End of Free Banking?

It appears that there are increasing numbers of customers revolting against bank charges which they deem as ‘unfair’. It appears that the law states that these charges are indeed illegal, because they cover more than just the costs the banks incur. In other words, banks are not allowed to make a profit on these charges. This is awkward because it artifically distorts the marketplace. It would be useful for banks to put in place high charges to discourage customers from using unauthorised overdrafts, keeping too small a balance for regular transactions, etc. There are already regulations in place ensuring that charges have to be clearly laid out in account terms and conditions, so this isn’t ‘unfair’.

There is also the potential that this may hurt those with the self-discipline to keep our accounts in order. Inside Money hypothesizes that this may result in banks imposing general charges for banking, essentially meaning that those who don’t keep their accounts in order will subsidise those who do. Perhaps it isn’t an area in which it’s healthy for government regulation to intervene. Unfortunately, the law in question here is not specific to banking, but seems to cover contracts in general. I would guess it might be some time before this will change.