Commentary: Unintended Consequences

When Congress enacted Dodd-Frank in retribution for perceived ills, you had to know banks would come up with new ways to replace lost revenues, but bankers were too clever by half, picking on the most financially vulnerable and least savvy.

Legislators heard--or perhaps misheard--customers when they grumbled about ATM fees and clamped down even though there is a logical argument for them.

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In pre-ATM days, if you went into Bank A and tried to cash a check from your own account at Bank B, think of the steps Bank A would have to take to accommodate you. Bank A would have to contact Bank B to ascertain you had sufficient funds and Bank B would have to immediately freeze the funds in your account before Bank A would provide you with the cash.

The transaction involved personnel and communication costs on both ends while both sides verified your identify as well as your balance.

Now, in the ATM era, though the transaction is virtually instantaneous, the same steps are involved with the same risks: a pending check may not have cleared, making the check you were attempting to cash a potential overdraft.

Nonetheless, there is a justification for an ATM fee for a transaction involving a bank not your own, even though you were accessing your own money.

The new fee opportunity for major banks comes in the form of pay cards--debit cards loaded with your take-home pay each time you get paid. Workers must pay a fee to access their own wages and may be charged a fee for not using the card.

The target customer for this new card is typically a minimum wage worker or near minimum wage worker who winds up paying a significant percentage of take home pay to get his or her own money to pay rent, groceries, or other ""luxuries."" Major employers such as Wal-Mart, McDonald's, Home Depot and even the New York City Housing Authority have signed on to the program lured by banks who claim a business with 500 employees could save upwards of $21,000 a year substituting pay cards for direct deposit or even paychecks.

To be sure, many of the recipients, workers, are unbanked--for a variety of reasons--and even the prospect of saving is not enough to lure them to becoming bank customers.

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The pay cards slither under, over, or around the definitions resulting from Dodd Frank for fees banks are permitted to charge for credit and debit cards or even for store cards, which often languish in the back of a drawer.

That lawmakers or regulators didn't realize or ignored the idea that banks would try to make up for lost revenues is an unintended consequence, which can hurt the very same group in the original proposal, or in this case, the law was designed to help. Now New York Attorney General Eric Schneiderman, who occupies the ""sheriff of Wall Street"" seat, is investigating the legitimacy of the pay cards.

Yet another example is the Affordable Care Act, or Obamacare, which is back in the news (if it ever left) with the Treasury Department announcement to postpone for one year until January 2015 the effective date of the law's major requirement that employers must offer health insurance to employees working 30 or more hours a week.

Reports of the Treasury announcement said employers were planning to reduce hours to evade coverage. Indeed, a major division of entertainment giant Walt Disney is hiring new college graduates--for a 29 and a half hour workweek, according to a human resources executive.

Someone in the White House should have seen that one coming.

Any law or regulation is always more vulnerable at the margins. Think of a scheme to vary toll charges on roads based on time to try to reduce traffic congestion. In the minutes before the toll rate drops, truckers or other drivers for whom the higher rates would be significant will pull to the side of the road and wait for the lower charges to take effect. Or, just before the tolls are about to increase, drivers will speed up to ensure they get charged only the lower amount.

The variable toll rates exist to speed the flow of traffic. The goal might be accomplished with gradual, rather than abrupt changes in toll rates. A truck driver might pull to the side of a road or speed up if the toll change is $5 but not if it is 50 cents.

Applying the same logic, the Obamacare minimum could have been legislated to be 25 hours. That might have led to reducing a work week to 24 and a half hours--but at a cost in productivity and expertise. Dropping a worker's hours from 35 to 29 and a half might not cost too much in output but dropping the hours to 25 would. In the worst case scenario, employers who reduced hours by 28 percent (35 hours to 25) rather than 14 percent (35 hours to 30) might have to hire more workers--not so bad in a nation struggling under the weight of a 7.6 percent unemployment rate.

Consequences: can't live with 'em, can't live without 'em.

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