I was speaking with a friend the other day about the proposed financial regulations here in the U.S., including the creation of a Consumer Financial Protection Agency.  Industry opposition to the CFPA brought to mind an incident in high school.

A monitor was hired to patrol the student parking lot before first period and again during lunch hour.  Her job?  To make sure the kids who gathered there didn’t smoke.  The plan caused the kind of uproar you might expect from rebellious teenagers, with the president of the student council likening the monitor to Orwell’s Big Brother.  When council representatives met with the principal to complain (assuring him that of course they didn’t smoke), he asked them, “So what are you worried about, if you’re not doing anything wrong?”  The controversy was quickly forgotten and the monitor became a regular fixture, winning everyone over (the non-smokers, anyway) by handing out free candy on Halloween and Saint Valentine’s Day.

The moral of the story?  Forward-thinking banks and credit unions already cast their relationships with customers and members as a fair and transparent exchange of value; they’re not worried about the creation of an agency meant to clamp down on practices they’ve shunned anyway.  As Bloomberg’s Susan Antilla wrote in her column on January 25, “Among [the CFPA’s] goals, which in some sections read like a treatise against loan-sharking, are to truthfully explain costs, benefits and risks of financial products to consumers and to do it all in plain English.”  In short: that is nothing earth-shattering, nothing that will change the way reputable institutions already do business.

The shock waves from the crisis and recession are still reverberating, and regulatory reform is one of them.  The post-crisis consumer mindset driving the proposed reforms is the same force that has already led financial firms to re-think their value propositions, reform or no reform.

Overdraft service fee income, for instance, was a great party while it lasted, but was ultimately a crutch that exacerbated profit skews and the reliance on cross-subsidies.  In the process of complying with Regulation E, firms are starting to figure out how to anchor their revenue model in more rational and sustainable income streams, creating a healthier and more balanced business.  As they do so, they must not be shy about explaining to customers why they’re being charged for services that provide real value.

The need to align revenues earned from customers with the value delivered to them was something we addressed way back in 2002, in a study called Retail Economics Revisited.  As we said then, “Good product economics and a customer-focused organization are not mutually exclusive strategies.”  True then, true today.