1273619 Rakesh Uppal F2 Q2 Bank fee exploiting the poor? Comment?

INTRODUCTION

 Banks Fees :-

Many banks charge nominal fees for various services, such as requesting a deposit slip or counter check or notarizing a document. Bank fees generally constitute a major portion of revenue for the bank, particularly for regional and local branches. 

For better or worse, the 2008 financial crisis has put the financial sector again at the center of public debate. Several commentators have suggested that financial liberalization contributed both to the financial crisis and to growing income inequality.

Cross-country evidence has linked financial development both to lower levels and faster reductions in income inequality and poverty rates.As is often the case with cross-country work, endogeneity concerns are manifold, exacerbated by measurement problems inherent to survey-based inequality and poverty measures. In addition, cross-country comparisons face limitations in identifying the channel through which financial deepening helps reduce poverty rates.

Specifically, we exploit variation across states and over time in both financial depth and financial inclusion to explore:

• The relationship between financial development and poverty levels.
• The relative importance of financial depth and financial inclusion in this relationship.
• The channels and mechanisms through which financial development alleviates poverty.

India is close to an ideal testing ground to ask these questions given not only its large sub-national variation in socio-economic and institutional development, but also significant policy changes.

DISCUSSION
  Bank Fees Exploit the Poor

Pro: Have Mercy on the Poor and Weak

We’ll be arguing for years about who and what drove today’s banking crisis, but we won’t be arguing about who’s paying the bill: the American taxpayer.
With the U.S. government mopping up the economic mess made by so many of them, U.S. banks ought to be open to changing their relationships with poor communities.
Banks can be better public institutions by offering products that don’t exclude major population groups. About 40 million Americans have no bank accounts. Banks’ high fees and exclusionary rules are a big part of the reason. It’s hard enough for low-income families to save—high balance requirements make it even harder.
When researchers asked low-income families why they don’t have a savings account, only 37% said it was because they couldn’t save, according to the 2006 Detroit Area Household Financial Services study conducted by the University of Michigan. Nearly 29% said that lower fees would encourage them to open a bank account.
By offering accounts with tangles of strings and fees, banks push families toward predatory financial institutions, where they pay about 2% to 3% of their checks’ value straight to check cashers.
Banks should think about services to poor communities as as investment in customers, which could pay handsome dividends in the future as these customers’ families turn to trusted sources for future financial services.
As banks work to get back on solid ground, they ought to keep the help they received from the American people in mind and accept the moral obligation to lower barriers to economic prosperity for the nation’s most vulnerable communities.

Con: Quit Regulating Banks to Death

Banks are not “obligated” to provide free checking account services to low-income people any more than McDonald’s (MCD), Starbucks (SBUX), and Toyota (TM) are obligated to give them free burgers, coffee, and cars. Those who advocate such a thing are perfectly free to pick up the bank fees of as many low-income people as they can. I would be the last person in the world to stand in their way. The problem is not bank fees; the problem is low income. Forcing banks to give away some of their services for free will not improve the income-earning ability of low-income earners.
If an expansion of the welfare state in this way is desired, one wonders why it should be funded in such a discriminatory manner by an implicit tax on banks and not through general tax revenues—especially at a time when many banks are, well, verging on bankruptcy.
Moreover, if such a thing becomes acceptable, there inevitably will be calls for government to force other corporations to give more freebies to “the poor.” Why, someone in government may even get the harebrained idea of forcing mortgage lenders to ignore traditional ability-to-pay requirements for mortgage loans to low-income people, known as “subprime” loans. (Oops, I forgot; this has been the policy of HUD, the Fed, and other arms of the federal government for some 30 years now and a contributing cause of the current economic crisis).
This is nothing more than backdoor welfare statism. Like welfare statism in general, it creates the moral hazard of weakening work incentives, creating even more poverty.

Conclusion

In my opinion Banks are private companies that provide a public service: financing. They are the backbone of our economy and should have the obligation to provide low income people with low cost savings, but not credit or financing to people with poor credit history. Banks are charging fees to keep our money with them, and then charging more fees to give us back our money. Banks should think about the poor community as they can help them by motivating them to open more accounts with them, thus generating more savings and ensuring these savings into productive avenues of Investment thus help building a better economy. The Banks should accept the moral obligation to lower barriers to economic prosperity for the nation’s most poorest communities.

I disagree with the argument of Thomas as the problem is not low income but the bank fees.The bank fees are high for all whether POOR or RICH, so where the poor will go and checking some of the old reports and surveys it shows that Lower and Middle income earners take quite number of loans for there daily living like Vehicles, Consumer Durables etc. 

While I agree that bank charge high fees for their services, it is neccessary on the consumer to become educated about their service providers, and if necessary, change providers. The real problem here is  that people do not get some basic education about managing their finances.

There should not be more regulation like forcing banks to reduce fees, because by regulating, competition is hurt and competition is the invisible hand that drives down prices and fees for loans, which helps the consumer. By regulating, fees will rise and those in need of a loan will have higher interest fees and will end up not being able to pay back their loan, which will then lead to banks being blamed for the crisis.