Title

Transaction Account Fees: Do the Poor Really Pay More than the Rich?

Document Type

Working Paper

Publication Date

9-27-2012

SSRN Discipline

Macroeconomics eJournals; Monetary Economics eJournals; Industrial Organization & Regulation eJournals; LSN Subject Matter eJournals; ERN Subject Matter eJournals; Financial Economics Network; Management Research Network; Economics Research Network; Legal Scholarship Network; Banking & Financial Institutions eJournals; Microeconomic Theory eJournals; FEN Subject Matter eJournals; Employment, Labor, Compensation & Pension Law eJournals

Abstract

During the Great Recession and its aftermath customers have become increasingly concerned about the fees banks charge for checking transaction accounts Some believe that banks' fee structures are unfair In particular commentators often argue that high overdraft and other fees paid by poor consumers crosssubsidize free accounts for rich consumers or businesses If true this regressive crosssubsidization could be forcing some consumers to do without banking services or to use more costly fringe financial service providers Moreover if regressive crosssubsidization exists it would provide a powerful argument for increased regulation of account feesIn spite of frequent claims that poor accountholders crosssubsidize rich accountholders there is little scholarship examining or establishing such claims This Article examines both theoretical and empirical evidence of crosssubsidization among transaction accountholders Contrary to the assumptions made in much of the account fee literature this Article concludes there is little evidence that the poor crosssubsidize the richWhat the Article however does find is contradictory account fee regulation Some regulations encourages fee structures with high overdrafts while other regulations simultaneously discourage overdraft fees This Article recommends that instead of focusing on crosssubsidization policymakers should work to establish a coherent theory of transaction account fee regulation A coherent theory of fee regulation could correct this inconsistency and provide clear direction for banks

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