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Brian Melzer on Who Pays the Price? Overdraft Fee Ceilings and the Unbanked

Associate Professor, Tuck School of Business, Dartmouth
October 26, 2022
2:50 pm
Civitas Finance Seminar

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Room 101

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.