October 12th, 2011 by
NPR reported on something near and dear to many of us–fees that banks charge us. It seems that every time I withdraw money from an ATM or look at my bank statement, I walk away with a scowl mumbling something along the lines of “that’s how they get you….”
And it seems like it’s getting worse. Apparently, it really is. Why is that?
One explanation is that banks are getting greedier. But, assuming human nature hasn’t spontaneously changed for a small segment of the population (i.e. assuming that bank owners are no more or less greedy than any of us, and that they are no more or less greedy than they were five years ago), this doesn’t seem like a very strong argument.
One factor at play seems to be the environment in which the banks are operating. Unlike human nature, that is one thing that has changed in the past few years.
Federal rules will cap the amount banks can charge merchants at about 24 cents per transaction, down from an average of 44 cents.
It’s the latest regulation imposed on banks. Last year, strict rules on credit cards limited when they could raise interest rates and virtually eliminated customer fees for going over credit limits. Then the Federal Reserve tightened rules for when and how often banks could charge for checking account overdrafts.
But each regulation aimed at reducing the costs for consumers has chipped away at bank revenue — and left banks going so far as to make the customer pay for services that had been offered at no charge. [Emphasis added -ed]
In fact, according to this study [PDF], regulations have gone up in many aspects of our lives in the past few years. From 1980-2000, the U.S. was very economically free in terms of how regulated we were as individuals (after all, it’s somewhat inaccurate to say that a “bank” or a “corporation” is regulated–at the end of the day individuals work in and own these things, so individuals are regulated). Compared to almost all other countries in the world, in fact, the U.S. ranked between 2nd and 4th most free during those 20 years in terms of regulations.
However, since 2001, our economy has become increasingly regulated (both absolutely and relative to other countries). Last year we were ranked 17th most free in terms of regulations; this year we are ranked as 20th. That’s a drop of over 15 places in less than a decade!
As we saw with banks and checking fees, regulations tend to increase the cost of business, which can ultimately increase the costs of things you and I buy every day.
I wonder what other regulation-generated costs are born by us each day?