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Wal-Mart banks, overdraft security, and customer rationality

Friday, December 11th, 2020

Wal-Mart banks, overdraft security, and customer rationality

The Wall Street Journal includes a fascinating story on the leading page in regards to the operations of banking institutions positioned inside Wal-Mart— while not actually given that the reporters believe that it is interesting. The writers believe that it is interesting simply because they view it as exposing nefarious techniques by these banking institutions, which create big overdraft security costs and (it really is implied) exploit customers. In fact, the story that is real precisely the opposite–it is compelling proof of just exactly how consumers utilize alternative credit services and products, and We suspect, compelling proof of the unintended effects of federal federal government legislation of credit services and products. See upgrade below.

In a write-up that previous Comptroller of this Currency Robert Clarke and I also published into the fall, we talked about in more detail exactly how customers utilize bank overdraft security and payday financing and your competitors involving the two items. In specific, we remember that available proof strongly shows that in selecting between your two items, consumers generally choose rationally. First, those that utilize these items (like all alternative financial products) are those who don’t possess credit cards or would go beyond their credit limitations to their charge cards and trigger fees that are high. So they really utilize these items since they are the least-bad alternative they will have at the moment to satisfy pushing economic obligations.

But much more striking, whenever choosing between payday lending and overdraft protection, customers generally choose rationally. (more…)