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    Is Courtesy Pay Good for Members?

    Mike Beall, President of the Maryland and DC Credit Union Association, recently had a letter published in USA Today regarding overdraft protection programs – often called “courtesy pay.” Courtesy pay is not a target product of REAL Solutions. However, many low-income families are using and have come to depend on this product.

    While we do not promote or refute the use of this product, we want to know what do you think:

    Do courtesy pay programs benefit and promote good money management strategies for low wage working families? If so how?

    If not, why not?

    Answer simply through our survey and click here to leave a comment.

    Here is Mike’s letter:

    USA TODAY’s recent article about courtesy payments characterized this service, which covers members’ checks when they have insufficient funds, as primarily a profit center for credit unions (“Credit unions hit customers with fees, too,” Cover story, Money, Aug. 4).

    Such courtesy payments are a short-term safety net for members struggling to stay on their feet.

    The article underscores important differences in the way credit unions and banks make courtesy payment available: Credit unions charge significantly less than banks for covering member checks and typically use the fees to subsidize favorable interest rates for other services.

    Although courtesy payments have detractors, we think it’s important for policymakers to remember the value of this service.

    As credit unions, we also recognize our obligation to educate our members about the responsibility they must shoulder as the ultimate stewards of their financial resources.

DiscussionLeave a Comment

  1. I am a member of a credit union and I have an account with a bank. The times where I’ve needed courtesy pay or overdraft are when I just wasn’t watching my balances. Having the checks returned or the debit charges rejected would have caused me more problems and some embarrassment.

    Whether the fees were too high, may be a question for debate, but fact is the credit union or bank is using other funds to cover mine. Those funds are then unavailable for a loan, an investment, etc. Although for most places the process is automated, someone still had to create the processes.

    People shouldn’t be using them as an extra source of money and banks and credit unions should offer counseling services if that appears to be the case. Accounts with a history of numerous transactions could certainly be flagged and an appropriate manager or supervisor notified that a call should be made. If they are unwilling to meet and the “abuse” continues, the institution should probably turn off the service for that account.

    cd :O)

  2. Courtesy Pay is not a predatory product offering. Rather it is a service that allows members to avoid having to pay two fees for insufficient funds—one to the retailer and another fee to the financial institution. What’s more, most credit union overdraft fees (85%) are identical to those charged for nonsufficient funds (NSF). That said, Courtesy Pay programs need to be set up as a last resort, after an overdraft transfer from savings and an overdraft line of credit are exhausted. In addition the programs should be set up according to the guidelines and ethical standards suggested by NCUA in February 2005. Fees should be clearly disclosed, “account balances” should not include the amount of overdraft funds available, checks should be cleared from high to low, and use should be monitored to trigger interventions for heavy users. Credit union members that rely excessively on courtesy pay should probably be moved into a prepaid reloadable debit card account that is very difficult (sometimes impossible) to overdraft.

  3. I mostly agree with Vicki.


    Unless an FI stricly caps the number of times a member/customer uses a courtesy pay program, I don’t see how you could not consider it predatory. A good, old-fashioned overdraft line of credit is more than enough to deal with the occaisional financial misstep (and it’s priced fairly). If our goal is to teach consumers how to be better money managers, the solution should not involve continually providing ways for them to overdraw their accounts. At the risk of sounding harsh, I often wonder if allowing checks to bounce would actually be the most responsible thing for us to do.

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