EAST LANSING, Mich.-Michigan State University FCU here has unveiled a program it calls "Balance Shield" that permits members to overdraft their checking accounts by $5 before any fees kick in.

"We have a young membership, and we serve a lot of college students," explained April Clobes, EVP/COO at the 169,000-member, $2.3-billion credit union. "Their typical behavior is maybe not to balance their account every day or know their balance."

About one-third of MSUFCU's overdrafts are $5 or less, and Clobes said that many members often call to request that the $30 overdraft fee be reversed because the account was only overdrawn by $1.

"We do a good amount of fee reversals every month," said Clobes. "We wanted to offer a product to put members in a better financial position and to also reduce having that call need to be made."

Clobes added that the new service allows the credit union to demonstrate the value it provides to members while promoting a solution that it was already performing on an informal basis.

Balance Shield allows members to overdraft up to negative $5 in the account with no fees, regardless of how many transactions it takes to reach that $5 mark. Once the account hits $5.01 in the hole, the overdraft fee is applied.

"We looked at the number of balances that were negative and the different dollar amounts, and this was really for a good percentage of those accounts," said Clobes.


Effect On Fee Income

MSUFCU made $9.5 million in fee income in 2012, which accounted for 36% of its total non-interest income. Clobes said that the credit union estimates that the new program will drop its courtesy pay fee income by about one third, "but I also expect some of it we were already reimbursing."

Clobes said MSUFCU has opted not to drive the business using fee income, and it is not projecting the new pricing decision will have much of an impact on the balance sheet.

The $30 overdraft charge has not changed, and the credit union still offers a variety of free overdraft channels, including linking accounts with other members (such as a husband or wife) or drawing from savings accounts or lines of credit. MSUFCU is promoting Balance Shield with web banners, in its newsletter, email blasts, social media postings and more.

While some have said the CFPB may soon look into changing overdraft regulations, Clobes said none of those concerns went into crafting this product.

"We talked about this last year at a board planning meeting and really just worked to implement the programming correctly, give it a brand name and make sure everything was in order, and that the staff was trained and aware to talk about the product," she said. "We really looked at it as a good approach to provide great service to our members and do the right thing."

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