Answer to Question #137514 in Economics for Sean

Question

Fees are an important way how banks can generate income.
(a) First from the bank’s perspective, why do banks want to collect fees on events such as bounced checks, or overdraft from checking accounts, apart from generating income?
(b) You can imagine that depositors are not so happy with these fees. The 2010 Dodd-Frank Act creates a new Consumer Financial Protection Bureau (CFPB) within the Federal Reserve. The new agency will monitor credit card fees and interest rates. With the Great Recession in the backdrop, explain why the CFPB wants to step in and regulate the fees. (Hint: Connect to how the government regulates/deregulates the competition in the banking industry.)

Answer 1

(a) Banks want to collect fees on events such as bounced checks, or overdraft from checking accounts, to decrease and control the number of such operations apart from generating income.

(b) The CFPB wants to step in and regulate the fees to provide more fair competition between banks and decrease the risks of not paying the bills by the customers, which can be the reason for a new crisis.