Who Pays the Price? Overdraft Fee Ceilings and the Unbanked

47 Pages Posted: 2 Jul 2021 Last revised: 14 Jul 2023

See all articles by Jennifer Dlugosz

Jennifer Dlugosz

Board of Governors of the Federal Reserve System

Brian Melzer

Dartmouth College - Tuck School of Business

Donald P. Morgan

Federal Reserve Bank of New York

Date Written: June 1, 2021

Abstract

Would capping overdraft fees increase financial inclusion? Studying an event in which caps were relaxed, we find banks raised overdraft fees but also expanded overdraft coverage and deposit supply, leading more low-income households to open accounts. While inattentive depositors may not benefit from being banked, the rise in account ownership persists, suggesting newly banked households valued their account even after learning about its costs. We find no evidence that being banked weakens households’ broader credit health, including delinquency, indebtedness, and credit scores. We conclude that overdraft fee caps hamper, rather than foster, financial inclusion.

Keywords: overdraft, financial inclusion, unbanked, consumer credit, usury limit

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. July 2023, 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

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.brianmelzer.com

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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