By Ray Birch
DES MOINES, Iowa—One credit union that has reduced its overdraft price to $10 says a price change alone isn’t enough to ensure members are treated fairly, so it has also hired a full-time financial counselor to proactively reach out to members who are heavy OD users.
In addition, Affinity Credit Union is also reporting what other credit unions have told CUToday.info—the reduction in price has led to a significant increase in member usage of the service.
“We decided to lower our overdraft from $25 to $15 in October of 2021, and now this year to $10,” said Chief Marketing Office Kris Laufer. “There's a couple different reasons we decided to do that. Primarily, we thought it was the right thing to do as a low-income-designated credit union whose majority of members are underserved and struggle with overdraft fees.”
Laufer said the move resulted in a surprise. While Affinity CU was prepared for a revenue hit as a result, that has not been the case.
“Cutting the fee has increased member usage of the service. That has offset the loss, somewhat. We have not taken a huge hit from a bottom-line standpoint,” he said. “Obviously, we have a budget and we have certain numbers that we need to hit to keep the lights on, and we have a responsibility to all of our members.”
Kris Laufer
An ’Interesting’ Finding
Laufer said Affinity maintains a dataset that updates the credit union on where it would have been, from a revenue standpoint, had it continued to assess the $25 fee.
“We would have collected nearly $1 million in overdraft fees in 2022 if we would have kept it at $25,” Laufer said. “What's most interesting, in 2021 when for the majority of the year we were at $25, we had 28,000 instances of overdrafts. In ’22, after cutting it to $15, we had over 37,000 instances. So, it's a significant increase in the amount of people taking advantage of the service.”
The credit union made its pricing decision well ahead of mounting scrutiny on overdraft programs by the CFPB and now NCUA.
‘We Wanted to Set an Example’
“Those regulations probably wouldn't affect us at $140 million in assets,” Laufer said. “But they will affect the larger institutions. Yet, we wanted to set an example. I don't want it to sound cliché, but we’re trying to live the credit union mission. We're trying to be a not-for-profit financial cooperative that is respectful of the financial obligations that we have to our members. You need to make money to offer the best products, but we're not here to price gouge anybody. We're here to be fair and to help our members the best we can…And our price also happens to be lower than just about anywhere else in our market.”
CEO Jeremy Smith pointed out most Affinity members are blue collar workers.
“They’re very low income, and many are living paycheck to paycheck,” he said.
Keeping Members from Payday Lenders
Smith emphasized that overdrafts, when fairly priced, provide a big benefit to members who would otherwise have to turn to payday lenders.
“This is something that makes it easier for them to handle the day-to-day,” he said.
Like WEOKIE CU in Oklahoma, whose approach to overdraft pricing was profiled in CUToday.info here, Affinity tracks what the reduction in overdraft fees has saved members and places the total on a “tracker” that is featured on its home page and regularly updated. Since 2022, Affinity has saved members $892,590, the tracker stated as of mid-February.
Counselor is Hired
Smith emphasized the decision to lower the OD price is only one step the credit union has taken to help those members feeling a financial pinch. The organization has also hired a full-time financial counselor whose main responsibility is to proactively reach out to members who regularly use overdrafts.
Jeremy Smith
As CUToday.info has reported, as consumer groups and media have targeted credit unions for their overdraft charges, CUs and their trade group have stated credit unions are taking steps to help those consumers who uses the service extensively.
Smith agrees the new financial counselor supports the position credit unions are not taking advantage of their members who use overdraft services, and noted the new employee is actively seeking out members who might be in financial trouble.
‘Won’t Find This at a Bank’
“This new person is a financial coach. That person has been working a lot with our members on budgeting. We’ve gotten a lot of positive feedback on this from members,” Smith explained. “Through our core system he looks to see what members have overdrafted their account the most within the last 12 months. We're reaching out to them proactively. We’re calling them or emailing them saying we have this new coaching resource. We'll set up a budget with you. We'll help you find ways to reduce the amount of fees that you're paying. Again, we're doing this proactively. We know this, as well, will potentially bring less revenue.
“But my big point is that we are a 38-employee credit union, and to have a financial counselor whose primary role is to focus on those people who overdraft…I don’t think you find that many other places, and certainly not at a bank,” Smith concluded.