How NSFs Are Used To Help Members

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Credit Union: State Employees (Mich.)

Nominated By: AFTECH

Nominated For: Overdraft Protection Program

Can a credit union actually reduce the number of checks returned for non-sufficient funds by making it more convenient for members to write them?

That phenomenon is taking place at State Employees Credit union, Lansing, Mich. The $640-million credit union has used an AFTECH program that, while seeming to encourage NSF checks, instead helps members better manage their funds, according to Alan Darbe, SECU's vice president of information systems.

"Over the years members said they received nothing in return for the NSF fees we charged on returned checks," says Darbe. "Under this process, SECU covers the NSF checks and members pay the necessary fees. In most cases, they pay the fee willingly because we have provided them a service."

SECU installed the overdraft protection program May 1. Unlike other similar programs, the one from AFTECH allows varied amounts and frequencies of NSF checks and debit cards overdrafts based on a variety of factors:

* Length of membership. The longer the check writer has been a member, the higher the overdraft amount can be.

* Average three-month balance. The greater the average balance, the higher the overdraft limits.

* NSF history. The fewer the number of past overdrafts the member has in his or her record, the greater the limit of future coverage.

* Current status: Has the member been operating a negative balance for a certain past period? If so, the credit union may not cover the overdraft.

SECU also allows members to choose whether or not they want to participate in the plan and whether they want NSF checks returned and debit transactions denied. Returning those checks is actually more time-consuming, costly and difficult to manage than covering the overdraft, notes Darbe.

"On the other hand, when a member buys coffee with a debit card and doesn't have funds to cover the payment, he's suddenly bought himself a pretty expensive cup of joe," says Darbe.

Despite that, the new program has generated very positive responses, says Darbe. The number of items returned marked NSF has dropped 75%, reducing daily processing from one to three hours. As expected, processing costs also have declined. In fact, the only thing that's increased has been calls to the processing center over the past three months as members have adjusted to the new service, he says.

SECU did have to alter its system to accommodate the new program, working closely with its vendors, including AFTECH, to do so. But if all goes according to plan, the system should pay for itself in six months and SECU anticipates more than $1 million in increased annual revenues from the program, Darbe says.

Best of all, the IT vice president says the relationship management algorithm that Bank Insights developed to drive the program can be applied in other ways, specifically in determining ATM usage and over-the-counter deposit hold patterns.

"The algorithm gives us a good feel as to the member's true relationship with SECU and results in longer-term member retention," Darbe says.

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