What Is Courtesy Pay at a Credit Union?
Demystify Courtesy Pay at credit unions. Grasp how this service handles insufficient funds, its financial implications, and your options for control.
Courtesy Pay is a service offered by credit unions designed to cover transactions that would otherwise be declined due to insufficient funds in a member’s account. This discretionary service helps bridge temporary shortfalls, allowing payments to go through and potentially preventing additional fees from merchants. Understanding how Courtesy Pay works, its costs, and how to manage it can assist members in making informed financial decisions.
What is Courtesy Pay
Courtesy Pay is a discretionary service that credit unions may offer to allow certain transactions to clear even when an account lacks sufficient funds. Its primary purpose is to prevent declines, which can be inconvenient for members and may result in additional charges from third parties. Courtesy Pay is not a guaranteed loan; rather, it is a privilege extended by the credit union at its sole discretion.
This service typically covers various types of transactions, including checks (share drafts), Automated Clearing House (ACH) payments, and recurring debit card transactions. Some credit unions also extend coverage to in-person withdrawals and bill payments. It provides a safety net for members, helping them avoid the embarrassment of a declined transaction or the added expense of merchant returned-item fees.
How Courtesy Pay Operates
When a member initiates a transaction, the credit union first checks the available balance. If insufficient funds are present, the credit union may then decide to cover the transaction using Courtesy Pay. This means the credit union pays the merchant on the member’s behalf, and the member’s account becomes overdrawn.
The types of transactions eligible for Courtesy Pay coverage can vary. Federal regulations require a member’s affirmative consent, or “opt-in,” for Courtesy Pay to cover one-time debit card purchases and ATM withdrawals. Without this explicit consent, these transactions will typically be declined if funds are unavailable. However, transactions such as checks or recurring payments may be covered automatically, though members usually have the option to opt out.
Costs and Service Limits
Courtesy Pay typically involves fees charged for each transaction covered by the service. This fee is usually a flat charge per item that overdraws the account, commonly ranging from $20 to $35. If multiple transactions overdraw an account on the same day, a fee may be assessed for each individual item.
Credit unions often impose limits on Courtesy Pay, which can include a maximum dollar amount that an account can be overdrawn or a daily limit on the number of fees charged. Members are expected to repay the negative balance, including all associated fees, within a specific timeframe to maintain their account in good standing.
Controlling Courtesy Pay
Members have options to manage their Courtesy Pay service and avoid unexpected fees. For one-time debit card transactions and ATM withdrawals, federal regulations require credit unions to obtain a member’s affirmative consent before applying Courtesy Pay. Members must actively “opt-in” for these transactions to be covered, and they can also “opt-out” at any time.
Monitoring account balances through online banking, mobile apps, or telephone banking services can help members track their funds and avoid situations where Courtesy Pay might be needed. If Courtesy Pay is used, promptly repaying the negative balance and any fees within the credit union’s specified timeframe is important. Failure to repay can lead to consequences such as account closure or collection efforts by the credit union.