Wednesday, February 3, 2010

Just Dopey

The political posturing over bank fees for overdrafts is an insult to the vast majority of people who do not write checks that overdraw their accounts. Once again, the government is attempting to protect people from the results of doing things that they should not be doing.
And the proposed “solutions” do not make any sense. The proposal is to require that the banks get permission from their customers to pay a check which would over draw the account. The alternative is to bounce the check. This is to save people who write checks on money they don't have from paying overdraft fees.

First, when people write checks they presumably want them to be paid.
Second, if they know they don't have money to cover a check but write it any way, it is a crime.
Third, if a check is not paid it will be returned to the merchant who deposited it along with a returned fee. That certainly will not help businesses as they will get hit with additional bank fees in addition to getting stiffed for the original purchase amount. Then they have to go collect the original amount.

The results of this brilliant bit of populism are that any merchant who accepts checks will have their fee expenses increase, their collection costs increase, and their bad check losses increase. Bank processing costs will increase since they will have to contact people individually, as will the cost of more government reports.

On the other side of the coin, the minority of people who write checks they can’t cover will be saved from the fees resulting from their poor choices. To make up for these losses, merchants and banks will simply raise their prices.
People who do not bounce checks will be paying for the ones who do. Brilliant!

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