Who Pays the Price? Overdraft Fee Ceilings and the Unbanked

44 Pages Posted: 2 Jul 2021 Last revised: 19 Jul 2022

See all articles by Jennifer Dlugosz

Jennifer Dlugosz

Board of Governors of the Federal Reserve System

Brian Melzer

Federal Reserve Bank of Chicago

Donald P. Morgan

Federal Reserve Bank of New York

Date Written: June 1, 2021

Abstract

Would a cap on overdraft fees increase financial inclusion? Studying an event in which state-level caps were relaxed for national banks, we find that caps constrain the supply of overdraft credit and deposit accounts. Absent caps, banks charge customers more for overdraft but bounce fewer checks and reduce required minimum deposits. Low-income households are both more likely to open accounts and less likely to lose them, suggesting they prefer being banked despite higher overdraft fees. Overdraft fee caps thus hamper, rather than foster, financial inclusion.

Keywords: banks, credit, overdraft, unbanked, inclusion, checks, price ceilings, usury

JEL Classification: D1, E43, G21, G38, G5

Suggested Citation

Dlugosz, Jennifer and Melzer, Brian and Morgan, Donald P., Who Pays the Price? Overdraft Fee Ceilings and the Unbanked (June 1, 2021). FRB of New York Staff Report No. 973, Rev. Dec. 2021, Available at SSRN: https://ssrn.com/abstract=3876646 or http://dx.doi.org/10.2139/ssrn.3876646

Jennifer Dlugosz

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Brian Melzer

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Donald P. Morgan (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
Research Department
New York, NY 10045
United States
212-720-6573 (Phone)

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