Who Pays the Price? Overdraft Fee Ceilings and the Unbanked

45 Pages Posted: 2 Jul 2021

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 2021

Abstract

Nearly 25 percent of low-income households in the United States are unbanked. High fees are often cited as a reason they remain unbanked, leading some to believe that limiting bank fees would improve financial inclusion. We use the federal preemption of state limits on overdraft fees to study the impact of fee ceilings on low-income households. After preemption, national banks raise overdraft fees relative to state-chartered banks in affected states. However, banks in affected states also provide more overdraft credit and bounce a smaller share of checks following preemption. The share of low-income households that are unbanked decreases, consistent with price ceilings causing the rationing of both overdraft and banking services.

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 2021). FRB of New York Staff Report No. 973, 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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