Can the government protect us from banks, or is the government the source of the problem? Anthony W. Hager looks at the case of Bank of America and Senator Dick Durbin, who wants to protect us from debit-card fees:
Markets compel businesses to please their customers or risk losing them to more amenable competitors. Banks couldn’t collude on behalf of debit-card fees, even if they so wanted, because they’re more interested in retaining current customers and attracting new ones from institutions that assess unpopular charges. The mere threat of losing customers was enough to render debit-card fees a poor business decision. When market forces reign there’s no need for protests, tents, and signs; nor is there a need for pandering politicians with superhero complexes to deliver customers from corporate evil.
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Not to get all rainy on this parade, but weren’t those fees previously hidden in other prices, and weren’t they forced into the open because recent laws of government mandated transparency. I agree that this is a free market victory in the sense that increasing transparency inches us closer to Pareto efficiency, but this isn’t a triumph of business over government, its a triumph of government over anti-market businesses.
Doesn’t the article mention that? The law forbade the hidden fees, so the bank had to introduce another one to pay for the expenses they had covered. The fees have to be paid somehow, or the bank can’t afford to function. Now it just seems BAC just picked an unpopular method, while smarter banks forced other parties to to procure the same money… or at least that’s my impression from the article.
I think you have misstated what actually happened.
The banks were charging retailers a fee for the use of debit cards, which sometimes was passed on (partially or wholly) to customers, and sometimes absorbed, depending on the situation. I don’t think that the existence of these fees was a secret, but in many cases the fees were not explicitly disclosed.
The government did not impose ‘transparency” by, for example, requiring disclosure of the actual fees. Instead it intervened by mandating that the fees be limited to a certain arbitrary amount. The banks responded by trying to recoup the lost fee revenue with a different fee that was not precluded by the legislation. It just happened that this new fee was explicitly charged to the customer by the month, not to the seller on each transaction.
I don’t have any problem with the banks deciding on how they would like to try to charge for their services. Nor do I have any problem with customers rebelling against a pricing system they do not like. The only problem here is that many people seem to think that we should get something for “free”, and are willing to use government power to attempt to make that happen.
Where did Jeff go?
Yeah, where’s Jeff?
He’s been pretty active over at whiskey and gunpowder
I miss Skip
It was rather funny when my bank first introduced debit cards. They originally wanted you to fill out an application (even if you already had a bank account) and let them run a credit check on you. Credit check? The money is coming from my checking account. But they quickly dropped that and just started offering the debit cards free for anybody who had an account.
“No one considered the interchange fees retailers paid on debit-card transactions until government placed price controls on them.”
Someone most certainly did – the retailers! They’ve been lobbying for years to get a cap on fees. In fact, they were pissed off at the cap being too high (according to them). If you put yourself in their shoes, you can argue that the gov’t bank cartel is charging higher fees than would exist under a free market system (this may or may not be true – I’ve never analyzed the problem). Regardless, this is just another instance of politicians crumbling from the pressure of corporate lobby groups.
Did anyone of you try to translate the Russian comment from “Libertarian Cavemen in the Big Apple”? I suggest you do. This has nothing to do with the Austrian School. I suggest you remove this kind of advertisement from your website.
Spambots are big trouble on mises.org.
A peek at the “recent comments” section will very often show a botblurb being added to some old article. The advantage is that this uncovers stuff I might want to read…
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