Todd Zywicki over at Volokh's is co-author of a paper about regulation gone wrong. The well-meaning people, wanting to protect the consumer from evil banks, overlooked the point that in the real world, the main competitor to overdraft protection is payday loans.
So the legislation sucked.
Okay, it didn't entirely suck. It did some good things, too. But in the trade-off, it didn't work out better for the customers as a whole.The regulation was created because
1. Banks make a lot of money on it, so people get suspicious that something must be up.
2. People can understand anecdotes about how things can go wrong. Tears well up. Knees jerk.
3. They don't think it is regulating what they do, but what banks do - and screw them anyway.
People who like to regulate things believe that the solution is to just have better regulations. It didn't quite work this time. We can adjust that. Most of the time we do better. But they don't.
The original reasons why people want things regulated have not changed a bit. The new regulations will not be modified in the direction of what is good for the customer. Any subsequent legislation will be guided entirely by the same things that guided the original legislation: 1. suspicion of banks, 2. anecdotes, and 3. displacement.
The long term effect will be for banks to set their lawyers, accountants, and marketers for ways around the legislation in order to make legal money selling a legal product, creating more complicated situations requiring long disclosure forms which the customer does not understand but the bank does. Rather than protecting the consumer, the legislation has created a situation in which it is now far easier for a dishonest bank to take advantage of their customers, and harder for an honest bank to serve them.
Well, great, huh?
The reason we won't get better regulations is that the legislators won't get any better. Even the elected small-government conservatives who I hope you vote for will still want to interfere. That's who runs for office. And if you are a liberal who believes we can tip the balance by electing more Obamas or other well-meaning smart, educated people and fewer ignorant conservatives, you are even more deluded. They were the ones who gave us the legislation above. They don't get it right. Sometimes they get it partly right.
I think regulation by government is a wonderful - yes, wonderful - and necessary thing. But it is always doing surgery with a hatchet. Always. Please stop. Last resort. Human beings are deeply flawed. Legislators can't fix that, nor can they themselves rise above it, except temporarily, on their best days.
It goes to the deep philosophical divide, masked but always present, that Thomas Sowell described in Conflict of Visions. Liberals believe that mankind is generally improvable if we just get rid of a few problems; conservatives believe that human beings are flawed. Therefore, liberals want us to give them authority to fix stuff for the good of all of us, and believe we resist because we are stupid/evil and just can't see how much better it will be. Conservatives want us to limit the authority we give to anyone, even people they like, because the tradeoffs are far, far worse than people think.
I side 30% with the liberals on this. Human beings, and human institutions are improvable - not by nature, but by incentive - and government should...
Make that 20%...
There are always tradeoffs. There are always unintended consequences. And most especially, there are always well-meaning people who turn out to be not so well-meaning, following their own self-interest or tribal interest, not the general good. When they are "our" well-meaning people, we defend them too long, even dishonestly, then try to quickly forget their names when the exposure comes.
(It is not a far-fetched alt-history, for example, that John Edwards could have been VP in 2004 and still VP now. Oh. Yeah. Inconvenient data point, eh? No problem though. The DNC would just tell us that this brouhaha was only the result of partisan attacks. And 40% of the country would believe that and insist it angrily.)