[kyochan]

Regulating overdraft and overlimit fees doesn't lower the demand for overdrafting or overlimiting. Regulations that lower the penalties for overdrafting will likely raise demand.

If you regulate the demand side like limiting or banning overdrafts, let's just say drug dealers can do a bit more business with their pocket money.

Banks charge outrageous fees because consumers are willing to fork over a lot of money later for money immediately.

Wanna stick it to the banks and credit card companies? Don't overdraft and pay your balance in full and on time and collect reward points or cash back.

[dasil003]

I'm a bit torn on this one since things like delaying settlement and changing the order of transactions is just plain shady. Would the executives who made these decisions stick by them if they had to actually deal with the angry customers? I realize it does self-regulate to some extent, but there's always a new generation of young people coming in to take their lumps.

All that said, as an individual you need to look out for yourself. If you overdraft or run CC balances then you are just throwing your money away. I finally put my CC debt to rest last year, and have been able to start saving serious money. I'm never going back, I watch my budget like a hawk now.

[mnemonicsloth]

Regulations that lower the penalties for overdrafting will likely raise demand.

No, this is wrong.

You can't get away with a simple supply-demand analysis here because the demand curve for overdrafts doesn't slope downwards. After you've incurred an overdraft penalty (or two, or ten), you're more likely to incur further overdraft penalties. Even if you dig yourself out of the hole, you still have less money than you would have, so you're closer to overdrafting again than you would have been, and this tendency increases with the size of the overdraft fee.

This isn't to say that you can't discourage overdrafting with really big fees, but the relationship is going to be complicated, and the opposite outcome is also possible.