Having your debit card declined can be an embarrassing situation. However, if you opted in, your credit union’s courtesy pay fee will save the day.
For a fee, the institution will approve your transaction, and you can breathe a sigh of relief.
Until you see your month-end bank statement.
Credit unions aren’t required to inform you that you’ve been charged courtesy pay fees. You can be charged multiple courtesy pay fees without knowing it.
If you qualify and avail of your credit union’s courtesy pay fee service, they can decide NOT to clear some insufficiently funded transactions.
The only thing certain is that the credit union is making good money.
What Is a Courtesy Pay Fee?
A Courtesy Pay Fee is a payment made to a credit union to clear an insufficiently funded transaction. It’s the credit union’s version of the bank’s overdraft protection fee.
Credit unions describe a courtesy pay fee as a “service.”
To avail of the service, you must opt-in to the credit union’s courtesy pay program. Although courtesy pay fees vary, Cushion’s analysis estimates the median cost at $27.50.
Once you’ve opted in and an overdraft occurs, the credit union will allow the transaction to be processed, and you’ll be charged a courtesy fee.
For example, you purchased a pair of Air Jordans with your debit card. If the account linked to your debit card doesn’t have enough funds to pay for the shoes, the credit union will clear the transaction and charge you $27.50.
For $27.50, you get to be like Mike.
If you didn’t opt-in for the courtesy pay service, you’ll go home empty-handed, and you’ll be charged a Non-Sufficient Funds (NSF) fee. According to the Consumer Financial Protection Bureau, the median cost of an NSF fee is $32.
What Transactions Are Covered by a Courtesy Pay Fee?
With banks, you must opt-in to their overdraft protection program to avail of the service. Some credit unions automatically apply courtesy pay services to the following transactions:
- Checks
- ACH transactions
- Recurring debit card transactions, such as bill pay
However, for one-time debit card transactions and ATM withdrawals, you must first opt-in to the courtesy pay service.
If you haven’t opted into the courtesy pay program but have other overdraft protection, such as a linked account or line of credit, it will likely cover one-time debit card or ATM charges that overdraw your account.
If you have not enrolled in the additional courtesy pay program and have not set up another form of overdraft protection, those charges will usually be declined.
Depending on the credit union, courtesy pay fees may also apply to money market accounts and standard checking accounts.
💡Note: You may opt into or out of the automatic courtesy pay program (checks, ACH, and recurring debit card transactions) and opted-in courtesy pay (one-time debit card and ATM transactions) anytime.
How Do You Qualify for a Courtesy Pay Service?
You must be “in good standing” with the credit union to qualify for the courtesy pay service.
What qualifies as “good standing?”
- Regularly make deposits.
- You have no charge-offs.
- You haven’t exceeded the courtesy pay limit set by the credit union.
- You have no delinquent accounts with the credit union for some time, such as 30 days.
- Your checking account has been active for some time, such as 30 days.
Keep this in mind before deciding to opt-in your credit union’s courtesy pay service:
Credit unions use courtesy pay on a case-by-case basis.
They may choose not to cover a charge even if you meet the criteria and haven’t 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.
💡Note: You cannot be charged a courtesy pay fee or an NSF fee for a single purchase.
What Are the Costs and Fees Associated with a Courtesy Pay Fee?
If you availed of your credit union’s courtesy pay service, you might pay more than you signed up for.
As mentioned earlier, credit unions describe courtesy pay fees as a service. According to a report by the CFPB, courtesy pay and overdraft fees are revenue drivers for credit unions and banks.
The CFPB traced the fee increases to the 1990s when debit cards became the popular payment method for consumers because they were easier and more convenient than checks.
Banks and credit unions raised their fees to capitalize on the high volume of debit card transactions.
You may be charged multiple fees if the retailer, supplier, or creditor attempts to process the transaction multiple times.
From 2015 to 2019, banks and credit unions generated an average of $12 billion annually from overdrafts, NSF, and courtesy pay fees.
The financial institutions became richer as more consumers experienced overdrafts.
The CFPB believed the overdraft fees paid by consumers included “hidden charges,” such as interest, holding fees, processing fees, and opt-in fees. The CFPB labeled these charges as “junk fees.”
Eventually, banks and credit unions began scaling back the fees. By 2021, one-quarter of credit unions had stopped charging NSF fees.
How to Avoid Courtesy Pay Fees
Courtesy pay fees happen because we forget or lose track of where our money goes.
You’re not alone.
26.5% of households paid courtesy, NSF, and overdraft fees in 2023.
It’s normal and can be avoided.
Courtesy pay fees can, unfortunately, be inevitable.
1. Monitor Your Account Balance.
Pay attention to both your actual balance and available balance.
The actual balance represents the amount of money in your account at any given time, while the available balance reflects the funds you can spend, accounting for deposits and pending payments.
- If you don’t have enough funds in your account, you may overdraft, and banks aren’t obligated to notify you of the overdrawn status.
- They could apply an overdraft fee and deduct money from your account, leaving you with a negative checking account balance without you knowing.
- 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 current on when you have sufficient funds in your account.
2. 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 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 was 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.
3. Think Before You Opt-in
Overdraft protection can give you peace of mind knowing that you can withdraw money or 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 programs anytime.
How to Get a Courtesy Pay Fee Refund
Courtesy pay is essentially overdraft protection. The process for requesting a refund is the same: Contact customer service.
Here are four tips for getting your courtesy pay fee refund request approved.
1. Provide Personal Information for Verification Purposes.
Your credit union may want to verify your account. Prepare the following information:
- Full name
- Home address
- Social security number
- Mobile number
- Account number
2. Be Polite and Respectful.
Remember, you’re making a request, not a demand.
Be respectful to the person attending to your request.
“Hello. My name is, 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.”
3. Explain Your Current Situation.
Explain to them why you want the fee refunded or reversed. You can cite your current situation or highlight your relationship with the credit union to justify your request.
For example:
- 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?
4. Anticipate That Your Request Might Be Declined
The batting average for approved requests isn’t 1,000%. It might not even be 0.500%.
If your request is declined, ask why. Knowing the reason why your request was declined gives you an idea of how to negotiate a resolution.
Remember to be polite because the representative is only following the rules. They didn’t write them.
Try calling after one to two days. Sometimes, success depends on the representative you speak with. Hopefully, the next representative who handles your request will be more understanding.
Are Courtesy Pay Fees Subject to Regulation and Policy?
In 2024, the CFPB proposed a rule requiring banks and credit unions to disclose all charges in their fees.
The CFPB pushed for the following changes:
- Elimination and reduction of overdraft, NSF, and courtesy fees.
- Limits on the number of fees a depositor can be charged in a day.
- Extending depositors a grace period to bring the account balance up before charging fees.
- Establishing a de minimis threshold below which depositors aren’t charged fees.
- Defining overdraft and courtesy pay fees as “conveniences” for depositors, not profit drivers for the banks and credit unions.
- Charges could be calculated based on their costs or benchmarks established by the CFPB.
The CFPB has established the fee benchmarks at $3, $6, $7, and $14.
The CFPB’s proposed rule will take effect in October 2025 and will save consumers $3.5 billion in fees.
Frequently Asked Questions (FAQs)
Which credit unions offer courtesy pay fees?
Many credit unions offer automatic and opt-in courtesy pay fees. These credit unions include Credit Union1, Service Credit Union, United Credit Union, Delta Community Credit Union, United Federal Credit Union, and Greenville Federal Credit Union.
Can you opt out of courtesy pay?
Yes. You can opt out of courtesy pay anytime.
Summary
A courtesy pay fee is a service offered by credit unions that clears insufficiently funded transactions. It’s similar to the overdraft protection fee charged by banks.
Some credit unions automatically pay courtesy fees to transactions processed through checks, ACH, and recurring debit card payments.
For one-time debit card transactions and ATM withdrawals, you must opt in before you can avail yourself of the service.
Although the cost of courtesy pay fees will vary, the median cost is $27.50 per transaction. You can be charged multiple times if the retailer, service provider, or creditor attempts to process the transaction multiple times.
The CFPB has proposed a rule requiring credit unions to disclose the charges incorporated in their courtesy pay fees.
It’s hoped when the proposed rule takes effect in October 2025, consumers will save $3.5 billion annually in overdraft, NSF, and courtesy pay fees.
