Estimating the Change in Surplus from the Elimination of Deposit Advance Products
In 2013, the FDIC and OCC issued guidance claiming that inadequate underwriting of deposit advance loans raised safety and soundness concerns. Banks quickly removed deposit advance from their small dollar credit offerings. Unless overdraft and deposit advance are perfect substitutes, the loss of deposit advance will reduce consumer surplus. We formulate a demand system for use of overdraft and deposit advance that allows for overdraft mistakes. Estimates indicate that overdraft and deposit advance are inferior goods. We remove deposit advance from the choice set in a counterfactual, and find that consumers who used deposit advance lost a substantial percentage of their consumer surplus