Truth in Lending.
Truth in Savings.
Fair Credit Reporting Act.

All necessary evils. It’s interesting to look at those titles. They require financial institutions to tell the truth and to be fair.

It would seem like anyone wanting to be in the business of taking your money would already have those values. Wrong. So when we don’t tell the truth and we’re not fair, we get spanked with compliance. It’s the naughty stool. The time out issued by the Feds.

Almost everyone has lied at one time in their life. Whether it’s a little white lie or a whopper-of-a-televised-lie-in-an-interview. There’s some guilt, and if you’re caught you usually try to explain why it wasn’t really a lie…rather than just admitting, okay, I screwed up. I’m sorry.

My friend Jeff Hardin sent me a link to a podcast yesterday. It was the story of a single mom who got caught in the cycle of payday lenders. You see, the lenders lied. Of course they’ll tell you that they aren’t lying, they just don’t have to disclose everything because their business is not as regulated — yet.

I couldn’t help but think of the courtesy pay product that has become fee income heroin to many credit unions. We get to lie to members. Because “technically” we are not loaning them money, we don’t have to disclose an interest rate.

According to one credit union’s website:

It is a non-contractual courtesy that we extend to our Members who maintain their checking accounts in good standing. This feature is discretionary on the part of the Credit Union.

Back in the day (which, according to comedian Dane Cook was a Wednesday btw) the credit union I worked for had courtesy pay. We would look at the overdraft list and call members (as a courtesy) and let them know they needed to make a deposit or we were going to return a check. We did this for free. Most of the members brought money in right away and were very thankful for our courteousness. Now I get that we can’t possibly do that today. What with technology and all…but how about this:

If a member qualifies for a $700 courtesy pay limit, why wouldn’t you just qualify them for a $700 line of credit at 18% interest? The member would only have to pay $10.50 to repay that amount in 30 days. Instead of $27.50 per item (as noted on one credit union website) which puts the interest rate at around 50% – IF there was only one item paid for $700.00.

I found this company pops up first when you google “courtesy pay.” According to Parker in the video demo – you aren’t serving your members well if you don’t have a courtesy pay program. OH, AND you can Improve NSF income 120% to 400%

How can that be? One of the “features” of courtesy pay according to a credit union website:

Courtesy Pay is provided as a service to help you avoid additional fees by the merchant or payee. When you overdraw your account, a fee is assessed either as an NSF fee of $27.50 when we return the item unpaid to the merchant or payee, or as a Courtesy Pay fee of $27.50 when we pay the item.

Given that scenario, wouldn’t the fee income be the same to the credit union?

Here’s the saddest part for me. WE (meaning the credit union movement) were founded because of courtesy pay programs, aka loan sharks. People of small means could only get credit paying exorbitant interest rates. I’m not making this up..check it out:

Desjardins became aware of the outrageous interest being charged by loan sharks and organized the credit union to provide relief to the working class.

I hate to think that after 100 years (next year will mark the 100th anniversary of the first American credit union) that we would have to be legislated BACK to promoting thrift, telling the truth and charging fair rates.