BIRMINGHAM, Ala. — The Alabama Credit Union League is firming upits public policy on overdraft protection, warning that unnamedfinancial institutions–primarily banks–are taking advantage ofconsumers with unsavory practices.

In a formal statement on so-called courtesy pay programs, theleague also reminded regulators and lawmakers that the productshould be treated as a special member service or an account featurerather than as a loan.

The league statement came amidst new congressional and statescrutiny given to overdraft protection as some regional banks,including those in Alabama, are re-pricing products or adoptingprocedures consumer groups find predatory.

In its policy position adopted Nov. 27, the league said it findssome courtesy plans on the market unfairly “structured andoperated,” and harmful to the consumer.

“The league supports and encourages the full disclosure ofcourtesy pay program features to the consumer at the opening of theaccount,” a statement read. Among practices deemed unjust is themanipulation of the order of check payment to maximize the numberof overdrafts. In addition, the league deplores maximizing incomepotential by including overdraft coverage amounts as part ofbalance available.

The league statement stressed that courtesy pay is a valuedservice that members may “need or desire.” On the other hand, itcan be detrimental to consumers if misused.

The policy went on to encourage CUs “to monitor accounts withcourtesy pay features for signs of abuse of the program and tooffer counseling to consumers who abuse the feature.”

Without naming banks, Stephen Swofford, chairman of the leagueand president/CEO of Alabama CU of Tuscaloosa, said that in recentmonths “there have been a handful of regional banks in our statethat seem to take advantage of consumers” on courtesy pay. This iswhat prompted the league board's decision to issue a policyclarifying the CU stance.

He also noted that some banks are reaping windfall income,“particularly when an account goes negative and they charge $38 forNSF.”

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