U.S. PRESSES RETAIL BANKS TO HELP
MILLIONS OF ‘UNBANKED’ AMERICANS
The U.S. bureau charged with protecting consumers on Wednesday pressed the 25 largest retail banks to make checking and saving accounts accessible to millions of “unbanked” Americans.
In a letter, it encouraged them to help depositors avoid overdrafts and ongoing negative balances with special accounts.
Checking accounts or prepaid reloadable accounts make it easier for consumers to receive wages and benefits, make payments and manage their day-to-day lives, the Consumer Financial Protection Bureau said in the letter.
“Unfortunately, however, many consumers, including those with limited or irregular incomes, struggle to manage their spending, avoid unwanted fees, repay overdrawn balances, and maintain these critical accounts.” [Emph. added.]
So the CFPB wants banks to develop a no-fee checking account for low-income, unbanked consumers. How helpful! One wonders why banks haven’t thought to come up with a product like that already. Actually, here’s why: a no-fee checking account aimed at low-income customers would be a colossal money-loser. It would be expensive for banks to maintain given the size of balances involved and frequency of negative balances. Opportunities for cross-sell would be limited. (As far as that goes, roughly half of banks’ checking customers are unprofitable.) The banking industry—which is highly competitive, remember—has for years tried to find a way to profitably serve unbanked consumers. It can’t. The numbers don’t work.
But all of this of course means nothing to the Consumer Finance Protection Bureau. Among government agencies, it is uniquely unaccountable to voters or their elected representatives: the agency is funded not by annual Congressional appropriation but rather directly via the Federal Reserve. It is run not by a bipartisan board but rather by a single individual who can’t be fired, by the president or anyone else. Thus the CFPB has zero incentive, and will feel no pressure, to balance the interests of consumers against the interests of the industries it regulates. In this case, the CFPB wants banks to provide no-fee checking to low-income consumers, and simply doesn’t care that the accounts would be huge money losers.
What a preposterous way to regulate. On the one hand, all financial regulators should want a banking system that’s profitable and well-capitalized. But on the other, the CFPB is pressing banks to give away money-losing freebies that, for all anyone knows, low-income consumers have no interest in. That makes no sense. Unfortunately, I doubt this will be the last of the CFPB’s bad ideas.
What do you think? Let me know!