How This Startup Is Channeling Elizabeth Warren To Change The Face Of Banking

You only pay if you're happy with the services.
Sen. Elizabeth Warren, D-Mass., asks a question of Janet L. Yellen, of California, Presidential nominee for Chairman of the B
Sen. Elizabeth Warren, D-Mass., asks a question of Janet L. Yellen, of California, Presidential nominee for Chairman of the Board of Governors of the Federal Reserve System, at a hearing of the Senate Banking, Housing and Urban Affairs committee examining Yellen's nomination, on Capitol Hill in Washington, Thursday Nov. 14, 2013. (AP Photo/Jacquelyn Martin)

WASHINGTON -- Andrei Cherny knows how ugly the financial industry can be.

He's a former financial fraud prosecutor and an expert in financial regulations who spent three years fighting against home mortgage fraud, credit card fraud and corporate crime.

As the editor of the journal Democracy, Cherny published a piece in 2007 from a then little-known law professor named Elizabeth Warren. In it, she proposed a consumer safety commission for financial products.

Warren's novel idea would become today's Consumer Financial Protection Bureau, and its author would be elected to the U.S. Senate from Massachusetts, largely on the basis of her campaign to rein in and regulate the financial industry of the late 2000s. 

Cherny worked alongside Warren on her crusade to protect consumers, and went on to advise President Barack Obama on how to do the same. Now, he's using this experience to introduce the U.S. to a new kind of banking.  

Cherny co-founded Aspiration in late 2014 as an investment advisory company whose investors paid the firm only what they thought they should pay. Traditionally, investment advisers have charged fees of 1 to 2 percent annually, based on how much money the investor gives them to manage. In the financial industry, Aspiration's model is unique.

"Despite a lot of people on Wall Street who thought we were crazy, the pay-what-you-want model has worked very well so far," Cherny told The Huffington Post. "The vast majority of customers are very fair-minded, and the number of people who end up paying zero is very small." 

Andrei Cherny, a former financial crimes prosecutor, is working to create a new, consumer-focused model of banking.
Andrei Cherny, a former financial crimes prosecutor, is working to create a new, consumer-focused model of banking.

 Cherny views Aspiration's innovative pay-what-you-want strategy as a direct challenge to the high fees and well-catalogued abuses of the investment advisory industry. The company is rolling out a new checking account, the Aspiration Summit Account, built on the same principles and the same motto -- "Do Well. Do Good." -- as its investment funds.

"There's no reason people should be satisfied with zero-interest checking accounts and huge fees that have no purpose but to build banks' profits," he said. "This new checking account is based on the idea that people deserve a lot more than they're getting from the big banks."  

The Summit checking account, which was developed in partnership with Boston-based Radius Bank, offers an annual interest rate of up to 1 percent -- nearly unheard of in modern retail banking -- and doesn't charge ATM fees anywhere in the world. The only money the company makes on individual accounts is what its customers choose to give it, which can be anywhere from zero to $6 a month. It calls this money "tips," and 10 percent of all the tips Aspiration collects are donated to a U.S. microloan program. 

But it's not just traditional banks' high and often hidden fees that offend Cherny's sense of fairness. He also takes issues with how those institutions are spending consumers' hard-earned money.

"When you look at how these banks spend their billions in profits, they're using money from their customers to pay for lobbyists in Washington who fight for policies that run contrary to their customers' best interests," Cherny, who has also been a HuffPost blogger since 2007, said. 

For evidence of this, look no further than the epic battle big banks and their allies in Congress have been waging for years against the CFPB, as well as other provisions of the landmark Dodd-Frank financial reform law. 

As the CFPB seeks to implement  rules making mortgage loans more transparent and easier for consumers to understand, bank lobbying groups like the American Bankers Association have fought tooth and nail to weaken and delay them. Same goes for new rules intended to protect consumers from illegal overdraft fees -- the big banks have long lobbied against those, too.

Many of the worst abuses by the financial industry occurred in the lead-up to the 2008 financial crisis, and now, even years later, Cherny says many Americans still don't trust their banks. This mistrust of Wall Street and the broader financial industry, he says, is preventing middle-class people from investing their money.

"We saw an opportunity to make a business here that's mission- and purpose-driven," he said. 

Cherny says encouraging middle-class Americans to invest their money also serves a bigger purpose: helping to narrow the yawning wealth gap in the United States. In 2013, the average CEO made 331 times as much as the average worker, according to the AFL-CIO. 

"By keeping all their money in conventional checking accounts, middle-class Americans are missing out on all the wealth-building strategies that the richest 1 percent have been using for decades," Cherny said. 

The company doesn't plan to open brick-and-mortar bank branches or seek capital investments from major Wall Street firms that might pressure the young company to squeeze more profits from its customers. 

"We want to prove to Wall Street there's a different way to do things," Cherny said.