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Consumer Protection and Contingent Charges

Consumer Protection and Contingent Charges Abstract Contingent charges for financial services, such as fees for unauthorized overdrafts, are often controversial. We study the economics of contingent charges in a stylized setting with naive and sophisticated consumers. We contrast situations where the naive benefit from the presence of sophisticated consumers with situations where competition works to subsidize the sophisticated at the expense of the naive, arguably unfairly. The case for regulatory intervention in these situations depends in good part, but not only, on the weight placed on distributional concerns. The economic and legal issues at stake are well illustrated by a case on bank charges recently decided by the U.K. Supreme Court. (JEL D14 , D18 , G21 , G28 , L51 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Literature American Economic Association

Consumer Protection and Contingent Charges

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Publisher
American Economic Association
Copyright
Copyright © 2012 by the American Economic Association
Subject
Forum: Do Consumers Need More Protection in Financial Markets?
ISSN
0022-0515
DOI
10.1257/jel.50.2.477
Publisher site
See Article on Publisher Site

Abstract

Abstract Contingent charges for financial services, such as fees for unauthorized overdrafts, are often controversial. We study the economics of contingent charges in a stylized setting with naive and sophisticated consumers. We contrast situations where the naive benefit from the presence of sophisticated consumers with situations where competition works to subsidize the sophisticated at the expense of the naive, arguably unfairly. The case for regulatory intervention in these situations depends in good part, but not only, on the weight placed on distributional concerns. The economic and legal issues at stake are well illustrated by a case on bank charges recently decided by the U.K. Supreme Court. (JEL D14 , D18 , G21 , G28 , L51 )

Journal

Journal of Economic Literature – American Economic Association

Published: Jun 1, 2012

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