In my original post I mentioned that many of the larger banks were expected to follow suit, and begin charging similar fees just as Bank of America announced it would do. This was indeed the case. Since the time of the article, banks such as J.P. Morgan Chase and Wells Fargo announced they too would look at charging the same fees. However, according to Robin Sidel's comments in today's Wall Street Journal, Wells Fargo and J.P. Morgan Chase have just been joined by Sun Trust Bank and Regions Financial Corp. in their recent denouncement of test fees amongst certain groups of customers. Sidel explains in her article that these recent moves leave Bank of America as "...the only big bank that is still planning to levy the fee..."
It appears to me that banks across the country have tested the water with creative fees, and have determined that their customers are unreceptive and willing to look elsewhere for services historically offered at no charge. Seeing the free market operate is refreshing to me at a time when it so often seems that free market principles are under attack. The question is whether the trend will continue.
4 comments:
This is a fun topic. I believe that it is unlikely that banks continue at this point to charge such fees. In this economic time consumers are becoming more likely to change suppliers when a feeling of injustice occurs. The problem with Bank of America's decision to charge such fees is that many banks have chosen not to raise revenue in this manner. This is causing consumers to potentially look to a new bank for services even though they are likely paying the price in a not so evident way. Consumers will look at the obvious difference and ignore the negatives that they don't understand.
-1 on sjenn for a spelling error.
Since this was posted, Bank of America has rescinded this plan.
Microeconomists would find this topic fun. For my part, I'm stumped. It's hard for me to see any reason other than habit why customers wouldn't put up with this fee.
Of course, there is a prisoner's dilemma here. Banks can choose strategies of fee or no fee. From an individual bank's perspective, fee is better. But as soon as your competitor institutes a fee, you should switch to no fee, and they should follow suit.
The interesting thing about banks charging new fees is the motive behind the change. The reason behind the change is that the government decided it needed to “protect” consumers from banks and made new legislation restricting the interchange they could receive. Interchange is the percent financial institutions received from merchants when a consumer used their debit/credit card. By trying to “protect” the consumers they actually made it so that fees that were previously charged to merchants are now going to be passed to the consumer. The debit card fee has caused a lot of controversy but you can be sure on one thing the banks will get their income back one way or another and you can bet that the people that will be paying it will be the consumer. Lets all give a big thanks to the government.
Good point.
I have heard this point made in the media, but I'm not sure the extent to which it is true. It's certainly plausible.
This is an example of tax incidence as covered in Chapter 6 of this text (and in all the other Micro and ManEc texts you've used). Politicians and regulators are far more concerned with the label applied to who is being taxed than on who is actually paying the tax.
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