Putting a Little Bounce In Checking Accounts

Consumers have been bouncing checks as long as there have been personal checking accounts. And just as long, they have been aware that besides the financial sting of costly, multiple, punitive fees imposed for such bad behavior, being the instigator of a NSF (non-sufficient funds) check carries with it a universal stigma of being a deadbeat. No longer. At more and more credit unions, NSF doesn’t automatically mean a check-bouncing member is a bad member who needs to be both financially punished and somewhat publicly humiliated. Today there are a number of programs in place under a variety of names (including in a growing number of credit unions), that has put a new face on NSFs. If, for example, a credit union member meets program qualifications, their check will be sent through even if at that particular moment they don’t have sufficient funds in their checking account to cover the full check amount. From program to program as well as from credit union to credit union, the amount limit covered varies. As does the number of days the member has to make the check good. As does the number of times in a given period that they may bounce a check. As does what documentation (if any) is required. As what happens when they don’t follow the rules. All of these overdraft programs have much in common. They save the individual guilty of bouncing a check from embarrassment. And from paying separate fees to the financial institution and to the merchant. And from incurring any late fees. National studies show that a high percentage of individuals also do not reconcile their checking accounts. As debit cards grow in usage, that number will probably go even higher. That’s why overdraft programs are especially good news for those who simply underestimate their available funds. They are only too happy to pay the credit union’s standard NSF. They feel it is a small price to pay to know, for example, that their mortgage payment was made on time. Overdraft programs seem like a good deal for many credit union members, don’t they? Some observers don’t think so. Encouraging CU members to write checks without the funds in hand to back them up is not what credit unions are all about, they say. It is nothing more than a ruse of appearing to be helpful when in fact it is still another way to exact a fee from members, they say. Credit unions are built on a principle of teaching members sound money management, they add, not encouraging them to spend money they don’t have. This is especially so in those overdraft programs that have very restrictive safeguards that could lead to already strapped members getting in deeper than they expected. After all, the so-called free ride is very short-lived. Others not in favor of overdraft programs charge that they are in fact short-term loans somewhat akin to payday loans as far as interest rates are concerned. They feel that such extensions of credit (their words) should be covered under regulations already in place such as truth-in-lending regs. Some claim that they already are and the day of reckoning is just around the corner. I don’t agree with the naysayers. A good case can and has been made that overdraft programs do not represent loans or extensions of credit. Although the jury may still be out on this question, what is certain is that, first, there is thus far no evidence that any credit unions are encouraging their members to bounce checks, and secondly, that CUs in one of the programs have found another way to assist members who come up short for whatever reason. Admittedly overdraft programs are not for everyone. Members with strong financial stability don’t need these programs. They can qualify for a line of credit for example. But a certain percentage of any credit union’s membership living from paycheck to paycheck, or possibly just being sloppy “accountants,” do need them, at least on occasion. And that is precisely whom these programs are designed to help. It only makes sense that credit unions should not encourage their members to write NSF checks as a matter of routine. No financial institution offering an overdraft program should advertise and promote it as a thinly disguised cheap extension of short term credit. One bank reportedly described the program this way: “If you ever need more money than you have in your account, simply write a check.” That’s not what an overdraft program should be all about. When done right, overdraft programs are a win-win for the credit union, its members, and recipients of in the past what were simply worthless checks. Yes, the credit union does make money on these programs, in some cases, lots of money, because it is only logical that with overdraft protection in place there will be more NSF transactions. The standard NSF fee is still charged for every bounced check. But members who find themselves in a temporary squeeze, or are simply careless, pay less if their check bounces than if they were not in an overdraft program. The bottom line: members in one of these programs don’t pay any fees to merchants. Nor do they pay duplicate fees if the check is automatically resubmitted before the member can replenish his or her account. They pay no late fees. They are not inconvenienced. There is far less risk of being saddled with a bad credit rating. And they suffer no embarrassment. As popular cable television news analyst Bill O’Reilly frequently says, “Am I wrong here?” Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]