talkpolitics | A Lesson in Unnecessary Regulation

Entry tags:

A Lesson in Unnecessary Regulation

By now, you've probably heard about Bank of America's plan to begin charging $5/month on the customer side for debit card usage. What you probably haven't heard of is why:

NEW YORK (Dow Jones)--Bank of America Corp. (BAC), the largest U.S. bank by assets, plans to charge customers a $5 monthly fee for making debit card purchases starting early next year, according to an internal memo sent to bank executives Thursday.

...

Bank of America is trying to cushion revenue losses it expects to incur from new caps on the fees merchants pay when a customer uses a debit card at their stores. In June, the Federal Reserve Board finalized rules capping such fees at 24 cents per transaction, compared with a current average of 44 cents.

...

Other banks have introduced or are testing new fees in response to the debit fee caps, which stem from a provision known as the Durbin amendment in last year's Dodd-Frank financial regulation overhaul legislation.

This follows many banks ending free checking in large part to the regulations in the Dodd-Frank bill limiting debit overdraft fees. This will likely not be the last time we see banks making more adjustments, either.

Regulations matter. The negative impact of regulatory action when it's not needed only ends up hurting the rest of us in the long run. In a misguided rush by the left to "protect" the population from evil, predatory banks, all you've done is now made it harder for those who you profess to represent and care about the most to use banking services. Congratulations on another job well done.

Flat | Top-Level Comments Only

I knew this post was coming, and I'm not surrprised it was from you.

The overdraft section of Dodd-Frank isn't the key here. It's per-swipe fees that were being charged to businesses. Dodd-Frank put a cap on that, so banks are getting up to 50% less in swipe fees. Some businesses were being charged up to 44 cents per swipe. That adds up.

The overdraft protections are a good thing, too. Banks were charging outrageous fees for even the smallest of overdrafts.

I think consumers and businesses that know what Dodd-Frank does for them will be fine with it. And banks will find that they're going to lose a lot of customers to credit unions and banks who don't charge fees. That's how the market works, right?

Personally, I'm still at BoA and will be moving to a local credit union. BoA was shit before this announcement, and this is the last straw. Fuck them.

Yeah, this. I had an awful experience with my old bank before I moved to a credit union, and I've never looked back.

The overdraft section of Dodd-Frank isn't the key here. It's per-swipe fees that were being charged to businesses. Dodd-Frank put a cap on that, so banks are getting up to 50% less in swipe fees. Some businesses were being charged up to 44 cents per swipe. That adds up.

To be clear, the overdraft fee is related to the free checking stuff.

As for the swipe fees, there was never a need for the government to get involved with it.

The overdraft protections are a good thing, too. Banks were charging outrageous fees for even the smallest of overdrafts.

"Outrageous," you mean. Again, no real need - such overdraft fees cannot be made any clearer by the banks. Where's the responsibility of the person with the account?

I think consumers and businesses that know what Dodd-Frank does for them will be fine with it. And banks will find that they're going to lose a lot of customers to credit unions and banks who don't charge fees. That's how the market works, right?

When the market is allowed to work, yes.

To be clear, the overdraft fee is related to the free checking stuff.

Yeah, that was my fault. I'm at work, so I skimmed. Sorry about that.

As for the swipe fees, there was never a need for the government to get involved with it.

Then why did they? What does the government have to gain from doing this? They don't just regulate because they're mad about regulations. Clearly this was intended to help small businesses who get raped by riduculous swipe fees. Even the cap that was placed on them is still a huge difference from the actual cost of a transaction.

such overdraft fees cannot be made any clearer by the banks

Charging someone $39 for going $2 over because they thought a deposit was made to cover it (or any of the other bajillion scenarios) is not fair. Again, why would they regulate this if there wasn't significant demand for such regulations?

When the market is allowed to work, yes.

This is how the market works. It works both ways. The people, via their representatives, have a say as well. That's how capitalism has always worked. There's no such thing as a pure free market, and there likely never will be.

Edit: It's been suggested that this move was meant to change consumer behavior away from debit to credit, since these regulations don't apply to that. People have been moving away from credit for years. The simple workaround is switch to your credit card, and pay off the balance before interest accrues.

Edited 2011-09-30 19:26 (UTC)

Then why did they? What does the government have to gain from doing this?

The politicians want to look like they're fighting for the little guy.

They don't just regulate because they're mad about regulations. Clearly this was intended to help small businesses who get raped by riduculous swipe fees. Even the cap that was placed on them is still a huge difference from the actual cost of a transaction.

Right, and it was a foolish, foolish move that clearly was not considered in a significant way. The pro-regulation folks are not so much concerned about what might happen if they enact a regulation, they're only concerned at solving a problem in a vacuum.

Charging someone $39 for going $2 over because they thought a deposit was made to cover it (or any of the other bajillion scenarios) is not fair. Again, why would they regulate this if there wasn't significant demand for such regulations?

I was unaware of any real demand. Even significant demand does not make a need for a regulation exist.

I also disagree that it's unfair to hold people to an agreed-upon result. Just like people can leave BoA now for the debit fee, nothing forced them to take a debit card to begin with.

This is how the market works. It works both ways. The people, via their representatives, have a say as well. That's how capitalism has always worked. There's no such thing as a pure free market, and there likely never will be.

Accepting for the sake of argument, when is the pendulum going to shift back away from the government, then? If it's simply government v. business, where do individuals fit into the role? Why have a marketplace at all?

The simple workaround is switch to your credit card, and pay off the balance before interest accrues.

Which is likely what I'll do if my bank goes along with this nonsense.

I also disagree that it's unfair to hold people to an agreed-upon result.

That's part of the problem, though. It wasn't always agreed upon. Many people were opted in to "overdraft protection" programs without their consent. These are the programs that would automatically charge $25 to $40 for even the smallest of overdrafts. Dodd-Frank requires these programs to be opted-in by the consumer now. According to the Federal Reserve, there were enough complaints to warrant this regulation.

when is the pendulum going to shift back away from the government, then? If it's simply government v. business, where do individuals fit into the role? Why have a marketplace at all?

I think this is an overreaction. The pendulum was very much on the side of the banks. If anything, it's more balanced now.

Also, it's not "government v. business", it's "consumer v. bank." The net benefit of Dodd-Frank goes toward small businesses that process hundreds (or thousands) of debit transactions per day.

Which is likely what I'll do if my bank goes along with this nonsense.

I'm looking into credit unions. From what I can tell, they aren't interested in screwing over their customers like the major banks are since they aren't profit driven.

That's part of the problem, though. It wasn't always agreed upon. Many people were opted in to "overdraft protection" programs without their consent.

They didn't have the option to not bank at BoA? Always an option.

These are the programs that would automatically charge $25 to $40 for even the smallest of overdrafts. Dodd-Frank requires these programs to be opted-in by the consumer now. According to the Federal Reserve, there were enough complaints to warrant this regulation.

It doesn't matter if there are 100% complaints - this is basic role of government stuff here. The government shouldn't be intervening in basic agreements like this. At some point the consumer needs to be expected to protect him or herself.

I think this is an overreaction. The pendulum was very much on the side of the banks. If anything, it's more balanced now.

I strongly disagree. The government has been in control for a while, and we only keep making it worse. It's why we see reactions like BoAs.

Also, it's not "government v. business", it's "consumer v. bank." The net benefit of Dodd-Frank goes toward small businesses that process hundreds (or thousands) of debit transactions per day.

There is no battle between the consumer and the bank here. The battle exists solely in the world of policy.

It's been suggested that this move was meant to change consumer behavior away from debit to credit, since these regulations don't apply to that. People have been moving away from credit for years. The simple workaround is switch to your credit card, and pay off the balance before interest accrues.

This is probably true, and makes it even worse. People should be moving away from credit. The gov't should not be encouraging people to use credit.

I meant that banks are charging the debit card fees to get people to move to credit cards, which aren't affected by the swipe fee caps. Maybe the government anticipated that, I don't know.

...such overdraft fees cannot be made any clearer by the banks.

What do you think of the practice of charging debits in descending order so they could get more overdraft fees?

Not a fan - I think they should be processed in order.

That doesn't mean we need the government to make that happen.

I think that the consumers should change to a bank that doesn't do that, like I did.

such overdraft fees cannot be made any clearer by the banks

Er? At my bank, I set up "overdraft protection" where I was told that it would simply auto-transfer money from my savings to checking to cover overdrafts. They didn't point out that first, it would exhaust my credit card, at a punitive 29.99% cash-advance interest rate + 10% one-time charge for the cash advance. They could definitely be made clearer.

How did a credit card get involved? That sounds like more than just an overdraft protection.

My assumption is that you didn't read the documentation they provided.

Off-topic, BoA called me with a phone survey. Big mistake on their part.

Caller: "Is there anything you'd like to say to Bank of America?"

Me: "I hope BoA and all the nations' large banking institutions go bankrupt."

Caller: "Anything else you would like to add to that?"

Me: "Bankrupt . . . quickly." (That got a guffaw from the poor phone jockey.)

totally agree. I am moving ALL my accounts to my CU. They now have online bill pay (FREE) so there's no reason to waste any more money with BoA.

Flat | Top-Level Comments Only

A Lesson in Unnecessary Regulation

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject