Bank Fees Exploit the Poor
U.S. Banks have an obligation to provide alternatives to checking account fees and minimum-balance requirements, which exploit low-income Americans who live paycheck to paycheck. Pro or con?
Pro: Have Mercy on the Poor and Weak
We’ll be arguing for years about who and what drove today’s banking crisis, but we won’t be arguing about who’s paying the bill: the American taxpayer.
With the U.S. government mopping up the economic mess made by so many of them, U.S. banks ought to be open to changing their relationships with poor communities.
Banks can be better public institutions by offering products that don’t exclude major population groups. About 40 million Americans have no bank accounts. Banks’ high fees and exclusionary rules are a big part of the reason. It’s hard enough for low-income families to save—high balance requirements make it even harder.
When researchers asked low-income families why they don’t have a savings account, only 37% said it was because they couldn’t save, according to the 2006 Detroit Area Household Financial Services study conducted by the University of Michigan. Nearly 29% said that lower fees would encourage them to open a bank account.
By offering accounts with tangles of strings and fees, banks push families toward predatory financial institutions, where they pay about 2% to 3% of their checks’ value straight to check cashers.
Banks should think about services to poor communities as as investment in customers, which could pay handsome dividends in the future as these customers’ families turn to trusted sources for future financial services.
As banks work to get back on solid ground, they ought to keep the help they received from the American people in mind and accept the moral obligation to lower barriers to economic prosperity for the nation’s most vulnerable communities.
Con: Quit Regulating Banks to Death
Banks are not “obligated” to provide free checking account services to low-income people any more than McDonald’s (MCD), Starbucks (SBUX), and Toyota (TM) are obligated to give them free burgers, coffee, and cars. Those who advocate such a thing are perfectly free to pick up the bank fees of as many low-income people as they can. I would be the last person in the world to stand in their way. The problem is not bank fees; the problem is low income. Forcing banks to give away some of their services for free will not improve the income-earning ability of low-income earners.
If an expansion of the welfare state in this way is desired, one wonders why it should be funded in such a discriminatory manner by an implicit tax on banks and not through general tax revenues—especially at a time when many banks are, well, verging on bankruptcy.
Moreover, if such a thing becomes acceptable, there inevitably will be calls for government to force other corporations to give more freebies to “the poor.” Why, someone in government may even get the harebrained idea of forcing mortgage lenders to ignore traditional ability-to-pay requirements for mortgage loans to low-income people, known as “subprime” loans. (Oops, I forgot; this has been the policy of HUD, the Fed, and other arms of the federal government for some 30 years now and a contributing cause of the current economic crisis).
This is nothing more than backdoor welfare statism. Like welfare statism in general, it creates the moral hazard of weakening work incentives, creating even more poverty.