Working Paper: CEPR ID: DP10414
Authors: Sule Alan; Mehmet Cemalcilar; Dean S. Karlan; Jonathan Zinman
Abstract: The pricing and advertising of tied add-ons and overages have come under increasing scrutiny. Working with a large Turkish bank to test SMS direct marketing promotions to 108,000 existing holders of ?free? checking accounts, we find that promoting a large discount on the 60% APR charged for overdrafts reduces overdraft usage. In contrast, messages mentioning overdraft availability without mentioning price increase usage. Neither change persists long after messages stop, suggesting that induced overdrafting is not habit-forming. We discuss implications for interventions to promote transparency in pricing and advertising, and for models of shrouded equilibria, limited attention, and salience.
Keywords: Consumer Banking; Contingent Charges; Deceptive Advertising; Deposit Accounts; Retail Banking; Small-Dollar Loans; Transaction-Linked Credit
JEL Codes: D12; D14; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| overdraft discount (G21) | overdraft usage (G21) |
| overdraft availability (G21) | overdraft usage (G21) |
| intense messaging about overdraft discount (G21) | overdraft usage (G21) |
| overdraft discount (G21) | demand for overdrafts (G21) |
| overdraft availability (G21) | demand for overdrafts (G21) |