Thanks for Nothing

The Wall Street Journal reports that, in response to new regulatory rules that reduce overdraft fees, banks may phase out free checking accounts.

So-called consumer advocates succeeded in getting the Obama administration to put restrictions on overdraft fees. In effect, banks were willing to provide free checking in return for earning fees in other ways, such as on overdrafts. So if the government removes one revenue source, the banking industry needs to make up the lost revenue. And since checking accounts cost money to maintain, instituting checking fees is a logical way to cover the cost of maintaining a checking account.

Unfortunately, many lower income Americans benefited greatly from free checking, since it provided a low-cost way to access the financial system. Otherwise, the new account fees will encourage many to close their accounts and keep their money in cash.

This is just another example of how government intervention in the economy creates unintended consequences, often to the harm of the very people the government is trying to help.