Friday, September 30, 2011

Predictable consequences of trying to limit bank fees

Congress, in its infinite wisdom (yes, that's sarcasm), decides that banks shouldn't charge for a particular service. In this case, it's a fee on the use of a debit card.

So they pass a law that prohibits banks from charging merchants a percentage on every use. It's part of the Frank-Dodd financial overhaul bill and this particular restriction is the Durbin amendment, courtesy of Sen. Dick Durbin (D-IL).

But it costs money for banks to offer and process debit cards and their transactions - a factor members of Congress fail to understand. So what is a bank to do?

Well, they decide to charge the actual card holder a set monthly fee instead. Unintended consequences, which are entirely predictable, are certainly not part of the regular thinking of your 'average' congressional representative.

The fees range from $3-5 per month - if you're able to still have a debit card at all. Some banks, like JPMorganChase, have just eliminated the debit card completely.

So in their effort to 'help' consumers, Congress has ended up shifting the costs of the debit card service from the merchant to the card holder. Brilliant! What a bargain!

But that's not all. One aspect of the Frank-Dodd bill was limiting what banks could charge for overdraft fees. Now, in this day and age of instant information and various other provisions (like automatic transfers from savings to checking when the checking account gets to a certain level or overdraft protection programs), there really is no excuse for bouncing a check. People should know how much is in their account and whether or not there are funds to cover a check about to be written. When they write that check and it bounces, they should pay a fee to the bank.

It costs the bank money to return the check, notify you and deal with the subsequent actions that result. Why shouldn't they charge you a fee - large enough to make you not want to ever end up bouncing a check again in the future??? But people don't like being accountable - and politicians are too eager to help limit your liability for your own stupid actions.

And what, exactly, is the provider of a service supposed to do when they can no longer charge you their costs for that service, especially when they know they'll still need to provide the service even when they can't charge?

Well, they'll do what anyone else would - they'll charge for other things in order to cover the costs of the one they can't charge for.

So everyone who banks will pay more so that the small number who bounce checks don't have to pay for doing so. Again, brilliant!

Congress has decided it can determine how much a business should charge and how much profit it can make. They believe they know better than you and I the value of a service in the marketplace. But they're not actually limiting the profit, they're just playing around with various fees and imposing restrictions thinking (or, perhaps more accurately, hoping) that the banks will just take the restrictions and live with them.

But companies are in the business to make a profit. They don't exist to provide jobs (that's just a by-product of their effort to make money). They don't exist to do social programs (again, that's a by-product of their desire to have customers who thus help them to make a profit). They exist because they want to make money - for the owners and shareholders/investors - many of whom are the very people who are so adamant about restricting their profits in the first place.

In fact, it makes no sense to me that many unions argue against corporate profits when those very same profits are necessary to provide the jobs and benefits the unions so desire. And, most of the pension plans in America - whether individual IRAs, public pensions or private company pensions - are vested in the stocks of the very companies that are being demonized. Can you say 'stuck on stupid'???

So, when a company gets told by government that it can't make a profit with one item, it will begin charging for one that was previously free or add to the price of existing ones - or both.

This is completely and entirely predictable for anyone who understands anything whatsoever about business.

But Congress is, apparently, clueless and so, thanks to their 'help' for us poor consumers who cannot make good decisions on our own, we're now paying more.



skeeter1107 said...

There is a medical term for what you describe. "Dunderism."

Actually I don't think it's a word, but it's essentially what happens when a "Dunder Head" has control of the reins and we find ourselves with unintended consequences.

The remarkable part of Dunderism is that the individual suffering from it has a huge misguided sense of being all knowing about all things. What a malady!

My God! It's an epidemic.

PS. Am I allowed to say "God" or is there a federal regulation against it?

Maggie Thurber said...

I'll have to remember that term - it's a great one!

As for the use of "God" - it's my blog and it is certainly allowed....

Chuck Greer said...

Moreover, skeeter1107, it is indentured servitude these congresscritters are asking for, no, DEMANDING! THEY are to say where you can smoke, drink, what you can eat, light your house with, drive, say, if you may own a gun, raise a flag, post a sign, park on your own property, or charge a fee if you are a business owner. ENOUGH, already!!

Hooda Thunkit (Dave Zawodny) said...


"People should know how much is in their account and whether or not there are funds to cover a check about to be written.""

Many people, these days, are likely unable to balance their checkbooks or even fathom what their bank statements are trying to tell them, thanks to our progressive" public edumacation systems and math IS hard, so who can blame them?

Besides, we have such nice, thoughtful representatives that they sent to Washington to hold their hands and make life fair for them, so why worry?

Unintended consequences..., just pass another law, and then another, and then. . .

Ya gotta love it, the clueless electing the equally clueless and let's not forget the Whine, Whine, Whine...

skeeter1107 said...

The underlying problem to all of it is the government's desire to control private property.

Whether it be a smoking ban or the fees a business (bank) can charge, government interferes and skews the behavior of markets. If you don't like smoke, don't eat there. If the fees are too high at the bank, change banks.

But my hope springs eternal. The historical nature of Americans is that of a sleeping giant. They tend to ignore things until it's almost too late. But when enough people begin to feel and understand what sort of stupid things the government has done to them, the giant awakes.

Let's hope that we are experiencing that awakening now.

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