First Financial FCU is throwing out a safety line to members who are misusing its courtesy pay program, and who migh also otherwise reach out to predatory payday lenders.
Called Safety Line, the new service is sort of a twist on courtesy pay programs and offers a less-expensive way for members to avoid bounced check fees, while also avoiding the need to go to high-priced payday lenders.
"About 80% of our members are using courtesy pay the way it was intended-just a few times a year here and there," explained FFFCU CEO Rob Windsor. "But 20% were paying us a lot more than they should be. We realized we needed to develop something for them."
Safety Line is a line of credit where the balance of the line is transferred from direct deposit. Lines of credit are capped between $200 and $500, and when the limit is reached, the line is closed out.
There is no application for Safety Line, and members are charged a monthly fee of $5 plus interest at 12.9%. "Our courtesy pay fee is $15, which is pretty low, but even with that low fee we see people who are paying thousands in courtesy pay fees," Windsor noted. "If a person doesn't use Safety Line three months in a row, the fee disappears. Then, when they need it again, the fee starts up again."
The $520-million CU recognized the need for such a program to help its members-but also recognized an opportunity to demonstrate the credit union difference.
The recent congressional hearings on whether CUs are still deserving of the tax exemption weren't a deciding factor or even a precipitating factor in FFFCU's decision to create Safety Line, Windsor said, adding, "I've been in credit unions for 27 years, and I haven't changed my philosophy because of the political environment, but it was one more pro for doing this. We saw members who couldn't afford to be paying us what they were paying us."
Moreover, the 53,000-member credit union was not a courtesy pay pioneer. "We were not the first one on the block to offer courtesy pay because I was concerned that it would be abused," he noted. "But in networking with my peers at other credit unions, I kept hearing how much members liked it and how well it was working, so we started offering it, too."
But Windsor's concerns were valid as some members did, indeed, abuse courtesy pay, and those members were paying the price.
That's why FFFCU is marketing Safety Line, which rolls out Jan. 1, only to those members who are misusing courtesy pay.
"We're not going to be putting this in our quarterly newsletter," he offered. "We are identifying the 20% [who misuse courtesy pay] and direct market to them."
And marketing this product will be a big part of the challenge. "We don't want to insult them or get them upset with us," Windsor commented. "A lot of these people don't realize how much they've been paying us, and if we show them what they've been paying us, they may feel like we're the bad guys when we're not."
Similarly, the CU had to be careful not to create too sweet of a deal that would cause the rest of its membership to want this product, too.
"It's such a short-term loan that the interest rate hardly matters, so we were originally looking at making it lower, maybe around 4%," Windsor related. "But then I talked with a woman in Louisiana who does a lot of this kind of lending and she said it was important to set the rate higher, or else you'd have all your members with good credit wanting to know why they aren't getting this deal."
So, First Financial bumped the rate to 12.9%, and while the $5 monthly fee is less than the $15-per-check fee charged for courtesy pay, most members who are only using courtesy pay a few times a year at most are better served by traditional courtesy pay.
In fact, the only group who doesn't "benefit" from the new Safety Line program is the credit union itself.
"If all of the members we market this to sign up for it, our revenues will go down because we will be saving them a lot of money," he said. "But we have a healthy ROA, and we can afford that. And it's the right thing to do. That's the difference between credit unions and banks."
