Bank Overdraft Brouhaha: Why Can't People Take Responsibility for Themselves?

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I can't help but keep finding points of contention with Felix Salmon at Reuters. I think he writes well and I'm sure he's great to have a beer with. But he exemplifies the current environment of bank-hatred whereby hatred for their deserved wrongs has spilled over into a generalized resentment for a wide range of activities banks do and a desire to command them centrally, based on wherever the latest gaze of hatred happens to fall.

In a recent post he decries the "Scandal of Overdraft Fees", whereby one is basically charged a fee if you draw more money than you have in your account. He points out that they are frequently high ($25 range) relative to the offending average overdraft ($36) and how it's the poorest bank customers who pay the majority of overdraft fees. He then expands the hate to all fees in general, points out that banks earn a substantial portion of income from fees, and then concludes it's a raw deal and thus must be stopped. It's this final recommendation that haunts me most.

I'll simply address the attack on overdraft fees for now, to keep things focused. Look, I've been both the recipient of excellent banking service and on the tail end of fees as well. And I realize that frequently it's the poor who mismanage their money, thus succumb to fees, credit card interest, etc. Nevertheless, while some uniquely dastardly and heart-wrenching stories can come out of the woodwork, overall I believe we need to keep holding people responsible for their decisions and personal management. The beauty of holding people responsible is that we have less right (usually no right) to go and meddle with their personal affairs. While the darkside of nanny-stating and parenting people is that it opens the door to meddling with their lives and restricting their freedoms.

For example, if I don't pay a welfare wage to my neighbor, then I have no right to oppose him if he just sits around smoking marijuana all day. But the second I am required to pay for when he isn't working, then suddenly I can make an argument for why I find his lifestyle too lazy (or whatever one wants to call it), and why I have a right to intervene. The same goes for managing one's finances. The second I am forced by law to support someone who mismanaged their money, then I suddenly have an argument to go in and force some change in their lifestyle. Or if they are obese but I pay for their healthcare... then suddenly their obesity becomes a cost to me and I start asking for controls on their lifestyle. See, this is the danger to freedom that the removal of personal responsibility presents, and I think many people, such as Mr. Salmon by the nature of posts such as the above, misunderstand. The more other people support us, the more claims they have on our life's decisions since our life decisions suddenly have forced claims on their property.

So let's come back from the top-level issue which frames the problem, and come back down to the overdraft fee issue in particular. In addition to the greater implications emotional and arbitrary calls to "put a stop to this or that" have in regards to our tolerance for others' freedom, while overdraft fees are quite high, at the same time they are usually easy to see once they hit you. I've been hit by them in the past, I got burned, and I became double vigilant not to get burned again. If someone is hard up for cash, there are better ways to get short term loans, actually a credit card, though expensive, is probably cheaper than overdraft using the numbers Mr. Salmon mentioned. I doubt the majority of people who pay frequent overdraft fees don't have an alternative method to manage their cash, or aren't able to see these fees by checking their statements. If they managed a budget they would notice some money missing. As seen with credit cards, some people just need to manage themselves better. There are people in developing countries with far less education than even lesser-educated Americans who can effectively manage their money and even utilize high interest loans from loan sharks (who exist as a black market since bank interest rates are capped).

And just to help show I am not cherry-picking a single post of Mr. Salmon's, here is a second recent one which runs along the same vein of not holding people responsible for themselves. It's where he calls for heavy regulation (why don't we just come out and say ban) for "business opportunity scams". You know, get-rich-quick type offers that I think most people with two bits of common sense simply laugh at. It sounds righteous to say these are bad, so let's heavily regulate them, but with such action you will end up creating a nightmare for a lot more reasonable business opportunities, adding legal fees (to cover your butt ahead of time) to, say, a fledgling franchise business.

You also aren't simply asking people to be skeptical in life, learn from mistakes, and generally be responsible for their decisions. I bet you can take the claims of these schemes to lots of street-market-hardened people in a developing country and they'll see right through them as not the best of opportunities. And I can't even imagine the nightmare of how the concept of a "bad opportunity" or a "rip off" could be twisted around to justify a lot of unfair verdicts.

This line of thinking is likely to be continued. "Protecting society" is the innocuous beachhead from which a population's rights are assaulted. And usually to the detriment of small upstarts rather than big business.