Wednesday, February 14, 2024

SECU: Consider This - Chapter 14: Esse Quam Videri - Overdraft/NSF Fees, A Second Chance?

😎 Welcome to Unicorn World!: "Where seeing - not seeming - is believing!" ... different by design.

Esse Quam Videri - "To be, rather than to seem." 

The first rule in building a unicorn credit union is to look for opportunities to solve financial problems for the members.  Any old bank or "bank-wannabee" credit union can offer savings accounts, checking accounts, and loans -  nothing much to that, hey, that's industry standard!

Financial institutions are in the business of "buying and selling" money; and for most people, having enough money is a constant challenge.  So, Econ 101: Supply&Demand - the "demand" for money is universal and the "supply" is limited, therefore in finance, you have an unlimited number of customers all clamoring for your product. Not really that difficult a business then, is it? That's why you've never met a brain surgeon working at a bank - or credit union.   

✅ Now about those Overdraft/NSF* Fees: Most of us call it "Bouncing a Check"! ["NSF" - is short for "non-sufficient funds"]

Financial institutions make mega-money off charging their customers penalty fees of all types, often hilariously referred to as : "Service fees"! Same kind of whacky logic would mean that when a N.C. highway patrolman gives me a ticket, he is simply charging me a "service fee". Nah, pretty sure that's not what that ticket is all about.

If you believe that risk-based lending (RBL) is fair, then you probably believe that your fellow members ought to be slapped around a little - and "ticketed" - for bouncing a check. After all it is "The Eighth Deadly Sin", isn't it? - ranking right up there with sloth, lust, gluttony, greed, etc.

NSF fees in recent history have averaged @ $30 a pop and are a source of wild amounts of income for banks - and credit unions. If a customer makes a innocent mistake or miscalculates, then "hit 'em up" - hit 'em up good! "They" sin, "We" profit - have a familiar ring to it? 

SECU charged members $21 million in NSF fees last year ($17 million in 2022) and is on track to collect @ 30 million this year. (Don't forget that when a check is returned to a store, those folks usually charge another $20-$30 fee, too!)

SECU always had one of the lowest NSF fees around - $12 vs the others $30. There are costs and losses in handling NSF's, but those cost aren't really that much. No need to gouge the member just because you can is the way the thinking use to go at SECU - but times have changed.

But that's not the SECU NSF unicorn story. From the members perspective, NSF's are not a "cash cow". For members, NSF's are either an embarrassing oversight or an expensive financial problem. The "dirty little secret" you need to know is that @85% of the NSF fees charged are to only 8% or so of the members who bounce a check. Most members incur an overdraft rarely (generally by accident); that $30 million is being slammed against just a very few members, who obviously can't afford huge "service fees" - but who's problem is that?

To try and help all members, SECU introduced a new service: "Second Chance: NSF Free Days". New programs are always the result of the efforts of many employees; but Sue Douglas, former COO at SECU, probably deserves the "Atta-girl" on this one. The program was straight forward; starting January 1, each member was permitted two free overdraft days each year, with immediate alerts to provide members 24 hours to "cover the checks" without a return. The "two free day" clock would be reset each January 1.

That took care of the embarrassing oversights and did wonders for the reputation of SECU with the member-owners - they didn't have to worry about an overdraft any longer! The members could see the difference at their credit union!  

Now what about those other members - the "Naughty 8" %? [not to be confused with the "Crazy 8's"!]. It will probably surprise you, but members with recurring NSF's were told, if they overdrew more than 6 times a year that their account would be closed (and the credit union would show them how to use their base share account, the statewide branches, and 1200 ATMs to handle their financial transactions at no cost.) Members were told that they couldn't afford to pay "$30 million" in penalty NSF fees - that they had better uses for those hard earned dollars! 

And that, their credit union didn't need to "make it's living" off of their misery - the members agreed!


... "To be, rather than to seem"! ... ESSE QUAM!