The Death of Convenience


ABC News reports this morning that JPMorgan Chase is testing a new product in Illinois: the $5 ATM fee.  If you use another bank’s debit card to withdraw money from a Chase ATM, you’ll pay five dollars, plus whatever your bank charges for such a transaction.  That’s about double the average fee currently charged by most banks.

ABC goes on to say that “Chase also is experimenting with a $4 fee for non-customers in Texas,” while “TD Bank recently stopped reimbursing its customers for fees incurred through the use of other banks’ ATMs,” and “Pittsburgh-based PNC Bank did the same for its free checking account customers.”  I’ve heard local news reports this morning that Chase’s four and five dollar ATM fees have begun appearing in Florida as well.

That’s not the only way your beloved debit card is going to be mutilated.  Banks are also thinking about imposing $50 or $100 limits on debit card transactions.  This will force a lot of people to resume the antique practice of writing paper checks. 

That’s really going to change your experience at the gas pump, since you can spend over $50 filling the tank of an economy car these days.  Remember when you had to run into the convenience store and stand in line with the people buying donuts and Slurpees to pay in advance, before you pumped your gas?  And if you wanted to fill up, you had to hand over extra money, run out to pump your gas, and come back to get your change?  Those days are coming back.  Hello, 1979, my old friend.  I’ve come to talk with you again.

You might retain some convenience at the gas station if you use a credit card, instead of your crippled debit card… if you can use your credit card.  Banks have been issuing fewer cards, and dramatically lowering the credit limits on existing accounts.

You’ll want to be careful about writing too many of those quaint paper checks, because another modern convenience set to disappear, as the consumer clock rolls back thirty years, is the free checking account.  Fox News reported back in February that Fifth Third Bank has scrapped free checking entirely, while JP Morgan Chase, Wells Fargo, Bank of America, and many smaller banks are testing new fee structures or abandoning rewards programs.  If you’re too young to remember how banking worked back in Grandpa’s day, you usually paid a flat fee for your checking account privileges, plus a surcharge if you wrote too many checks in a given month.

Why is all this happening?  For the same reason this annoying nonsense always happens: because government “reformers” are slapping new regulations on banks, designed to limit their profits and keep them from “gouging” customers.  You can tart this kind of regulation up with as much flowery language as you like, but it boils down to price controls, and the ironclad law of price controls is that they ultimate make things more expensive, because they reduce quality.

In this case, financial regulations making their way through Congress are designed to cap the maximum fee banks can charge for debit card transactions at 12 cents.  Transaction fees are currently expressed as a percentage of the withdrawal or purchase.  12 cents is about half what the banks are currently pulling in from the average transaction, and much less than they would earn from large purchases that run into hundreds of dollars.

Those transaction fees add up to about $16 billion in annual revenue for the banks.  The new regulations are poised to make half that income disappear.  Of course they’re going to look for other ways to recover it.  Goodbye, free checking.

Retail companies have been pushing the new debit card transaction caps because they pay the current fees, and claim they must pass the cost on to customers.  That’s undoubtedly true – there ain’t no free lunches.  However, the current fee structure is not the product of an evil conspiracy by fatcat bankers out to screw the consumer.  It was arrived at through competition between financial institutions.  If we want the fees to be lower, we should encourage further competition, not slap price controls on debit card acceptance.  The result of the price controls will inevitably and logically be the reduction of the maximum allowable value of each purchase, because the banks have an irresistible incentive to encourage more small transactions and collect more 12 cent fees.

How many times do we have to learn this fundamental lesson of capitalism?  It’s all too easy for politicians to rail against the high prices charged by the producers of convenient, high quality products, and score political points by promising to tear the profits from their fat, greedy fingers.  The invariable result is the end of convenient, high quality products, once they can no longer be sold in competitive markets for a profit.  Reflect on that while you order your next big box of paper checks.