BIRMINGHAM, Ala. — The Alabama Credit Union League is firming up its public policy on overdraft protection, warning that unnamed financial institutions–primarily banks–are taking advantage of consumers with unsavory practices.

In a formal statement on so-called courtesy pay programs, the league also reminded regulators and lawmakers that the product should be treated as a special member service or an account feature rather than as a loan.

The league statement came amidst new congressional and state scrutiny given to overdraft protection as some regional banks, including those in Alabama, are re-pricing products or adopting procedures consumer groups find predatory.

In its policy position adopted Nov. 27, the league said it finds some courtesy plans on the market unfairly “structured and operated,” and harmful to the consumer.

“The league supports and encourages the full disclosure of courtesy pay program features to the consumer at the opening of the account,” a statement read. Among practices deemed unjust is the manipulation of the order of check payment to maximize the number of overdrafts. In addition, the league deplores maximizing income potential by including overdraft coverage amounts as part of balance available.

The league statement stressed that courtesy pay is a valued service that members may “need or desire.” On the other hand, it can be detrimental to consumers if misused.

The policy went on to encourage CUs “to monitor accounts with courtesy pay features for signs of abuse of the program and to offer counseling to consumers who abuse the feature.”

Without naming banks, Stephen Swofford, chairman of the league and president/CEO of Alabama CU of Tuscaloosa, said that in recent months “there have been a handful of regional banks in our state that seem to take advantage of consumers” on courtesy pay. This is what prompted the league board's decision to issue a policy clarifying the CU stance.

He also noted that some banks are reaping windfall income, “particularly when an account goes negative and they charge $38 for NSF.”

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