Transaction Account Fees: Do the Poor Really Pay More than the Rich?
University of Pennsylvania Journal of Business Law, Vol. 15, p. 65, 2012
66 Pages Posted: 27 Sep 2012 Last revised: 12 Jan 2013
Date Written: September 27, 2012
During the Great Recession and its aftermath, customers have become increasingly concerned about the fees banks charge for checking (transaction) accounts. Some believe that banks’ fee structures are unfair. In particular, commentators often argue that high overdraft and other fees paid by poor consumers cross-subsidize free accounts for rich consumers or businesses. If true, this regressive cross-subsidization could be forcing some consumers to do without banking services or to use more costly fringe financial service providers. Moreover, if regressive cross-subsidization exists, it would provide a powerful argument for increased regulation of account fees.
In spite of frequent claims that poor accountholders crosssubsidize rich accountholders, there is little scholarship examining or establishing such claims. This Article examines both theoretical and empirical evidence of cross-subsidization among transaction accountholders. Contrary to the assumptions made in much of the account fee literature, this Article concludes there is little evidence that the poor cross-subsidize the rich.
What the Article, however, does find is contradictory account fee regulation. Some regulations encourages fee structures with high overdrafts while other regulations simultaneously discourage overdraft fees. This Article recommends that instead of focusing on crosssubsidization, policymakers should work to establish a coherent theory of transaction account fee regulation. A coherent theory of fee regulation could correct this inconsistency and provide clear direction for banks.
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