What do Consumers Really Pay on Their Checking and Credit Card Accounts
Abstract (via SSRN)
We use novel administrative data containing every checking and credit card account transaction made by 917 consumers over two years to measure the total explicit and implicit costs that consumers pay across all of their bank and credit card accounts. In our sample the median household pays $43 in total bank and credit card account costs per month and the 90th percentile pays $257 per month ($3084 per year). For most consumers who pay economically significant costs, credit card interest is the largest component of total costs. For many consumers a large share of costs could be avoided relatively easily: the median panelist could avoid 60 percent of all credit card interest charges, overdraft fees, overlimit and late fees by using different cards at the point of sale, reallocating debt from high-interest to low-interest credit cards, or repaying credit card debt with available checking balances.
Finding (Via SSRN)
We present several new stylized facts on what people actually pay to use their checking and credit card accounts. Our median household pays $500 per year and could avoid more than half of these costs with minor changes in behavior. Translating these avoidable costs into consumption terms, we find that most consumers could afford to borrow more than one thousand additional dollars simply by allocating payment choices more efficiently. Penalty fees are economically important (representing about half of total costs, and the lion’s share of checking account costs), and most penalty fees are easily avoidable by our metrics. Interest and avoidable interest generally persist over time; in contrast, fee and avoidable fee costs are negatively correlated over time for many consumers. On all margins of costs and cost persistence we find tremendous heterogeneity.