January 15, 2021
Chances are if you have a checking account with a financial institution, you know what it means to overdraw your available balance. When you overdraft, you don’t have enough funds in your account to cover a transaction, so the institution will either decline the charge or foot the bill. Many banks charge fees when you overdraw your checking account on checks or bill pay transactions. Credit unions are no different. They just have a special name for them — courtesy pay fees.
What Is a Courtesy Pay Fee?
Credit unions’ courtesy pay programs allow the institution to cover a transaction when an overdraft occurs, or you don’t have enough money in your checking account, up to a certain limit set by the institution. When you overdraft utilizing courtesy pay, the credit union will charge you a courtesy pay fee.
Courtesy pay is credit unions’ form of standard overdraft protection, but like banks, you can also set up other forms of overdraft protection — such as linked checking or savings accounts, or a line of credit — to cover transactions that cost more than your available balance. Credit unions will typically attempt one of these forms of overdraft protection, if applicable, before applying courtesy pay.
When you incur a fee, it may appear on your statement as:
- Courtesy pay fee
- C-pay fee
- CP fee
- CP item
- Or in some other slightly ambiguous form
Some credit unions, including Navy Federal Credit Union, refer to these fees as overdraft fees like their bank counterparts. However, you should always be on the lookout for the courtesy pay fee if you bank with a credit union.
What Does Courtesy Pay Cover?
Unlike with banks, which require you to either opt into or out of overdraft protection, courtesy pay at credit unions automatically applies to certain types of transactions, typically including:
- ACH transactions
- Recurring debit card transactions, such as bill pay
But credit unions don’t cover just any type of courtesy pay transaction. In order for them to authorize and pay overdrafts using courtesy pay coverage on one-time debit card transactions and ATM withdrawals, you must first opt in.
If you have not opted into the additional courtesy pay program but have set up another form of overdraft protection — such as a linked account or line of credit — one-time debit card or ATM charges that overdraft your checking account will likely be covered by the overdraft protection. If you are not opted into the additional courtesy pay program and also have not set up another form of overdraft protection, those charges will usually be denied.
You may opt into or out of both the automatic courtesy pay program (checks, ACH, and recurring debit card transactions) as well as opted-in courtesy pay (one-time debit card and ATM transactions) at any time.
Depending on the credit union, courtesy pay fees may also apply to money market accounts in addition to standard checking accounts.
How Much Does a Courtesy Pay Fee Cost?
According to Cushion’s analysis, the average courtesy pay fee costs $27.30, most often running $25, $29, or $30 per overdraft charge.
Courtesy pay fees charged by credit unions are slightly lower than overdraft fees charged by banks, which hover around $35. In general, credit union fees tend to be lower than bank fees.
Who Is Eligible for Courtesy Pay?
The majority of credit unions specify that their courtesy pay programs are only available to customers whose accounts are “in good standing”. Some criteria that credit unions have for an account to be in good standing require that you:
- Make regular deposits
- Have no charge-offs
- Have not already exceeded the courtesy pay limit set by the credit union
- Have no delinquent accounts with the credit union for more than a certain amount of time, such as 30 days
- Or that your checking account has been active for a certain amount of time, such as 30 days
Credit unions use courtesy pay on a case-by-case basis and may choose not to cover a charge even if you meet the criteria and have not exceeded the courtesy pay limit. If a credit union chooses not to cover a charge, you may still incur a non-sufficient funds fee, or NSF fee. You cannot be charged both a courtesy pay fee and an NSF fee on a single purchase.
How to Avoid Courtesy Pay Fees
Courtesy pay fees can unfortunately be inevitable. Luckily, there are small things that you can do to keep a positive balance and decrease your chances of incurring these fees.
Keep an eye on your account balance and charges
Pay attention to both your actual balance and available balance. The actual balance is the amount of money in your account at any given time, while the available balance reflects how much you are free to spend by taking into account deposits and pending payments. If you do not have sufficient funds in your available balance then you will overdraft, and banks are not legally required to notify you if you’ve overdrawn your account. They could apply an overdraft fee and deduct money from your account, leaving you with a negative checking account balance, without you ever having known.
They can also charge multiple overdrafts in a single day. If all of your bills come out at once, you could find yourself hundreds of dollars in the red.
It’s important that you monitor your checking and savings account balances closely and regularly using mobile or online banking. This will ensure that you’re up to date on when you have sufficient funds in your account.
How can Cushion help me?
Cushion Bill Pay gives you more visibility and control over your finances than ever before. Many people get hit with bank fees—such as overdrafts and late fees—due to cash flow problems. With Cushion, you can consolidate and track all of your bills and BNPL payments in one place, plan your budget by reviewing what’s coming down the pike, and avoid overdraft fees by temporarily pausing payments that might overdraft your account and resuming them when you are ready.
Sign up for low-balance notifications
Rather than manually checking your available funds and charges, you can sign up for notifications that alert you when you’re nearing a low balance. Most online banking and mobile banking apps offer this feature and allow you to set the threshold yourself.
This doesn’t give you a pass to neglect your bank account. You should still be monitoring your account regularly. This allows you to identify mistakes, like if someone has stolen your debit card number or if you’ve been charged more than once for a bill.
Low-balance notifications won’t let you in on insights like these, and monitoring your account for mistakes can be one of the most lucrative ways to put money back in your account so that you don’t overdraft.
Don't opt in
Overdraft protection can give you peace of mind knowing that you can withdraw money or make a purchase even if the funds aren’t currently in your account.
While opting in may seem to be the default for many account holders, not opting in altogether could save you a ton of money. If you try to make a purchase but it’ll send you into overdraft, the purchase will be declined. You might not want to opt in if: you don’t have a lot of essential bills to pay, you’re trying to manage your spending, or you’re an avid user of mobile banking, online banking, or text message alerts.
Another option is to opt in but choose the right overdraft protection service. If you link your checking account to a secondary checking account, savings account, credit card, or line of credit, you might still get a fee, but it could be cheaper than the standard overdraft fee. Remember that you can opt into and out of these program at any time.
How to Get a Courtesy Pay Fee Refund
Because courtesy pay is essentially a credit union’s form of overdraft protection, you should be able to follow the same steps for a courtesy pay refund as you would for an overdraft fee refund from any other bank.
When calling your credit union for a refund:
Gather your personal information
Your credit union may ask for: your name, address, social security number, and/or your account number.
Politely introduce yourself
“Hello. My name is [your name], and I recently received a courtesy pay fee from you. I’m contacting you to see if you would be willing to refund this fee.”
Prepare your points of leverage
Have you been financially affected by COVID-19? Are you a loyal customer who has multiple accounts or has banked with the credit union for an extended period of time? Do you make regular deposits? Do you not commonly have insufficient funds in your account? Is this overdraft a rare occurrence?
Be polite, persistent, and prepared not to get a refund every time
A little kindness goes a long way. Remember: The representative that you’re speaking with on the phone likely didn’t write the rules on refunds.
But also, don’t hesitate to press the issue if you initially hear “no”—that’s what your points of leverage are for. Sometimes, success depends on the representative that you speak with, so try calling back a few days later to speak with someone new.
Finally, you have to be willing to lose some negotiations. Try not to get discouraged, but do try to take the necessary steps to avoid an overdraft fee in the future.