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TEXT OF COMMENTARY
Kai Ryssdal: Just in time for the holiday season, the Federal Reserve announced another crackdown on corporate naughtiness today. The Fed says it wants to start regulating gift cards. And so prevent companies from charging excessive fees if you don’t use ’em.
Those extra fees and service charges became commonplace as banks realized exactly how much money they could make off of them. Commentator Amelia Tyagi points out it hasn’t always been this way. And it shouldn’t be anymore.
AMELIA TYAGI: Picture this: You’re checking out at the local diner, when you realize they’ve charged you an extra $5 for putting ice in your drink. Sounds ridiculous right? Reputable businesses just don’t behave that way. But we’ve gotten accustomed to being mistreated by one industry: the banks.
Once upon a time, banking was a pretty boring business. Banks took deposits, made loans, and people paid them back. Profits were modest but predictable.
And then the industry was deregulated, and all bets were off. No longer did banks make their profits from reasonably priced loans to people who were able to pay. Instead, pre-approved credit card offers flooded the mailbox of every man, woman, and child. Opening a checking account became free, while bounced check fees skyrocketed.
For most banks the real profits now come from late fees, balloon payments, default interest rates, and a host of other tricks and traps. In other words, making a profit has become an exercise in misdirection and misinformation. Sneaky has become the norm.
A new government agency, like the Consumer Financial Protection Agency, now under consideration, could help level the playing field and force banks to be honest with their customers.
Some complain that such a move could impinge the free market. But a free market assumes that customers can comparison shop, and understand what different products truly cost. But how can an average customer read a 30-page credit-card contract, and know which issuer is more likely to trigger a default rate of interest? The marketplace for financial services hasn’t been free — or fair — for a long time.
There is also some noise that a new protection agency could stifle innovation. But is an over-the-limit fee really an innovation, or just a cheap trick designed to fool customers into believing a product costs one price when the majority of customers actually pay far more?
If banks behaved like decent and honorable businesses, I would be the first to shout out against a new agency. But as long as they continue to sneak in extra charges and hide what they charge for their services, we need someone to set the market straight.
RYSSDAL: Amelia Tyagi wrote with her mother, Elizabeth Warren, an article in the Harvard Business Review that popularized the idea of a Consumer Financial Protection Association.