Good Riddance to the Non-Sufficient Funds Fee!

Unless you live under a rock, you know the notorious Non-Sufficient Funds (NSF) fee is dying. While this may be scary to some credit unions that rely on this awful fee to survive, the end is coming none-too-soon.

I have long loathed this unnecessary fee that punishes those who have the least. Even those who smugly claim the fee is in place to “modify behavior” know this is hogwash.

If you think NSF fees are valuable, try explaining them to a young person.

Young Member: What is this $35 fee you charged me?

You: That’s a non-sufficient funds fee.

Young Member: I know what it is, it says it right here. Why did you charge me?

You: Well, there wasn’t enough money in your account when Average Joe’s Fitness Center charged you their monthly fee.

Young Member: Yeah, that was my bad. So, you knew I didn’t have much money, and you charged me the fee.

You: Yes, you had non-sufficient…

Young Member: Yeah, yeah. I still don’t understand. Did you pay the gym for me?

You: No.

Young Member: Did it cost you $35 to deny the transaction?

You: Well, no.

Young Member (raises eyebrows): So why did you charge me $35?

You: Honestly, because we need the fee income to pay our bills.

You don’t charge the fee to "teach him a lesson" or to "help him manage his finances."

You charge the fee because you can.

In fact, most credit unions PRICE their NSF as high as they can to still be considered "competitive" in their market. It’s nuts.

In this way, it's far easier to explain a courtesy pay program to the young person. At least you performed a service for them. An EXPENSIVE service, to be sure, but a service nonetheless.

FinTechs like Chime have entered the market offering zero NSF and courtesy pay fees. Regulators and bureaucrats have always seen NSF fees as predatory. As a result, dozens of financial institutions are reducing or eliminating these fees before they are told they must do so.

But Jim, we need that revenue!

I know you do. Shame on us for relying on disgraceful fees like this for so long. You need to offset that revenue with loan interest revenue, and you can do so by increasing your net loan yield (the spread between your gross yield and your loss rate.)?An extra 100 bps in net loan yield generates an extra $10,000 for every million in loans.

Some extra advice: Figure out right now how much income is at risk for your credit union. If you don’t separate NSF from courtesy pay income, do it now. Most credit unions find that about 75% of their overdraft income is from courtesy pay and 25% from NSF. What’s the impact you would see if that portion dries up?

You don’t have to eliminate your NSF fee right away, unless you want to separate yourself from most institutions. But do me a favor. If you do eliminate your NSF fee, please don’t make smug public statements about how "NSF fees are not consistent with your values" or other malarkey like that, intending to make other credit unions look bad.

They were a part of your values up until five minutes ago.?If you feel compelled to make a statement, there’s nothing wrong with saying, "It’s important we deliver the best value we can to our members. This is yet another example of (credit union) putting money back into our members’ pockets."

About Jim Kasch

Always with an eye toward the future, Jim Kasch has had success as a speaker, consultant, and CEO, urging Credit Union leaders across the country to thrive by relating and serving unique members. In 2020, he launched the Buy Local Spend Local Program, a turnkey, regional program that connects credit unions and its members to locally-owned businesses in their community, encouraging them to not only buy local, but to also spend local by paying with their credit union’s debit or credit card for purchases. Learn more at buylocalspendlocal.com