Thank goodness for the Dodd Frank Wall Street Reform and Consumer Protection Act. Without it, parking might have become the next financial bubble to rock America. Last week I received an email from Parkmobile. They provide the service that allows consumers to use their smart phones to pay for parking at cities across America, rather than feeding parking meters. The email informed subscribers that the transaction fee they charge was increasing by nearly 40%, and the reason for this increase was… Wait for it. You guessed it – Dodd Frank. This law, which was intended to reign in Wall Street and prevent another financial crisis, has ensured that evil and greedy parkers around the country don’t bring down our economy with their reckless behavior.
That would almost be funny, if it were not for the real harm that laws like Dodd Frank do, because of the unintended consequences they create. Every time something bad happens, lawmakers in Washington and in state capitals write legislation aimed at preventing it from happening again. This is an honorable if misguided sentiment. My first reaction to this type of behavior is to blame the lawmakers, but then I realize that we create this behavior by demanding action every time something bad happens. A legislator who suggests using existing laws and regulations to correct a problem is labeled as “do nothing” or obstructionist.
I will not debate the merits of more or less financial regulation, but I will argue that Dodd Frank, like so many laws before it, has had major unintended consequences. Banks are sitting on trillions of dollars that could be fueling the economy, creating jobs, and earning money, but the new regulations make it more difficult to do so. Uncertainty about current and future regulatory actions undermines their confidence to offer new products and services or to make investments. As a small business owner, I see this first hand. Some would-be clients hesitate to make even small investments that someone may label as unnecessary.
One of the biggest problems with sweeping laws like Dodd Frank is the bureaucracies they tend to create. Even the most fervent advocates for more regulation of financial services companies are confused about why we need a new regulatory agency. We already had the Federal Reserve, OCC, FDIC, SEC, OTS, CFTC, FINRA, Department of Justice, and the various state agencies that regulate state banks and financial services companies. Adding the Consumer Financial Protection Bureau to this mix is inefficient. It means all of the overhead required to operate a new entity. If new regulation was needed, why not give the necessary authority to one of the many agencies that already existed? Some argue that the CFPB can be disbanded when its work is done, but agencies are rarely eliminated in Washington. Just look at the National Screw-Thread Commission. It was established during the First World War to ensure the military had standardized materials. It wasn’t disbanded until 1987, decades after industry standards had made it obsolete.
All leadership is about creating change, and change always has unintended consequences. The more sweeping the change, the greater the effect these unintended consequences have. Neither Senator Dodd, Congressman Frank, nor countless senators, congressmen, staffers, and lobbyists who created Dodd Frank could have imagined that they would be affecting the price of parking, but that is exactly what they did. Leaders have an obligation to recognize that change will have consequences beyond those we anticipate or desire. That doesn’t mean we should shy away from change, but it does mean we should take time to understand the potential for harm we can create. Whether you are looking at a new product that you want to introduce, establishing a new business process, or advocating for new legislation, be patient. Take time to see what ripples the change will cause and what effect those ripples will have.
Strong leaders know that they will never be able to anticipate everything. They prepare so they will recognize unintended consequences when they occur and act appropriately. This may mean doing nothing, or it may mean a complete reversal. If the only unintended consequence of Dodd Frank was this parking issue, we would expect a leader to accept consequences as the price of the benefits they intended. However, when the unintended consequences outweigh the expected benefits, leaders must be prepared to admit their mistake and to act boldly to correct it.
webdiva
December 21, 2012 at 2:04 pmWell: companies can *claim* that their extra fees have something to do with the unintended consequences of passing a law, but as we all know, companies tend to pass along their expenses to users, if only to have more revenue to pay out in dividends, rather than to absorb costs themselves. Why isn’t this being questioned more?? I figure that the costs involved in adhering to regulations are a cost of doing business, and not all of that should be passed on to users. The problem here is that with parking, the users aren’t necessarily the customers from the parking company’s point of view; it could be a municipal government that farmed out or privatized the parking to a private company that is the ‘real’ customer from the parking company’s viewpoint … and as long as the ‘real’ customer is happy, why should the parking company care about what the actual users pay?? Well, it should care because street parking is a public utility, like other public utilities: those streets really belong to the community, not simply to the municipal government — and the users should be getting a break instead of having the cost of regulation passed on to them while the parking company’s investors get maybe more dividends than they deserve. This is a big problem with privatization — and one of several reasons why not every government function *should* be privatized. As with electric utilities, investors are the ones who are supposed to be taking on the risk, not ratepayers. This situation bears further study, not a knee-jerk reaction to regulation that simply demands less of it (not that I’m saying that’s what you did; but it is a common reaction).