Are 'Bounced Check' Loans Really Loans? Theory, Evidence and Policy
Document Type
Article
Publication Date
11-2010
Department
School of Business
Abstract
This research addresses the controversial bank policy of paying – rather than bouncing – overdrawn checks, debits or ATM withdrawals. We argue that it should fall under lending regulations only if consumers use the program to get intentional loans. In contrast, if the program primarily applies to checking account activity then it should fall under checking account regulations. A model of precautionary balance holding and checking account customer data are used to estimate the likelihood of overdrafting. Predicted overdrafts are compared to actual overdrafts to conclude that 79% are explained by the model and thus thought to be mistakes due to the stochastic nature of household expenditures.
DOI
10.1016/j.qref.2010.06.001
First Page
492
Last Page
500
Volume
50
Issue
4
ISSN
10629769
Recommended Citation
Fusaro, M. A. (2010). Are 'bounced check' loans really loans? Theory, evidence and policy. Quarterly Review of Economics and Finance 50(4), 492-500. DOI: 10.1016/j.qref.2010.06.001