The Obama administration has proposed a new government agency called the Consumer Financial Protection Agency. This new government agency would have the power to set bank fees at a fixed amount. So no matter whether the sign above the door says Wachovia, Chase, Wells Fargo, or Bank of America, you will pay the same amount for a checking account. One of the briefing papers on the CFPA put out by Pew argues that forcing banks to charge the same price will make them work harder for their customers. If the CFPA won’t let them make more money per customer, they’re going to have to get more customers. And to get more customers, all they can do to lure in customers is to make their checking accounts better: more features, fewer hassles, etc. The CFPA sounds like a great idea. Instead of begging the bank to remove some of our fees, the bank is scheming ways to impress us so they can get our business. But if we assume that the CFPA is designed to “protect” personal finances, there is no reason to institute it. The CFPA will end up costing consumers much more than they’re already paying, no matter how the CFPA plays its cards. Don’t believe me? Nearly all of a bank’s income comes from fees, not from lending interest. And of those fees, overdrafts are what make the bank most of its money. Only 25% of America pays a single overdraft fee each year. If the CFPA wants to support the banking industry by forcing them to charge the same amount per account, the other 75% will have to make up for the amount that the overdrafters are no longer paying. The CFPA wants to charge you much more than 75% of American is currently paying, which is very little under the free checking system. I may be a member of the banking industry, but I’m also a member of a bank. I don’t want to pay tons of money for a checking account, and I know you don’t. And just how much would the CFPA make you pay for a checking account? Here’s the scary part. The CFPA would be deciding that, not the banks. Banks are in the banking industry. Have been for quite a while. They know how much they need to survive and to grow, not the CFPA. And what about those who can’t afford a checking account? My guess is that it will take the government several long years of suffering before they begin subsidizing these accounts. Translation: higher taxes. And what if the CFPA gets yelled at by consumers and decides to charge less than the necessary cost for a checking account? Within a year, bank branches would begin closing their doors by the boatload. As great as “innovation” sounds to get your business, that innovation costs money. Just the automatic bill pay feature costs your bank over $200 per account. Some banks, and perhaps all of them, will simply not be able to afford “innovation” if the CFPA limits profit. Only a few big banks will have enough business to rule the industry, or the government will have to start subsidizing the smaller banks. And of course, there is the tax cost of adding another government agency. In 2008, the FDIC cost the nation well over $1 billion in operating expenses. You can expect something similar for the CFPA. In short, the CFPA may sound like much needed protection. But the “protection” that it offers is protection for your money. And since 75% of Americans aren’t supporting the banking industry all that much, there’s no way around the CFPA costing most of you more than you’re already paying. Anchor Link to Pew briefing: http://www.pewfr.org/admin/task_force_reports/files/CFPA-FINAL.pdf
Get Treated Fairly by Your Bank
