Referring to this post, The Roosevelt Institute’s Mike Konczal writes:
First off, I highly doubt Spruiell has seriously read all his consumer financial contracts and understood them completely.
Could there be a less relevant critique of my point? Konczal is not making an argument. Instead, he is subtly trying to associate checking-account overdraft fees with confusing, complicated fine print, because that’s the only way the case against overdraft fees works. The people making the case need you to forget that overdraft fees are neither complicated nor confusing. The rules are very simple and almost everyone knows them — overdraw your account, pay $25. Someone might forget the rules and overdraw his account by mistake once or twice, but someone who overdraws it to the tune of $1,500 in fees in per year (an example Konczal uses to dramatize the severity of the problem) is either A) financially inept, in the sense of not being able to keep track of his account balance or B) someone who has made the conscious decision to overdraw his account multiple times when short on cash. Whether this person “seriously read all his consumer financial contracts” has literally nothing to do with it.
Is Konczal really trying to argue that poor people aren’t capable of understanding the connection between overdrawing their checking accounts and overdraft fees? Somehow, liberal condescension is still capable of surprising me.
Second, I do like the way that he basks in the subsidy. When I was at GMU discussing credit cards with some people, someone mentioned liking the idea that inside his wallet were 3 cards all competing for his attention at the store. Stephen apparently really likes the idea that inside his wallet his debit card is smacking around poor people until they get with it.
Actually, you know what I really like? I like the way pietistic financial “reformers” such as Mike Konczal attribute sadistic motives to their opponents (“smacking around poor people”) while pushing “reforms” that will in all likelihood lead to an increase in loansharking (poor people actually getting smacked around). Kevin Drum is right about this if nothing else — overdraft fees are a form of short-term credit offered at very high interest rates, like payday loans. But there is a persuasive case to be made that such forms of credit are actually welfare-enhancing. Liberal scolds look at the high annualized rates and shriek, but they’re not thinking of the unintended consequences: What would happen if these forms of lending were restricted? Would poor people suddenly stop needing credit? Who would step in to fill that gap? Credit-card debt is fully dischargeable in bankruptcy, unlike debt owed to the Bank of Vinnie and Frank.
Third, people say all kinds of things, but most reformers I know on this issue just want people to be able to opt-out of this service. And that’s what the regulation did.
You know, there’s another way to opt-out of this service: Don’t overdraw your account.
The narrow debate concerning overdraft fees is over, and we’ve already seen one unintended consequence: the end of free checking. But the broader debate is ongoing. The financial-regulation overhaul currently before a congressional conference committee would create a Consumer Financial Protection Bureau with broad authority to restrict various forms of credit which it deems abusive, but which might actually be better than the alternatives. As usual, the “reformers” have dismissed the idea that the measures they favor could end up having really bad (unintended) consequences for the people they are purportedly trying to help.