Remember back when the big banks were telling us that re-regulating consumer finance with legislation such as the CARD Act and Dodd-Frank bill would severely disrupt the banks’ business models, and lead to horrible outcomes for ordinary Joes? Well, in Bank of America’s event-packed earnings call this morning, executives laid out how, exactly, the company’s consumer finance business has been forced to change in response to the new regulatory environment. From the press release:
As a result of the legislation and other changes in the environment, the company is changing the way its consumer bank does business, focusing on a relationship enhancement strategy designed to incent customers to bring more business and to make pricing more upfront and transparent. This change moves away from a dependence on penalty fees, which the industry had adopted over the years, and provides the customer with a better banking experience. These changes are expected to result in additional revenue.
So, let’s see. We’re getting 1) more transparent financial products; 2) better banking service; and 3) a boost to B of A’s bottom line. How could Congress have done this to us?!
Granted, the transition isn’t super-smooth. B of A would have reported a net profit today instead of a loss had it not been for a $10.4 billion “goodwill impairment” charge related to a new limit on how much the company is allowed to collect when people use debit cards at cash registers. (“Goodwill impairment” is a kind of made-up thing that you can read about here.)
And I’ll be the first to admit that “upfront and transparent” pricing might very well mean higher pricing, especially for people who are used to getting a free ride when it comes to financial services--like those of us who pay off our credit card balances each month, thereby borrowing at no cost. On CNBC this morning, B of A CEO Brian Moynihan was pretty darn clear: "Instead of charging penalty fees, we'll charge monthly fees.”
Yet, as I’ve long argued, there is nothing wrong with that. If my bank wants to charge me for a service that I am receiving—credit card usage, paper statements, a low-balance checking account—why would I be upset? Just clearly tell me what the price of the service is, and then I’ll make a decision about whether or not I want to buy it. Old-fashioned, I know, but still so beautiful. I understand that many people continue to feel the effects of the recession, and that the idea of paying more for anything right now is a painful one. But, in the long run, it only seems fair that people pay for the services they get.
UPDATE: Kevin Drum digs this post, invoking Hayek along the way. Then one of his commenters smartly breaks things down according to demand elasticity.