Banking Fees.

• Author: Van Doren, Peter

* "Who Pays the Price? Overdraft Fee Ceilings and the Unbanked," by Jennifer L. Dlugosz, Brian T. Melzer, and Donald P. Morgan. Working paper, November 2020.

Nearly 25% of low-income U.S. households are unbanked. Many observers believe that overdraft fees are the cause. In 2015, banks collected nearly $12 billion in overdraft and bounced check fees, constituting nearly two-thirds of their deposit account fees. Sen. Corey Booker (D-NJ) has introduced legislation to limit such charges.

This paper examines a "natural experiment" in which a 2001 federal regulation relaxed the state-level overdraft fee limits that previously constrained nationally chartered banks in four states. During the late-1990s and early 2000s, Alaska, Illinois, Missouri, and Tennessee imposed caps on the overdraft and bounced check fees that banks could charge their residents. In 2001, the Office of the Comptroller of the Currency (OCC) issued a ruling that federal law preempted those state laws in the case of nationally chartered banks, which had roughly 50% deposit market share in the affected states.

In response to the OCC ruling, nationally chartered banks in those states increased their overdraft fees by about 10% but cut their...