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Consumers' Use of Overdraft Protection

Author

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  • Claire Greene
  • Mi Luo

Abstract

In mid-2010, an amendment was passed to Regulation E, which implements the Electronic Fund Transfer Act, requiring financial institutions to ask consumers whether or not they want overdraft protection for automated teller machine (ATM) transactions and everyday purchases made with a debit card. This Research Data Report studies the short-term impact of this amendment by examining consumers’ adoption of overdraft protection, the incidence of overdrawing at least once within a 12-month period, and the incidence of paying a fee for overdrawing, before and after the opt-in rule took effect. We find that for fall 2014 compared with fall 2009: • A greater proportion of people with a checking account said they have “overdraft protection,” as broadly defined in the survey questionnaire. • A smaller proportion of checking account owners overdrew their account balances at least once in the prior 12 months. • A smaller proportion of those who did so were charged a fee. These findings are statistically significant, but the economic impact is small. The data do not show a strong and immediate response to the implementation of the opt-in rule. Rather, mild trends may reflect the impact of the rule but might also reflect other economic factors.

Suggested Citation

  • Claire Greene & Mi Luo, 2015. "Consumers' Use of Overdraft Protection," Consumer Payments Research Data Reports 2015-08, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedadr:99534
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    References listed on IDEAS

    as
    1. Victor Stango & Jonathan Zinman, 2014. "Limited and Varying Consumer Attention: Evidence from Shocks to the Salience of Bank Overdraft Fees," The Review of Financial Studies, Society for Financial Studies, vol. 27(4), pages 990-1030.
    2. Emily Cuddy & Fumiko Hayashi, 2014. "Recurrent overdrafts: a deliberate decision by some prepaid cardholders?," Research Working Paper RWP 14-8, Federal Reserve Bank of Kansas City.
    3. Fusaro, Marc Anthony, 2010. "Are "bounced check loans" really loans? Theory, evidence and policy," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(4), pages 492-500, November.
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    Cited by:

    1. Meder, Björn & Fleischhut, Nadine & Osman, Magda, 2018. "Beyond the confines of choice architecture: A critical analysis," Journal of Economic Psychology, Elsevier, vol. 68(C), pages 36-44.

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    More about this item

    Keywords

    Overdraft protection; overdraft; Survey of Consumer Payment Choice; checking account;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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