Bank Fees and Democracy

I’ve been reading (and watching) a lot of commentary lately about how terrible it is that banks are raising fees, and in particular, the ATM and checking account fees that have the greatest impact on the poorest members of our society. This dovetails with the common perception of bankers as old, rich, white men who don’t care a fig for the public good, and only want to increase their own personal fortunes. Many commentators are even calling for government regulation to prevent this sort of thing.

Well, the fact is, bank fees are rising – you can read the CNN online story about that here if you want to. But the rest of these stories are more rabble-rousing attempts to generate readership (or viewership) than anything relevant, and the calls for government action are preposterous. Certainly, the increased checking account fees would be harder for someone making less money to afford, and someone working a low-income job would be less able to come up with the minimum balance to have their monthly fees waived by the bank. Lower-income customers would also have a harder time affording the fees charged to use an ATM from a bank other than your own. The point is, there is no need for anyone to put up with either class of fees.

In a free market economy, finding a way to eliminate expenses paid by a customer is just as effective as selling products at a lower price – and often easier to market, as it can improve the company’s image for literally no effort at all. In the case of bank fees, many smaller institutions have noted the consumer discontent with these charges and started offering “free” accounts, in order to draw more customers and increase the assets they have on deposit. This has enabled many smaller corporations to compete successfully in markets where they should by rights be out of their league, as well as forcing larger institutions to become more customer-friendly – or risk becoming much smaller companies as a consequence.

In any market where a type of fees are considered standard, the one company that does not charge them will gain a huge competitive advantage over the rest. Government regulation of this sort of problem is unnecessary, as customers will simply “vote with their feet” – taking their business to the competition. With the rise of credit unions and online banking companies, traditional banks can not afford to maintain the “take it or leave it” attitude they are (incorrectly) famous for, and any bank that behaved like the ones in the Washington Mutual commercials (charging people – by the word! – for speaking with a teller) would be lucky to have ANY customers within a week.

Like the atomic fixation of the post WWII era (nuclear power was going to solve everything from communism to bad posture), consumers today seem to fly off the handle and demand government regulation to solve every issue that disturbs them. Fortunately, there is a lot of good data on government-controlled economic systems over the past 100 years. All things considered, I’d rather have bank fees…