When government makes the rules fair, everyone wins.
Yesterday, Bank of America announced it was dropping the $5 monthly fee on its debit card service for checking accounts. The fee had earned the ire of the bank’s customers and became a symbol of corporate excess.
Bank officials blamed the card fee on the government, saying that new rules limiting fees they charge stores to process card payments forced them to shift costs to consumers. We noted that a lot of other banks operating under the same rules don’t charge those kind of fees, and suggested you take advantage of your options: If you don’t like how Bank of America is treating you, take your money elsewhere. More and more people are doing just that.
Bank of America got the message and said that costumer feedback and a “changing competitive marketplace” (read: other banks are stealing our customers) convinced them not to charge the fee. It’s great that the market worked, but it’s important that we understand that it worked because government reforms to the financial system helped it function more efficiently.
The first key is transparency: Banks charged a lot of fees that people just didn’t know about, like the fee to retailers for running cards or automatic opt-in overdraft fees that were rigged to ding customers for as much money as possible. This made it easier for banks to give people free checking: Retailers and over-drafters subsidized everyone else.
The recent spate of financial reform limited both those practices and forced banks to be upfront with their customers about what they’re charging them. That meant fairer treatment for everyone, and also that customers could respond to information (like BofA’s $5 fee) by changing their behavior.
More could come of this: The Consumer Financial Protection Bureau created by last year’s financial reform bill could, as Felix Salmon suggests, maintain a public database of all banks with federally-insured checking, explaining exactly how those accounts work and making it easier for consumers to make smart choices about where to bank.
"This isn't about any one fee from any one bank,” CFPB acting director Raj Date said in a recent statement. “The problem is that checking accounts often come with a wide variety of unexpected costs that can quickly add up for consumers. Ideally, consumers would have a simple way to evaluate checking account costs. The CFPB has the ability to simplify checking account disclosures—an idea that some consumer groups and some banks have already been developing.”
That’s a textbook example of the role of government in the marketplace constantly advocated by CFPB founder and current Massachusetts Senate candidate Elizabeth Warren: Setting the rules so that businesses compete and customers can reap the benefits of competition.