By Ray Birch
LA CROSSE, Wis.–One credit union believes members must have more “skin in the game” than the standard overdraft fee if they’re going to change behavior and stop overdrafting.
That’s why the $1-billion Marine Credit Union has launched a new program, CoverIt, a subscription-based program that allows members to “dip into a grace zone” up to -$50 without being penalized with per item overdraft fees.
Members pay $12.95 per month for the subscription. If the overdraft protection is not needed that month, the member receives a five-dollar rebate as a “shared success for the member and Marine,” said Adam Keer, chief experience officer, who told CUToday.info CoverIt’s unique design was introduced to members as an alternative to the credit union’s traditional $35 overdraft fee.
As CUToday.info reported here, Marine CU said it is specifically focused on serving the underserved.
“We're doing things a little different here, creating a product to make sure our members who overdraft have more skin in the game,” said Keer. “Our mission is to help members improve their lives financially. The credit union can do a lot of things to help with that, with our products and services and pricing, but we need our members to take that step forward, as well. What we did was create a product that has some positive incentives, and disincentives, to create the right financial behaviors.”
Keer said Marine CU had just been seeing too many members heading down “an intolerable downward financial spiral” due to overdraft charges.
“They then begin getting into payday loans…,” noted Keer. “This program rewards members for using their overdraft protection responsibly and saving them from large overdraft fees.”
In the first two months of the program, Keer said more than 400 members enrolled and saved a combined $12,000 in overdraft fees.
Keer believes the grace period is key to saving members from overdraft charges, but added what really changes behavior that leads to more lasting results is the monthly charge, and the fact they can get $5 back if the grace zone is not used.
“This gives members a goal at the end of the month to shoot for; a little bit of extra incentive,” he said.
Adam Keer
More Effective Strategies
Keer also believes the subscription fee and rebate are more effective strategies for changing overdraft behavior than just dropping the $35 OD charge.
“One, people don’t really appreciate something for nothing,” said Keer. “They are paying a subscription fee and getting something back for their dollars. Too, dropping the overdraft fee sends the wrong message about overdrafts and that gets members to use the service more, something we want to discourage. We want members to do a better job of managing their checking account.”
The early results—number of members enrolled and dollars saved—are strong signs the program is working, said Keer.
Keer said CoverIt not only reflects the credit union’s attitude toward improving members’ financial lives, but also the cooperative’s stance on overdraft income reliance.
“We don't want to have our financial success at the credit union rely on something we don't want our members to do,” explained Keer. “CoverIt is our first big step in that direction. It’s about figuring out the right mix of sticks and carrots to have the financial results for a members we're hoping for.”
Income Goal? None
Keer said Marine designed CoverIt to be revenue neutral.
“There's a lot of assumptions that go into this program,” stated Keer. “We know we're going to have to pay attention over time to the mix of heavy overdrafters and light overdrafters that choose to sign up for the program, and the value we can deliver. We know that we'll have to tweak CoverIt over time.”
Keer said the credit union is already planning to look into new ways to add value for members from the program.
“We may someday have to shift away from overdraft (as the program’s focus) and provide other types of value,” he said.
Response to Lawsuits
As CUToday.info has extensively reported, the number of overdraft lawsuits against banks and credit unions has been rising in recent years. In response, lawyers have stated it is important, to avoid a negative outcome from an overdraft suit or to avoid being a target, overdraft disclosure documents must be very clear and straightforward.
Marine reworked its overdraft policy documents for CoverIt.
“We saw this as a great opportunity to work closely with our legal counsel to redo our overdraft disclosures,” said Keer. “They are written now in much more plain language with great examples—to really explain to members how this program works.”
Marine CU created a video explaining the product that can be viewed here.