Limited and Varying Consumer Attention: Evidence from Shocks to the Salience of Bank Overdraft Fees

Abstract

The authors explore dynamics of limited attention in the $35 billion market for checking overdrafts, using survey content as shocks to the salience of overdraft fees. Conditional on selection into surveys, individuals who face overdraft-related questions are less likely to incur a fee in the survey month. Taking multiple overdraft surveys builds a "stock" of attention that reduces overdrafts for up to two years. The effects are significant among consumers with lower education and financial literacy. Consumers avoid overdrafts not by increasing balances but by making fewer debit transactions and cancelling automatic recurring withdrawals. The results raise new questions about consumer financial protection policy.

Keywords: household finance, attention, overdraft fees, intertemporal choice

JEL Classification: D14, D18, G13, G21