The Law Of Unintended Consequences – The Unintended Consequences Of Law

Let’s start with a couple of points to which most can agree.First, without the rule of law, modern commerce is essentiallyimpossible to conduct. Second, commerce naturally pushes theboundaries of innovation and tends to outrun the pace ofregulation/legislation. Not all innovation is necessarily bad, butit does drive a dialectical cycle of reaching and being paredback.

Sometimes the resulting regulatory process, in turn,overreaches. This leads to unintended consequences, buyer’sremorse, and perhaps just a bit of political pressure, all of whichcan result in a roll back or revision of regulation. Some of thecurrent political jockeying around the Durbin Amendment is a caseexample. As unintended consequences of interchange regulationbecome clearer – after becoming codified under the Fed’s draftrules (especially potential effects on consumer pricing)- somepoliticians raise the possibility of amending the Amendment, so tospeak.

Credit cards are experiencing another post-regulatory boomerangfrom the CARD Act, which itself is approaching two years afterenactment. The Fed is proposing that its “ability to pay”requirement for credit card applications be consistently applied toindividuals, as opposed to households, and that individual incomebe considered rather than household income. While that sounds fair,it certainly could hamper the extension of credit to men and womennot working outside the home, as their spouse’s income could not beconsidered on a credit application unless a joint application weresubmitted. Major merchants such as Home Depot and Dress Barn, aswell as major retailer card issuing banks, are justifiably worriedthat a rule intended to ensure issuer responsibility might end updisenfranchising key consumer segments from credit, especially the”instant” extension of credit through in-store applications. TheFed’s comment period on the proposed rule has recently closed, andthe future of the proposed rule is unclear for now.

What should we take from this all-too-common state ofaffairs?
1. Regulation is a process, and it’s never “over”
2. The Fed’s rulemaking is where the consequences of paymentslegislation, intended or not, become clear
3. Commentary from all stakeholders-consumers, issuers, merchants,networks, etc.-really does count
4. It’s probably not much fun to be a Fed rulemaker forpayments