Banks, Debit Card Fees, and the Law of Unintended Consequences

The United States Government needs to get out of the finance industry.

Stop regulating capital. Stop limiting investment. Stop tell people what they can and cannot do with their money. On top of all that, stop wasting the money that the tax-payers send every year, and stop asking for so much in the first place!

The Credit CARD ACT initiated last year is stalling in Congress, and for good reason. Despite the "noble" aspiration of lawmakers to protect consumers from predatory banks and lenders, it will end up doing more harm than good.

Let's consider the fallout from Congress' attempt to micromanage credit card companies. If they cannot charge consumers at the rates of their choosing, if they have to tolerate more questionable customers seeking credit, what will credit card companies do? They will hike interest rates on current credit card holders, slash credit limits for the most minuscule of excuses, and deny future applicants. If credit card companies cannot access and limit risk with higher rates and fees as needed, then they will have to gouge current holders and prevent future ones. An attempt to help the American consumer backfired because of the Law of Unintended Consequences.

The Credit CARD ACT wants to limit the fees that banks can charge on debit card users. The motivation for this invasive move into the everyday transactions of the banking industry is to protect consumers from banks gouging them for mistakes.

How will the banks respond? They have to turn a profit somehow, or close their doors, which would hurt individual account holders terribly, having fewer banks from which to seek financial services. If the banks cannot accrue revenue, they will have to cut services or raise fees elsewhere in order to balance their own books. Imagine banks which no longer provide free checking, or which automatically have to charge higher interest rates in offering car, home, or business loans to prospective clients. Or worse: consumers attempting to make purchases with their debit cards would be summarily rejected.

When Congress interlopes in the financial sector, it causes more harm than good. Some may argue that the housing crisis which led to the Great Recession was caused by wildcat banks handing out loans to undeserving clients who could not, or simply would not pay off the loan in a timely and responsible manner. The reality goes far deeper, to government agencies compelling banks to permit poor and minority applicants to receive home loans. In other cases, the government created incentives for banks to hand out frequent loans to buyers not equipped to pay back. Though such an arrangement prospered brokers, it weakened banks and set up clients across the current for the horrendous fallout of a failing housing market, which eventually took down with it other crucial sectors in the economy.

The bottom line: government intervention instigated the crisis that this country is currently fighting its way through. Government cannot do right by the individual consumer. Let banks flourish or fail on their own, outlining the rules, responsibilities, and restrictions of clients who wish to use their bank, checking, and debit card services. The free market will do a better job of managing good banks and punishing those who gouge consumers.