I need help from myself

This is a letter I sent to Michelle Singletary, who is a personal finance columnist at The Washington Post. She cheers on the Federal Reserve as they finalize tough, new regulations on bank overdraft policy. Of course, banks are the bad guys who prey upon unsuspecting customers who are taken to the cleaners. This is standard government fare: deliver benefits to a select and identifiable group (the cash strapped bank depositor who overdraws her bank account) at the expense of all (bank depositors who avoid overdrafts, but will now pay the price in higher loan interest rates and the loss of free checking and savings accounts). Intentions, intentions, intentions; never does anyone worry about the outcome.


November 17, 2009

The Washington Post
1150 15th Street, NW
Washington, DC 20071
Attention: Michele Singletary

Dear Ms. Singletary,

You praise the US Federal Reserve for cracking down on overdraft fees charged by financial institutions on depositors in your article, “Overdraft fees: Finally, fair warning.” Prima facie these changes appear to be a win for depositors. I suspect the victory, however, will prove short-lived because banks will recoup losses in overdraft fees with other fees charged to depositors and unlike overdraft fees, the new fees might be unavoidable.

It is perplexing to me why observers insist that bank depositors need to be protected from their deposit institution. The relationship should be symbiotic: depositors gain from the services banks provide and banks gain from fees charged for those services or interest earned from lending deposits. Customers are free to choose from among the many banks or none at all and little stands in their way to leave if they are unhappy. This is in contrast to policy changes imposed by the Federal government in which no depositor can shop around to avoid.

Finally, your suggestion that depositors have not been adequately warned of overdraft fees is wrong. Disclosure regulation is so strict and thorough that banks are under intense scrutiny to disclose everything. The resulting financial disclosures are so dense and carefully worded they can make one’s head spin. If anything, customers are more likely overwhelmed by the sheer amount of information provided or the incomprehensible legalese and jargon. In either case, the blame should fall squarely with the regulators or customers, but not with the banks.

Sincerely,

Michael