The Wall Street Journal took a fascinating look this week at how new banking regulations that were designed to protect consumers may instead lead to more fees:
Bank of America Corp. and other banks are preparing new fees on basic banking services as they try to replace revenue lost to regulatory rules, in a push that is expected to spell an end to free checking accounts for many Americans.
Free checking accounts, which have been widely available for more than a decade, have been a boon to middle-class consumers and attracted low-income customers to the banking system for the first time.
Customers will likely be required to pay new monthly maintenance fees on the most basic accounts that don’t generate a lot of activity. To avoid a fee, customers will have to maintain certain account balances or frequently use other banking services, such as credit and debit cards, automated teller machines and online accounts.
It’s an important debate and a key lesson in economics. Banks aren’t going to willingly make less money, so if the feds restrict overdraft fees, the affected banks will then kill free checking to make up the difference. But what happens when lenders can’t make it up elsewhere? If, say, there’s a limit on interest rates, lenders will simply stop offering that credit option rather than taking the loss. It’s already happening: Cap interest rates on short-term loans, and the government is effectively taking away the highest-risk consumers’ access to credit.
In an update on the old saying, the road to (financial) hell is paved with good intentions — and unintended consequences.
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[...] written before about unintended consequences and banking restrictions or consumer credit. But there are plenty of other places where they show up. What if the new [...]