For all the talk these days about about regulation, or legislation to protect consumers in various areas, the skeptic in me says, "don't get your hopes up." Congress and consumer groups regularly spend inordinate amounts of time pursuing this goal but ultimately, it's a lot like a dog chasing his tail. At times, Congress has succumbed to the blandishments of industry and trade groups to "deregulate" and let competition work to provide the best outcome for consumers. At other times (currently), Congressional opinion swings the other way and seeks to legislate an end to abuses. At the consumer level, neither has worked well or lastingly.
Let's look at one micro example (checking accounts) in one sector (retail banking). I begin with a personal experience: A few years ago, I got tired ot tracking the few cents of interest on my checking account. I switched to a no-fee, no interest account at the same bank. Within months, the bank informed me all those no-fee accounts were being unilaterally "upgraded" to a different type of account. Guess what? A wonderful interest-bearing account, with fees if minimum balances were not maintained. Clearly, banks find these interest-bearing accounts very profitable.
That's no surprise. Years ago, there were few fees on demand deposits (the cost of the checks themselves, and fees for overdrafts or stopped payments); but banks didn't pay interest on the balances. In that bygone era, of course the banks were able to make a bit of profit on the aggregated amounts they held in demand deposits, but equally central to their profit model was the assumption that the checking account customer would hold savings accounts at the same bank, and come to that bank for his mortgage, or for her car loan. And for his loyalty, he might even get a free toaster.
Enter deregulation. Gradually, banks pushed for less and less regulation, and new types of financial institutions like savings and loan associations, credit unions, stockbrokers, insurance companies, and your Aunt Tillie got into the fray. I recall smelling trouble at the time, since it seemed that the potential benefit was paltry for most consumers, while banks would make up the difference and then some.
And so it came to pass: Interest on your checking account is a worthless gimmick. In return for a few pennies of interest (currently paid by my bank at the phenomenal rate of .02% -- not two percent, but two hundredths of one percent, or 20 cents per year on $1,000), such accounts now have more fees, higher fees, and high minimum balances. The "minimum balances" usually include all the money you keep in any accounts at that bank, so it fulfills the same function that plain old loyalty used to, encouraging you to keep your savings and loan business under one roof. If anything has changed, it's that the cost of having a checking account is higher for many people (those who don't shop around, fail to track their balance, or don't pay enough attention to their accounts).
It's the same deal we had 50 years ago, in different guise, and no free toaster. Overall, no gain for the consumer. That's generally been the history of deregulation, in banking and in other industries.
[Ironically, it was another feature of "old-time" banking that proved most effective in resolving my personal situation above: a branch manager I had worked with for years, after hearing my complaint about fees, just tweaked my account in the computer: no fees to be assessed. There are fewer banks like this these days (even rarer is a manager who remains in place at one bank for more than six months) but they exist and are worth seeking out.]
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