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69 Wash. & Lee L. Rev. 1141 (2012)
The Economics and Regulation of Bank Overdraft Protection

handle is hein.journals/waslee69 and id is 1145 raw text is: The Economics and Regulation of Bank Overdraft Protection Todd J. Zywicki* Abstract Consumer use of bank overdraft protection has risen rapidly over the past decade, leading to increased scrutiny and the imposition of new regulations. Public and political debate regarding overdraft protection has highlighted anecdotal stories about irresponsible college students who overdraw their accounts to buy a cup of coffee, thereby triggering substantial overdraft fees. But there has been little systematic examination of the safety and soundness or consumer protection issues implicated by the increased use of overdraft protection. Available evidence indicates that those who rely on overdraft protection tend to have low credit ratings and use overdraft protection to maintain short-term liquidity because it is less expensive and more convenient than available alternatives. These alternatives include other credit options, such as payday lending, or options such as bounced checks or dishonored payments, the latter of which may result in eviction or termination of utilities or other services. There is no evidence that those who use overdraft protection are unaware of the cost or otherwise use overdraft protection foolishly or unknowingly. In addition, there is no evidence that banks are earning economic rents off the issuance of overdraft protection, as increases in overdraft revenues have been offset by dramatic increases in free checking, improved quality, and free services offered * George Mason University Foundation Professor of Law; Senior Scholar, Mercatus Center at George Mason University School of Law; Editor, Supreme Court Economic Review. Funding was provided by the Mercatus Center. Special thanks to International Bancshares Corp. (IBC), a major regional bank operating throughout Texas and the Southwest with approximately $12 billion in assets, which generously agreed to provide data on the use of overdraft protection courtesy loans by its customers. In terms of assets and customer base, IBC appears to be generally representative of major banks. 1141

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