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Hidden Consumer Loans: An Analysis of Implicit Interest Rates on Bounced Checks.
- Source :
- Journal of Family & Economic Issues; Jun2008, Vol. 29 Issue 2, p251-263, 13p, 8 Charts, 2 Graphs
- Publication Year :
- 2008
-
Abstract
- Payday lending attracts attention for its high interest rates, but bounce protection loans are much more expensive. Bounce protection is a program where consumers overdraft—write checks in excess of the checking account balance—and the bank pays the check allowing the account balance to be negative. For this service/loan, banks charge the standard non-sufficient funds (NSF) fee. When the amount borrowed is low and the time outstanding is short, the effective interest rate paid on this loan can be quite high. Using a unique data set we were able to quantify how high the interest rate is. We found that the median implicit interest paid by consumers is over 4,000%. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 10580476
- Volume :
- 29
- Issue :
- 2
- Database :
- Complementary Index
- Journal :
- Journal of Family & Economic Issues
- Publication Type :
- Academic Journal
- Accession number :
- 31572244
- Full Text :
- https://doi.org/10.1007/s10834-008-9101-3