Credit union CEOs across the country are currently contemplating a valuable member service that goes by many names, including Courtesy Pay or overdraft privilege (ODP) programs. Since 2012 these programs have taken scrutiny from regulatory bodies and have spurred a rash of class action lawsuits. In January 2022, the CFPB announced an outreach program to evaluate these programs calling overdraft fees “detrimental to consumers.” Couple that with the multi-million-dollar lawsuits couched in UDAAP and you can see why the discussion is taking place.
I think it is a forgone conclusion the CFPB will be promulgating more restrictions on these services, but it is coming with some sharp disagreements from national trade groups like CUNA and NAFCU. Why? They are taking the common-sense approach to this.
Yes, fees in some cases are higher than they should be, but members elect these services. In many cases without them they would be using much more expensive services such as pay day lending or bouncing checks where they get feed from both the credit union and the merchant. Also, without these services many members may not be able to feed their families or put gas (very expensive these days) in their car to get to work. The point being that during these board room discussions it might not be advisable to throw the baby out with the bathwater as this is a valuable services members need.
During COVID we began to see some big banks eliminating NSF fees. Some are also increasing the cushion before an overdraft/courtesy pay fee is charged. And another growing idea is to allow the member to delay the posting or be given a grace period of 24 hours to make the transaction good.
Credit unions are stepping up and also eliminating or lowering these fees and for the most part getting some member good will and marketing out of it. So how does a CEO/CFO tackle this discussion in the board room? On the table should be these items:
- A general understanding of this service and why it is so important to a population of the membership
- Exposure to the risk of a class action lawsuit and steps taken to mitigate the event
- Overview of CFPB recent actions and the potential effect they will have on the income statement or overall service
- Market competition and pressure to lower or eliminate fees, and the potential impact to the member and the income statement of the credit union
- Other lower cost services the credit union could offer members and the strategies to educate the membership on using them.
- Since the discussion revolves around non-interest income, this is prime opportunity to evaluate all sources of non-interest income and strategize on their futures as well
The writing is on the wall. Overdraft privilege services of the future will be different, potentially yielding less revenue, and will force us into educating and working with that population of our memberships differently.