Frequent flier, minus the airplane

Banking of late hasn't been much to laugh about, but a couple of days ago I heard a term that gave me a pretty big laugh:

frequent flier (n.): a credit union member who makes regular use of overdraft privilege on their checking account.

Our credit union currently offers a couple of similar services:  overdraft protection, and overdraft privilege.  Overdraft protection is an automatic transfer of money from a savings account to a checking account in order to cover a withdrawal from the checking account that would cause it to go negative.  Each transfer costs a small(ish) fee of $5, but this is way better than bouncing the transaction.  Overdraft privilege goes a step further and covers overdrawn transactions, up to $500 at a time per month, even if there is no money in the linked savings account. There is a higher fee for this ($25 per transaction) but even this is better than an NSF (non-sufficient funds) fee of $25 plus whatever the merchant tacks on for a returned check.

A small percentage of credit union members rely on this service to get by.  It's an expensive way to go about living, but as long as the fees (and the owed advance) are paid back, everyone's happy:  the credit union who get to collect the fees, the “frequent fliers” who get to spend (mostly) on their terms, and the more responsible part of the membership who gets subsidized service from the income off of all of those overdraft privilege fees.

However, as of mid-August of this year, unless a member has voluntarily opted into these overdraft services recently, they will no longer have them. It was the case that members could be opted in automatically, and it was also the case, and remains the case, that members can opt out at any time.  Now the opt-in must be in writing, and it must be in by mid-August to avoid any lapse in the services.

It's an offshoot of the CARD Act and it will likely hurt everyone mentioned above:

• Credit unions and banks will see reduced income. Some part (maybe even a majority) of the membership will re-opt in to the services, but not everyone.  Some will refuse.  Others won't opt in because they don't understand the service.  Others just won't hear about it.  The banks and credit unions face an uphill member and customer education battle to regain some of the membership coverage they had.  Income from the fees will drop relative to what it was.
• Members who were frequent fliers may get some nasty surprises. Let's say that one of the members who took advantage of the overdraft privilege for some reason didn't hear about the opt-in.  (They were living under a rock every time they got their statement.)  They go out to dinner in early September, close to the bone on their checking account as usual, eat a great meal, and their debit card is denied.  How embarrassing!  “But it worked last month!”  Not any more — until you opt in again!
• Responsible members will see fewer service rollouts. Less income for the credit union means fewer new ATMs, shorter hours, fewer ancillary services, longer waits, harder loan qualification criteria.  What was possible courtesy of all of those fees is a little tougher without them.

If people want to fly dangerously low on their checking account balances, and if they're willing to pay the price to do so, why shouldn't banks and credit unions be able to afford them that ability for a fee?  Why do banks and credit unions need to be forced to be babysitters for these folks?

Without losers there can't be many winners.