A lot is being made about Americans still wanting to opt-in for overdraft privilege (or bounce protection) services – even though they have to pay a fee for it. More and more credit unions are allowing opt-in requests from their members who overwhelmingly demand access to this service. At ASCU, we made a concerted effort to advertise an alternative to payday lending and bounce protection programs. We educated our members about line-of-credit loans, but very few have taken advantage of it. As with other credit unions, we are also hearing from our members that they want their overdraft privilege program back. So, we’re implementing it again sometime between now and the end of the year.
In the meantime, I’d like to show you how you can save some money. My wife and I have had an overdraft line-of-credit loan for a long time. We like it because it sits idle until we need to use it. For us, it’s a credit line for emergencies and, believe me, we’ve had numerous emergencies over our 31 years of marriage. The good news is that there is no fee to access my overdraft credit line account and I only pay interest on any outstanding balances. I guess I just like knowing that it’s there at the end of my checking account if I need it.
Why would anyone want to pay $25 every time they access their overdraft privilege account? Maybe a quick example can help. The example on the left is what typically happens with an overdraft privilege situation, and the example on the right is how an overdraft line-of-credit loan works.
|Credit Union Member A||Credit Union Member B|
|Checking Balance: $0||Checking Balance: $0|
|Debit Card Transaction $100||Debit Card Transaction $100|
|Overdraft Privilege Covers the Transaction $100||Overdraft Line-of-Credit Loan Covers the Transaction $100|
|Overdraft Privilege Fee $25||Daily Accrued Interest on Balance
(Assume 30-days at 10% APR) $0.82
|Cost to Cover this Transaction: $25||Cost to Cover this Transaction: $0.82|
Remember, each individual transaction costs $25 whenever overdraft privilege covers the transaction. That could add up quickly!
The glaring truth is that the payday lending industry (now illegal in the state of Arizona) conditioned consumers that it was OK to live beyond their means, as well as pay exorbitant fees along the way. Our line-of-credit loans are time-tested products that carry the same protection, but require the user to address the timeliness of the loan without being gouged by fees. Yes, a line-of-credit is a loan and therefore requires an application and loan approval, but once you acquire it, it’s yours to use for the life of your checking account – because it is an integral part of your checking account.
We would like to see more of our members take advantage of this service and avoid programs with expensive fees. As I stated before, we will provide overdraft privilege services to our members in the coming days, but we encourage everyone to continue finding less expensive ways to manage their checking accounts.
Brian J. Barkdull
President and CEO