CALRKSVILLE, Tenn.-Fort Campbell FCU says it has increased overdraft revenue and member service by using an automated tool that sets overdraft limits and adjusts them as members' behaviors change.

The move also has reduced risk and eventually write-offs, the CU is projecting. CEO Stewart Ramsey said the $430-million credit union implemented Velocity Solutions Intelligent Limit System (ILS), which regularly monitors member deposit and payment behavior to dynamically adjust limits, more than three months ago to benefit both the credit union and members.

"As we looked at our overdraft membership we noticed that some members who should not have the limit we gave them (standard $400 across all members) and were getting caught and we had to set up repayment plans," said Ramsey.

"We said there has to be a better way to protect the members and the credit union. Over time we believe it will reduce our overdraft write-offs because we are setting a limit based on members' capacity to repay, and also giving members what makes the most sense for their current level of activity and deposit base."

Ramsey admitted that changing members' overdraft limits could possibly bring a negative reaction from a small minority of members. Fort Campbell FCU, however, has received only a few calls since the new system was put in place.

ILS examines the age of the account with the credit union, cash flow to the account to see if that has changed, and then members' overdraft payment habits.

"Those who have great cash flow can typically receive a higher limit and not drive risk up," Ramsey said, noting that limits under ILS now range from $0 to $1,450. "It's just like doing risk-based pricing on your lending. It's the same philosophy. You set a credit limit for members based on their capacity to repay."

Ramsey said that relying on overdraft is not the best way for members to live their lives. But no matter what the credit union suggests to some, such as an overdraft line of credit, many choose to use overdrafts. "As we know, it's often a lifestyle decision and people do not want to change." The credit union charges $24 per overdraft.

Erik Hoghaug, chief overdraft strategist for Velocity Solutions in Wilmington, N.C., said the majority of credit unions choose to assign the same overdraft limit for all of their members.

"That really does not provide maximum service to your membership," Hoghaug said. "There are a lot of transactions that are being denied to members who have the ability to repay the overdraft because of that set limit. So you have to understand the unique characteristics of each of your members who use overdraft and set limits accordingly. The goal is to keep members happy and reduce risk at the same time-you'll also increase overdraft revenue as more members take full advantage of the service."

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