First, let’s talk a little about what courtesy pay is. If you borrow my way-back machine to when I first started in banking, we used to get a report in the branch everyday that said which checks were clearing that would cause the customer to be overdrawn. Then the branch manager would look at each one and decide ‘yep, Jane is good for that, I’ll let it go’, or ‘oh no, this customer owes me money from the last time, let’s return that check’. The decision to cover a check was considered a courtesy to good customers who must’ve made an honest mistake.
Then, as volumes increased, banks realized they couldn’t really make those personal decisions everyday, but they still wanted to give their best customers the benefit of the doubt. Along comes automation and nowadays your financial institution can assign a courtesy pay amount to your account where they will automatically approve a check (or electronic transaction) against your account up to a pre determined limit. Viola! Now the branch manager doesn’t have to review those everyday and the good customers can still get things covered when they need to.
One difference though.
Today when that happens, the institution also charges you a fee for the courtesy of covering your mistake. Now this can be a good thing, especially when late charges on mortgages can be more than twice the cost of an overdraft fee, on top of damage to your credit if payments are late. And it’s a fair thing. After all you’re using the banks money until yours gets there, almost like a short term loan.
So when can a courtesy pay program become dis-courteous?
Well, when you don’t know about the fees and how they work. Or when the institution puts you in a position of having to pay fees because they made you think you had more money than you did because they included the courtesy amount as part of your balance. Or when you’re charged fees multiple times for the same mistake.
Be a smart consumer. Read those papers they give you when you open an account. Really. Ask your institution whether or not they have a courtesy pay program, if you are eligible and how much they will let your account go negative. Ask them how your balance is determined and whether or not the courtesy pay is included. And when you make a deposit, make sure you understand when those funds are available for you to spend.
Don’t wait until you get hit with a fee of $25 (the average in this area) for a $2.00 iTunes purchase.