Who Is Paying All These Fees? An Empirical Analysis of Bank Account and Credit Card Fees 
This paper examines how bank account and credit card fees are distributed across different demographic groups, looking at whether lower-income consumers are more likely than higher-income consumers to pay these fees and whether there are significant differences across consumers by age, race, and education. The paper uses data on a variety of fees paid by consumers on their bank accounts and credit cards from the 2021 Diary of Consumer Payment Choice (DCPC), which surveys a representative sample of US adults (18 and older). The 2021 edition of the DCPC was the first to include a set of questions about bank account and credit card fees paid by respondents.
Key Findings
- The percentage of Black consumers who pay overdraft or low-balance fees on their bank accounts or pay late fees or cash-advance fees on their credit cards is higher than the percentage of White consumers who pay those fees.
- Black consumers are significantly more likely than White consumers to pay any bank account fee when income and account balances are held constant in regression analysis. However, when the analysis controls for income, the race effect becomes smaller.
- Lower-income consumers are significantly more likely to pay overdraft fees on their bank account compared with higher-income consumers, even when the analysis controls for checking account balances.
Implications
Previous research shows that credit card fees affect payment behavior and that bank fees influence decisions about whether to have a bank account. This paper’s findings that bank fees are distributed differently by income level and that credit card and bank fees are distributed differently by race could help to further explain why some demographic groups might be more or less likely than others to use credit cards and be unbanked.
Abstract
Banks impose a variety of account fees, and credit card issuers impose a variety of fees related to card usage. Using detailed data from a 2021 representative diary survey of US consumers, we investigate whether lower-income consumers and Black consumers are more likely to pay bank account or credit card fees, and how payment behavior varies depending on paying such fees. We find that the probability of paying several types of bank account and credit card fees is correlated with consumers’ demographic attributes and payment behavior. The percentage of Black consumers who pay overdraft or low-balance fees on their bank accounts or pay late fees or cash-advance fees on their credit cards is higher than the percentage of White consumers who pay those fees. We find that lower-income consumers were significantly more likely to pay overdraft fees, and Black consumers were significantly more likely to pay any bank account fee when we hold income and account balances constant in the regressions. However, when controlling for income, we find that the race effect was smaller than in the summary statistics.