% more in banking fees and we’re not growing our money, and we’re basically just giving banks free loans by earning 0.01% on our deposit volume and paying high interest rates. I don’t want that anymore.

So we’re onto them, and I look forward to the stat just chipping away because there are actually statistics on this from the Federal Reserve that when women and minorities are taught about what to look out for, a lot of the gender financial gaps close. And that stat was the reason that I decided to found Sequin was that I felt the problem was solvable, and pretty easily solvable, if we could both build products and services that were really meeting people’s needs that it wasn’t meeting before. And also coupling that with, “Okay, this is what you need to look out for in terms of what’s out there and what these companies don’t want you to know.”

Tori Dunlap:

And what you said that I want to highlight is it’s making it work for you, right? Back to my point I made with the answer’s not pull your money out of a bank, never use a bank again. The answer is to go in with clear eyes and understand what questions to ask, how to make a bank account work for you, because there’s some places that don’t charge fees or they’ll charge something else. Or, there’s some places that nickel and dime you for every fee. And so yeah, every bank is going to make money and it’s determining what are you comfortable with, what makes sense for you in your financial life right now.

Vrinda Gupta:

Yeah, for sure. And I think just knowing what those fees are and what you’re getting for those fees, and just not being surprised. I think just the lack of transparency is the problem and it just feels really shady. If you tell me upfront what the fees are going to be, at least I can budget for them. And also I can think critically about is the give and get out of this, does that work for me? Do I want to pay this fee and do I actually get something that’s benefiting my life versus these are just hidden penalties that one fine day I check my bank account and I’m paying? So I think just the lack of transparency is what’s icky about all of it.

Tori Dunlap:

Can we talk briefly, I over-drafted on my account probably two years ago, three years, so it’s been a minute. But I remember I had the title of finance expert when I did it and I was like, “Oh, this is proof that we all still make mistakes.” And I called my bank and I asked them to reverse the charge, and they did. So can we talk about negotiating with your bank to get fees withdrawn or overturned? Let’s talk about that.

Vrinda Gupta:

This is one of my favorite topics because in the same way that women and minorities are not negotiating as much, it definitely carries over to our banking relationships. We’ve done entire workshops on this at Sequin because I think it’s so powerful. So I love that you did that, Tori, that you could call your bank and say, “I made a mistake. Please reverse this and do that as soon as possible.” Because the more time tha
t elapses, the less likely they are to reverse that charge, but it doesn’t hurt to ask because the worst they can say is no, and then you’re just in the exact same situation that you are in today. But the best is you get $35 bucks and you can do a lot with $35. That’s fun money. Don’t give that to the bank unnecessarily.

The other piece, too, is there are I think in traditional banks ways perhaps to be more up to date in terms of what is still in your account. So, check that out. When I used to bank with a big bank, it was hidden. Some of the things that we do at Sequin is, as I mentioned, every time you swipe, you actually get a text message with how much money is left in your account. You can set low balance alerts, so if your amount goes below a certain balance, then you can get alerted for that. I think at your big bank you can do that as well. It’s just important to, I think, protect yourself.

But if it does happen, then yes, call and negotiate. That works for pretty much any other fee as well. You just check your bank account. I check my bank account, my statements, every single week just to make sure that there’s no funny business on there. And then I call and I say, “Okay, I saw that. That didn’t need to be there.” More times than not, they have reversed the charge. That’s on banking.

In terms of credit, there is a lot that you can call and ask for. A credit line increase is one of them. That’s going to help you reduce your credit utilization. Of course, don’t call, get a credit line increase and then proportionately use more credit because that’s just going to be the same credit utilization. But call your bank, ask for credit line and increase and then don’t use the additional credit line increase amount. You can also call and negotiate interest rates sometimes. If they are high, you can say, “Okay, I would want to talk about being able to reduce that. What can you do?” And especially pandemic times, the impacts are still, there is a lot more leniency and forgiveness as well. And, in the what banks don’t want you to know spirit, this isn’t out of the goodness of their heart.

Let me tell you why they agree to do this. Because the worst outcome for any creditor is that you default, which is basically you are just like, “All right, I don’t have the money so I’m not going to pay you anything.” So what creditors are doing is they’re saying, “What is the highest APR I can charge you that you will still pay it back?” But they don’t ever want to one, make them so high that you’re not going to be able to pay it back and two, defaults are just horrible for the bank.

So if you call them and you’re like, “No, I think I will be able to pay this back if you can give me some leniency on the interest rate,” then they are incentivized to meet you halfway or meet you somewhere. So, there’s more but those are probably the three top top tips. Did I miss anything, Tori? I feel like you’ve talked about this, too.

Tori Dunlap:

Yeah, I have a whole script on how to do it in my book. So if people are curious, the TLDR is just like, “Hi, I’ve been a good, I don’t know, loan recipient. I’ve paid my bills on time. I would love this fee removed, or I would love to inquire about a lower interest rate.” The whole thing’s in the book. The one that I have negotiated, and this is specifically as a business owner, is I don’t need business checks a lot, but I would need probably a couple a year, and they want to charge me $3 to $5 every time I get a business check.

And I walk in there and they’re like, “Oh, it’ll be $3,” and I go, “Oh, can we waive the fee?” And they go, “Sure.” Every time. I just ask can we waive the fee, and they say yes. Now granted, I think it’s the money in the account. They can see that we’ve been a customer for a while, but you just ask. You’re like, “Hey, can I waive the fee?” And they’ll typically waive it for you. And again, $5, not a lot, but I don’t want to pay $5 five times a year.

Vrinda Gupta:

That’s a Starbucks.

Tori Dunlap:

Right, right. Speaking of that, you gave me the most beautiful transition and you didn’t even know it. I wanted to talk to you about this. I did some research, aka I saw a TikTok about how Starbucks is one of the biggest banks, but people don’t realize that it’s a bank. So when you reload your Starbucks card in the app, which is what I do and many of my friends do … It’s like, “Oh, my gift card’s low.” I re-upload it … in a way, Starbucks is a bank. They’re holding your money. They just got an interest free loan, right? Because you’ve already spent the money with them even though you haven’t received a drink. If I go put $50 in my Starbucks account, I’ve just given them a $50 loan. And I can look up while we’re chatting how much it is, but it’s something crazy, the amount of money that Starbucks just has in reserves. So talk to me about that, Starbucks being a bank.

Vrinda Gupta:

There’s a lot of companies that do this and it’s smart. I think ultimately the insight is if you are an entity, or if you are a person with capital to lend out, then you can make money on interest. And as the person who is giving them the money, just being smart with, “Okay, what am I getting out of it?” … and in the Starbucks case, you’re getting a coffee and you’re Starbucks member, but they do have a good loyalty program. And so some of what they earn, they go back to give you rewards, et cetera, when you shop at Starbucks.

But yeah, I think any entity that is holding money, they’re able to lend that out and they earn interest on the money that they lend the same way that your commercial bank does. And then in most of the cases, they’re like, “Great, I’m going to keep whatever percentage I got paid when I got that loan back.”

Yeah, it’s a really smart move from Starbucks, and Starbucks isn’t the only entity that does that.

Tori Dunlap:

Oh, I think about Venmo, right?

Vrinda Gupta:

Venmo. Exactly.

Tori Dunlap:

The amount of money I just have sitting in my Venmo. So if you are that person, it’s not necessarily a bad thing. Just like you said, I am in there because I get free drinks and I want my free drinkies, but beyond that, if you do have a bunch of money in there, be more strategic about when you upload money. So I did a quick Google, $2.4 billion in cash in Q4 of 2021.

Vrinda Gupta:

I mean, that’s a bank. That is so much deposit.

Tori Dunlap:

They said if they ranked them, they would be the 385th largest bank in the United States if it ranked as a bank.

Vrinda Gupta:

I’m not surprised. I’m not surprised. And with Venmo, that amount’s going to be so much higher. I can’t even imagine where they rank because people aren’t cashing out. So I think this comes back to making your banking work for you. Of course, understanding
fees is one piece, but another piece is growing your money and being strategic about the fact that every single dollar you have, you can be lending that to someone else to be earning on. Or, you can be that smart person and you can say, “Okay, I’m going to be using a high yield checking account, a high yield savings account, investing,” and now you are the one who’s profiting off of every single dollar versus … in Starbucks case, that’s different but I guess that’s a good tip, Tori, is being strategic about how much you’re loading at a time because you could be earning on those dollars.

Tori Dunlap:

One of my last questions, we’ve talked about it on the show so we don’t need to spend too much time, but we’ve had some bank closures in the past couple months. I think mixed with this, again, valid distrust of banks taking advantage of minorities. I think there is also just this general feeling right now of are bank safe? We’ve talked about making sure that your bank is FDIC insured. Typically, it’s up to $250,000, meaning that if you have up to that amount of money, your bank and your money is federally protected. Can we talk about any other things that we need to look out for to make sure that we’re banking in a smart way?

Vrinda Gupta:

Absolutely. I mean, the number one question is that FDIC insurance, because if all else fails, at least you get that money back and it’s in their best interest during a bank failure to actually get you your money back because ultimately they want consumer confidence to be high. And the worst scenario is a bank run, which is basically everyone starts pulling their money out of the banks and then that can lead to some pretty dire economic consequences. So check the FDIC insurance and just make sure that your bank is FDIC insured.

And I think most other pieces that you would look at, I think goes back to just making sure that you’re banking smart, that the give and the get makes sense, and I think thinking through a situation where you are paying a bunch of hidden fees and you’re not earning interest or you’re not growing your money, that’s not a great trade in terms of what you you’re giving and what you’re getting. So I would just think about your banking very critically in that way is okay, how much realistically am I going to be paying and what do I get? And the goal is to get more than you’re paying.

Tori Dunlap:

Vrinda, as always, super helpful. It was so good seeing you. What’s going on in your life? What do you want to plug? Tell us more about where people can find you.

Vrinda Gupta:

Yeah, absolutely. So we are super excited about our Sequin banking product. Well, we’re actually co-hosting a workshop with Her First 100K on July 20th, I believe, just to talk more about credit tips and banking tips and personal finance. So, we’ll continue the conversation there.

But we are super excited about our high interest checking accounts, and the idea is we want you to be using a high yield savings account. We want you to be investing. We love treasury, all of those things, but for every single dollar in your checking account, that should be growing as well. And what’s great about it is it’s actually connected to your debit card, so if you need to use it, you can. The best way to use it is actually to connect that checking account where you’re earning money to a credit card with rewards, use that responsibly, and then you’re growing money and your everyday spending both ways.

So we’re super excited about that. The second piece, and we’ve talked about this at Sequin, is just building around our community members’ needs and wants. The theme of all this is women and minorities and those who have really been left out in terms of having our needs met. So, we have gotten feedback from our community on what they want us to build next after our high yield checking accounts, and one of those pieces is the ability to get a personalized credit card, either debt payoff plan or credit building plan. And so you can plug your existing credit cards into Sequin and then Sequin is smart enough to say, “Okay, are you in debt payoff mode? Are you in credit building mode,” and actually makes plans for you. So no more spreadsheets, and you can really see your income in one place, and you can also see all of your debt and your financial life in one place as well.

So, that’s the second and the third that we’re thinking a lot about is helping you budget and really understand, “Okay, I have income coming in.” We use this 50/30/20 framework of wants, needs and savings, and helping you split your income automatically, and then see how you’re tracking towards it as well. So that’s some of what our Sequin community has voted for, but we really love our Sequin banking membership and we love our partnership and all of the collabs with you and your team, so that’s what I’m super excited about, of just building and actually doing something that for the first time in history takes women and minorities voices as that baseline trained model. We don’t experience those implicit biases, whether it is paying hidden fees or not growing our money or not really partaking in the financial system at the same rates.

Tori Dunlap:

Vrinda, thank you as always for joining us. It was so helpful.

Vrinda Gupta:

Thank you so much. I loved being here last time, and I really appreciate you inviting me back.

Tori Dunlap:

Thank you so much to Vrinda for coming back and joining us again. If you haven’t already, make sure to check out her previous episode on credit cards. It’s one of our most popular for a reason. And if you want to know more about Vrinda or Sequin, check out our show notes page. We always link all of the things you need to know. Thanks as always for being here, Financial Feminist. Feel free to rate, review, subscribe to the show to support our work. We so appreciate it, and we’ll catch you soon.

Thank you for listening to Financial Feminist a Her First 100k podcast. Financial Feminist is hosted by me, Tori Dunlap, produced by Kristen Fields, marketing and administration by Karina Patel, Sophia Cohen, Kahlil Dumas, Elizabeth McCumber, Beth Bowen, Amanda Leffew, Masha Bakhmetyeva, Kailyn Sprinkle, Sumaya Mulla-Carrillo, and Harvey Carlson. Research by Ariel Johnson. Audio engineering by Austin Fields. Promotional graphics by Mary Stratton. Photography by Sarah Wolfe, and theme music by Jonah Cohen Sound. A huge thanks to the entire Her First $100K team and community for supporting the show. For more information about Financial Feminist, Her First $100K, our guests, and episode show notes visit financialfeministpodcast.com.