Financial deregulation will allow the industry to offer a supermarket selection of money management services, but consumers won't necessarily find only bargains.
Consumers can enjoy the convenience of 24-hour banking, cash management accounts and discount brokerage. In exchange, however, financial institutions are now requiring higher minimum balances on checking accounts and imposing new charges for banking services that were once free.
Another key issue is the effect of deregulation on interest rates.
Economist Henry Kaufman argues that removing interest ceilings on savings tends to lead to higher rates. Creation of the money market deposit account and the super NOW account have "helped to hold back the decline in interest rates just at a time when the need was to encourage lower rates," Kaufman says.
Treasury Secretary Donald T. Regan, on the other hand, blames bankers for holding up interest rates so they can make higher profits. Regan contends competition will help force up interest rates paid on deposits, while simultaneously keeping down loan interest rates.
Because they are paying more for deposits, financial institutions have begun to raise their charges for services that require costly personnel, thereby encouraging customers to use the new, cheaper technology such as automatic teller machines. "There is no question that low balance accounts will be hit harder," says Carol T. Karkut, a banking consultant with Littlewood, Shain & Co.
Washington attorney August Bequai, the author of "The Cashless Society: EFTS at the Crossroads," also contends that consumers are not sufficiently informed about the legal consequences of electronic banking. "Any mass technology which daily transmits and records information on millions of individuals and their financial transactions runs the risk of error, malfunction, natural disaster, fraud, thefts, abuses or some other event that can result in serious personal or financial injury," he warns.
Robert Ellis Smith, publisher of Privacy Journal, suggests that the corporate "supermarket" concept encourages subsidiaries to share sensitive information about customers for use in soliciting tie-in sales. Investors may be reluctant to entrust all their financial problems to a "supermarket" for fear of losing some of their privacy.
Electronic banking also raises other consumer issues that could work against its widespread acceptance. Whereas a customer's liability for a lost or stolen credit card is limited to $50 if reported promptly, the customer's liability for "unauthorized use" of debit cards in ATMS has no such ceiling. If the cardholder delays reporting abuse for 60 days after the statement is sent, he or she may have to bear the entire loss.
The Electronic Funds Transfer Act of 1978 requires a paper receipt be given for ATM transactions, but home banking by computer or telephone is exempt from the receipt requirement. According to Bequai, the lack of original documents could lead to litigation for the customer who seeks to show the computer was responsible for a bill not being paid.