LAKE BLUFF, Ill.-Third-party providers that recommend pricing overdrafts as a penalty as opposed to a safety net are "doing a disservice to credit unions," according to one person.

Michael Moebs, economist and CEO at Moebs $ervices, said overdraft pricing should be set below $20 per returned item. He explained that when the price is at that level, well below the CU average of $25, members do not view overdrafts as a penalty.

"So outside consultants, state leagues, CUNA and NAFCU, anyone that endorses higher prices is wrong," said Moebs. "The leagues and CUNA and NAFCU have to get on the bandwagon and go after their members whose overdraft programs are not a safety net."

If they do that, not only may credit unions be spared intense scrutiny from the CFPB, but they will preserve the $7 billion in overdraft revenue CUs make annually, asserted Moebs.

"If credit unions do not price below $20 they will lose a substantial portion of their overdraft revenue to community banks, which have learned the hard way by having to adapt to FDIC July 1, 2011, overdraft guidelines."

Doing the Math

Moebs said his company sees the pricing work consistently. "You can make money at every level of the service. You don't have to have a high price. If you have a low price people will use the service more," noted Moebs, who pointed out the pricing then competes favorably with payday loans. "You can have 20 members paying you $18 for $360 in revenue, or 10 people paying $25 for $250."

Moebs added that any effective overdraft program must also exclude high-to-low posting, and that transparency is critical-communicating to members about its process and pricing with common-sense language, and using text alerts and e-mail to quickly provide notice of an overdraft.

Moebs said pricing that makes overdrafts a penalty is creating much of the consternation. "The philosophy of overdrafts has changed. The Reg E opt-in has changed the behaviors of the frequent and even infrequent overdraft users, and they want overdrafts priced as a safety net. Consumers are telling banks and credit unions this. It's time to get on the bandwagon and price overdrafts accordingly."

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