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New York Post


The Victims of 'Consumer Protection'

September 22, 2010

By Ted Frank

Is your bank telling you it will no longer offer you free checking? Has the interest rate jumped on your credit card? You may be a victim of “consumer protection” -- just like me, and just like the US economy.

The Obama-era Congress has been radically remaking the laws on relations between banks and their customers, culminating in the Dodd-Frank “financial reform” law. But what lawmakers did in the name of protecting consumers has made most of us worse off.

For example, legislators (and trial lawyers) have long argued that fees for overdraft protection and other special services -- including credit-card services -- were too high. So they’ve been limiting them or even banning them.

But because these businesses operate in a competitive free-market system, these fees never translated into pure profit. Instead, credit cards and banks used much of the money to cover other customer services. The fees underwrote things like free checking, rewards programs, free ATMs and other perks -- all of which, after all, cost banks money to provide.

When new laws and regulations limit the circumstances when banks can charge fees, they have to make their money in other ways. My bank used to offer me free no-minimum-balance checking -- but now wants to charge me $15 a month for the privilege.

To avoid the fee, I have to take thousands of dollars I would have invested in the stock market or spent on vacations and hold it in a minimum balance. The “consumer protection” has made me -- and millions like me -- worse off.

The problem is even more pernicious in the credit-card context. It isn’t just that credit-card companies have started cutting back on their rewards programs -- although they have.

Credit-card companies used to be able to offer lower rates to consumers with less-than-pure credit because they knew they could raise your rates to reflect the greater risk of default if you failed to pay bills or otherwise acted in a way that showed you weren’t a good risk. Responsible middle-class consumers who might have been unable to get credit otherwise thus could have the convenience of credit cards.

But now Congress has changed the rules. That’s why we see credit-card interest rates going up, even as other interest rates are going down -- and why more consumers are being refused credit.

This has put brakes on the economy, not only because it eliminates responsible consumer spending that would have occurred but also because job-creating small businesses often rely on credit cards to invest in their businesses. The job losses are incalculable.

Lawmakers have swept away decades of practices that had been developed in a highly competitive market to serve consumers profitably at the lowest possible price. Choices consumers would have voluntarily preferred can no longer be offered in the market.

When lawmakers decide that they know what consumers want better than consumers do, consumers invariably lose.

Original Source:



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