By Ray Birch
SALT LAKE CITY, Utah—The credit union with the highest overdraft limit in the nation says a low limit is bad for business and members, noting it has come to that conclusion after offering a $10,000 limit for more than 20 years.
The CU also cautions that overdraft limits may soon become the new focus for OD competition, if they aren’t already.
As reported by CUToday.info and Moebs $ervices, the $901-million Utah First FCU offers members the highest OD limit in the nation, which is based on individual’s lifestyle and banking needs. The limit is adjusted behind the scenes, different for each account holder and is not visible to members.
CEO Darin Moody said the goal is to let members know the CU should be able to cover most of their mistakes and “treat them with dignity.”
“I believe you have to focus more on having a limit high enough to meet the needs your members,” said Moody, who noted those needs vary widely. “Anymore, if I have a $500 limit I'm only covering my members’ expenses at McDonald's. I'm not covering the car payment. I'm not covering the mortgage payment or insurance payment whenever employers make a mistake on payroll…The limit has to be high enough to cover a significant event.”
Moody said, based on members’ individual needs, the limits range from $600 to $10,000.
“We use empirical data and we use a patented algorithm to determine what limit a member should have,” said Moody.
Maintaining Dignity
The high limits go a long way toward ensuring members maintain their dignity as they manage their way through bills and life, according to Moody.
“We do this in large part to preserve members’ reputation in the community,” Moody explained. “We think that people make mistakes and that it really doesn't matter what walk of life you're from. We all make mistakes. So, our courtesy program is intended to cover those kinds of things.”
Darin Moody
The credit union, for more than two decades as well, has had low overdraft fees, ranging from $14.95 to $17.95 per incident, based on the member’s checking status.
“We keep them low because a lower price leads to more usage and higher revenue. But, again, the real reason for the low price is to make mistakes affordable for the member. If we make more money, well...The way we have our program structured makes what we offer a great alternative to payday lenders, which we don’t want our members using,” said Moody.
Limited Marketing
Moody explained the high overdraft limit is not heavily marketed, with the credit union’s message simply being that it has its members’ backs when it comes to overdrafts.
“The most common limits we have are much less than $10,000,” said Moody. “The average is more like $2,500. But we do have a segment of members who have the $10,000 limit. These are the individuals who use it the least.”
Moody noted that every new member, as soon as they join, receives the $10,000 limit until the credit union learns their banking and payment habits and needs.
“Even if they have colorful credit we know that things happen to good people, and they can still have the same overdraft or courtesy pay coverage as others,” he said. “That is certainly a unique part of our program. I think another thing that we try to do is be very consumer friendly. We try to waive fees as often as we can, but when we do that too often for a member we like them to take a free financial literacy class, which we offer monthly in person or virtually.”
No One Can Go ‘Crazy’
Moody said just as competition is driving down overdraft fees, he thinks competition will turn to limits in the near future.
“I think a high limit is certainly a differentiator, and we are not afraid to share we have high limits,” he said. “But, again, we don't overly promote it. We're not trying to encourage individual members to be irresponsible, thinking, ‘Gosh, I got a $10,000 limit. I can just go crazy.’ We would never want to encourage that kind of behavior. I think how we have handled this over the years, how we have promoted it over the years, has worked out very well for members.”
Moody reminded the use of courtesy pay declined dramatically during COVID.
“When people get focused on their finances they make fewer mistakes. When there's concern over the economy, they make less mistakes,” he said. “As a result, during tough economic times it's not uncommon to see the usage of courtesy pay go down because people are being more responsible.”
‘Living Our Mission’
Utah First does not view courtesy pay income as a revenue staple.
“We think it's a great service and we provide it for the benefit of our members, rather rely on it heavily for income,” he said. “This is about living our mission and being significant in the lives of our members. You do that and that is what will drive the bottom lie more than anything else.”