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ALEXANDRIA, Va.-Debate has continued within the credit union movement over whether overdraft programs are appropriate for the member-oriented non-profits. Some, like State Employees Credit Union (Raleigh, N.C.) CEO Jim Blaine, have passionately spoken out against it unless limited, while others point out that it saves members from merchant fees on not sufficient funds. Many have also expressed concerns over how vendors and credit unions market the product. In an effort to make credit union programs more transparent, NCUA issued a Letter to Credit Unions (05-CU-21) informing credit unions that examiners will be taking a hard look at their overdraft programs. The agency also highlighted the risks and benefits. “The risks and benefits associated with non-contractual overdrafts (courtesy pay) should be carefully evaluated by a credit union before offering the service,” the letter read. “While courtesy pay may assist infrequent users in avoiding the inconvenience and merchant fees associated with returned checks, repeat use of courtesy pay can result in high aggregate fees that negatively impact a member’s financial position.” NCUA and the other regulators also issued an interim final rule in 2005, requiring credit unions to comply with NCUA’s Part 707, the regulation covering the Truth in Savings Act, regarding “clear and conspicuous disclosures about the cost of this service” as of July 2006. The new reg was approved at the November board meeting. The letter also reminded federal credit unions that overdrafts must be repaid within 45 days under Part 701.21, but if it is converted to an underwritten loan to extend the repayment period, the loan must comply with the disclosure requirements of Regulation Z (Truth in Lending). -

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