The New Etiquette of Courtesy Pay

March 30, 2010: Judy Matysik, Vice President of Client Services, Content & Design

If your financial institution offers courtesy pay, you probably know by now that automatic overdraft protection is going the way of the curtsey.

Effective July 1, 2010, banks and credit unions will no longer be able to provide automatic overdraft protection for ATM and debit card overdrafts; new customers and members will have to sign up for the service. (Checks and ACH transactions will continue to be covered.) The deadline for opting in existing customers and members is August 15.

What Have You Got to Lose?

Without automatic overdraft fees, financial institutions are looking to lose a substantial source of income. According to's 2009 Checking Study, the average nonsufficient funds (NSF) fee—typically what customers are charged for an overdraft—is $29.58. In addition, some financial institutions charge a fixed or percentage fee daily until the account is brought back to a positive balance.

According to the FDIC, three quarters of fees realized through deposit accounts were generated by NSF and overdraft fees, with most overdrafts coming from repeat offenders. Banks earned an estimated $1.97 billion in NSF-related fees in 2006. But if a debit or ATM card transaction is denied without automatic overdraft – which will be the case after August 15 unless consumers opt in—there generally is no fee charged. The potential loss of this profit center is a significant concern, especially since these fees often help subsidize free checking. So the consumer could lose out, as well as the financial institution. Your Opt-In Strategy In order to avoid losing out on overdraft fees, you should consider an opt-in strategy to make sure your customers and members sign up for overdraft protection. Some possibilities include:
  • Programming ATMs, if feasible, to offer an opt-in solution.
  • Including an overdraft privilege opt-in on new account applications.
  • Print materials, such as brochures, postcards and deposit envelopes.
Perhaps most important, consider using electronic communications, such as email and a prominent notice on your financial institution's website and social media presence, to encourage individuals to opt in. Text messaging may also be a good method. According to the FDIC, accounts held by young adults (ages 18 to 25)—ideal targets for text messaging—were the most likely among all age groups to have automated overdraft NSF activity. Regardless of your strategy, an integrated marketing approach is most likely to be successful in reaching your target audience in the manner they prefer.

This blog post was originally published on the Priority Blog at Priority Integrated Marketing is now BlueSpire Strategic Marketing.

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