Restrictions on ATM Fees -- Another Bad Idea

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Apparently some people in the Senate think that price controls are the appropriate tool for consumer protection. Ideas have been floated in the past to regulate interest rates on payday loans and credit card fees, and the latest target is ATM fees. Senator Tom Harkin seems to believe that restricting ATM fees to "a reasonable upper limit of 50 cents per transaction" will actually benefit consumers. Unfortunately, the logic underlying such a proposal shows a fundamental misunderstanding of, or perhaps disregard for, economics.

First, even under the assumption price fixing is a good approach, an average processing cost of 36 cents is not the correct benchmark. What about recovering all the other fixed and variable costs associated with installing and maintaining ATMs? Second, it doesn't take much knowledge of economics to realize that imposing a lower price will likely reduce supply of the good or service in question. Does Senator Harkin think there are too many ATM machines, or, more importantly, do consumers? Third, what exactly is the problem that this amendment is trying to solve? If the issue is that consumers are unaware of the costs when they use an ATM, then surely the right approach is to mandate that this information be provided at the point of service. Then consumers, not Senator Harkin, can make an informed decision about what price they are willing to pay for the service offered. Alternatively, if it is an argument about ATM monopolies gouging consumers, I'd like to see some evidence, and even then stimulating competition would appear to be a much sounder approach.

Consumer protection is an important and worthy goal. Misguided attempts to protect consumers with poorly thought out and heavy-handed regulation are not the way to achieve it.

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The Dodd-Frank Act, signed into law in July 2010, represented the most significant and controversial overhaul of the U.S. financial regulatory system since the Great Depression. Forty NYU Stern faculty, including editors Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, and Ingo Walter, provide a definitive analysis of the Act, expose key flaws and propose solutions to inform the rules’ adoption by regulators, in a new book, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance (Wiley, November 2010).

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Previously, many of these faculty developed 18 independent policy papers offering market-focused solutions to the financial crisis, which were published in a book, Restoring Financial Stability: How to Repair a Failed System (Wiley, March 2009).

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