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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*
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
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.


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