Who Pays the Price? Overdraft Fee Ceilings and the Unbanked

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;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2021-06-01

Number: 973

Note: Revised July 2023