Zywicki in NY Times: Bounced Check Economics
Professor Todd Zywicki was one of seven experts weighing in on the topic "The Debit Card: Trap or Sound Choice?" in a New York Times "Room for Debate" feature. The publication asks whether the responsibility for avoiding the debit card fees that have become a major source of revenue for banks lies with the consumer, or whether there should be tougher regulation of debit cards and overdraft fees.
Zywicki points out that the cost to the consumer of a bounced check (or its electronic counterpart) can far exceed the cost of overdraft insurance, which the consumer can elect to use for situations that cannot be anticipated.
"Market competition is most useful precisely in situations like this—when we don't know what consumers prefer and so we allow market experimentation to match consumers to the products that they prefer," says Zywicki. "If consumers don't want to pay overdraft fees the answer seems pretty simple—don't overdraw your account, which has been the rule for centuries when it comes to checks. Otherwise don't interfere with consumer choice to select this useful, albeit expensive, product. Or use a credit card and pay it off at the end of the month, which is probably the best option of all."
The Debit Card: Trap or Sound Choice? The New York Times, September 9, 2009.