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Thursday, August 11, 2005

Credit Card and Bank Fees: Is the Sky the Limit?

AtmfeeChris Hoofnagle of EPIC West has started a new blog, and it is filled with interesting posts about privacy and consumer protection law issues.  In a recent post, he discusses the growth of credit card fees for late payments, cash advances, etc.  Hoofnagle quotes from a Wall St. Journal article that notes that credit card fees have doubled since 1996.

Bank ATM fees can be steep too, as well as fees for bounced checks, failure to maintain minimum balances, and so on.  According to one of the articles Hoofnagle cites, banks rake in $30 billion per year from fees.   Credit card issuers collect about $20 billion in fees.

These fees have always struck me as very problematic.  They disproportionately affect the people who can least afford to pay them, and many seem excessive.  Why does it cost so much money to withdraw from another bank's ATM machine?  When you add in your bank's fee plus the fee the other bank charges, it can be as much as $2.50 or $3.00 to make a withdrawal.  I'm not an economist, but is this just the good old market at work?  Or is there some type of market failure at play? 


Posted by Daniel Solove on August 11, 2005 at 06:56 PM in Daniel Solove, Information and Technology | Permalink


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Posted by: Kevin Funnell | Aug 22, 2005 8:33:49 PM

Everything said may be true, but I would bet a good class action could be brought for disparate impact under Title III of the Amerians With Disabilities Act to enjoin these excessive fees, since the disabled are overwhelmingly poor and the excessive fees disproportionately affect the poor.

Posted by: Mary Katherine Day-Petrano | Aug 12, 2005 12:07:58 PM

In terms of credit card late fees etc. (and also bank bounced check fees) some of the bounded rationality problems identified by Sunstein here and another paper by Oren Bar-Gill here would seem to be part of the picture, particularly the notion of consumers being overly optimistic about their borrowing habits and ability to pay on time etc.

Posted by: Paul Gowder | Aug 11, 2005 7:30:18 PM

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