Banking Regulations Paving the Road to Serfdom

Today the Wall Street Journal reported Bank of America may end "free checking" accounts due to Congress's new regulations set to take effect this summer (Sidel and Fitzpatrick, 2010). The reason for ending free checking is the loss of revenue that was generated by overdraft and other fees charged to people who cannot manage their money properly. My bank is currently asking its customers to write their Congressmen and Congresswomen to stop the Druckenberg Amendment. This is an amendment which will limit the amount of money banks and credit unions can charge merchants for credit purchases. The government is sticking their noses into the relationship between my bank and me and trying to cost me money.

One of the new regulations is banks cannot charge a fee for non-use of a credit card. This is absurd. It is also a violation of the agreement my credit card company and I agreed to. When I signed up for the credit card, I was given a disclosure notice which stated the fees I would be charged for various events associated with my credit card. I accepted those fees when I accepted the credit card. I rotate my credit cards to ensure I don't get charged for non-use. Now a third-party is telling my credit card company it cannot charge me for non-use.

Who is the third-party to tell my credit card company and I how to do business? Why do they think they know better? So for those of you who might applaud such a rule, let me enlighten you. I have the credit card. It does not have a balance. I enjoy the benefit of having that credit without a balance as seen in my credit rating. If I was not to use that credit card, where is the equal exchange of benefit to the bank for the use of the credit they bestowed upon me? In other words, I get something in exchange for having possession of the credit, why should not the bank? By utilizing the credit card, even if I pay the balance off immediately, the bank gets revenue associated with the merchant fee charge.

Now according to the government, the bank not only loses the fee associated with non-use, but they will might soon have the fee charged to the merchant limited! So I get the credit card for free? What's in it for the bank?

I like listening to the liberals scream about bad big banks and their unfair practices. Any time a unfair practice is mentioned the unfair practice is associated with someone who is not managing their credit properly. For example, someone couldn't understand why their interest rate was raised. They had been paying on their $12,000 balance on time. That's an outrageous balance. Now I don't know what the agreement the two parties had but if the interest rate hike was not in accordance with the policy, then the customer has a legitimate claim against the bank. However, that shouldn't be made into law to prevent this from happening to others when it might just be justified. Realize some accounts have a fixed APR and others, like some mortgages, have a variable rate which is set by the Prime Rate (just read you cardmember agreement). If the above mentioned person had a variable APR, then too bad, so sad. Except now those of us with good money management skills will have to pay.

More regulation from the government is not going to fix mis-managed credit. The cost of those who can't handle credit will now be passed onto everyone else, good and bad. This means everyone now pays for the bad money managers. This is a socialist ideal. These new regulations take us closer to socialist banking. The road to serfdom is being paved....

Mike
(The title from today's blog comes from "The Road to Serfdom: Text and Documents. The Definite Edition" by F.A. Hayek edited by Bruce Campbell. (2007). London: The University of Chicago Press. This is a highly recommended work. It will open you eyes to free-trade versus managed-trade.)

It is also recommended you check out the comments posted on the below articles.

References:

Sidel, R and Dan Fitzpatrick. (2010). End is seen to free checking. NY: Wall Street Journal. Retrieved 17 Jun 2010 from http://online.wsj.com/article/SB10001424052748703513604575311093932315142.html

Gibson, C. (2009). House passes significant credit card regulation in bipartisan vote. The Huffington Post. Retrieved 17 Jun 2010 from http://www.huffingtonpost.com/2009/05/01/house-passes-significant_n_194473.html

Bader, H. (2009). New credit card regulations wipe out cash back and rewards programs, punish responsible people. Open Market.org. Retrieved 17 Jun 2010 from http://www.openmarket.org/2009/08/21/credit-card-regulations-wipe-out-cash-back-on-credit-cards-destroy-rewards-programs-punish-responsible-cardholders/

ABCNews.com. (2010). Free checking could soon disappear -- would that be an unfair decision by banks?. Retrieved 17 Jun 2010 from http://abcnews.go.com/WN/end-free-checking-banks-wrong-cutting-free-program/story?id=10939591