The Expert Podcast

For business planning over the next few years, any privately held company, especially small to medium companies, should start allocating two or three percent of their revenue towards additional and new unfunded mandates from the government. This is not necessarily a criticism of the government or an indictment of policy—it's just a reality of business. If you have your own opinion on whether this is fair or not, it doesn't matter. This is just a logical, rational suggestion to companies to start setting aside some money from your revenue to pay for things that the government is going to require businesses to do. We’re going to take a look at three examples. One has to do with payment processing, one with retirement accounts for employees, and one with social problems in certain cities that affect businesses.

The first example is payment processing. Something happening behind the scenes is the Federal Trade Commission and the Consumer Financial Protection Bureau (CFPB) starting to put out some directives and regulations for payment processors—basically banks that take credit card payments from merchants. If you have a merchant account and you take payments from customers, this is what affects you. Presumably, under the guise of preventing fraud and people falling victim to scams, they’re requiring banks to keep an eye out for what's called "dark patterns." These are things that companies use to scam customers out of money. However, the dark patterns have been expanded to things that are just normal, everyday marketing and sales techniques. More importantly, the government is requiring businesses to steer clear of marketing in a way where, if somebody is less sophisticated, they might not act in the same way a more intelligent person would.

What do we mean by that? Well, one of the things they talk about is that dark patterns are tactics that induce customers to complete an action they would not have otherwise completed if they had understood what they were acting on. Now, in the description, they say manipulative tactics, but what is a tactic that induces customers to complete an action, like buying something, that they would not have otherwise completed if they understood what they were acting on? So basically, if somebody doesn't understand and they buy something because they were not sophisticated enough to make an informed decision, it’s on you as a company. If they later say they didn't understand and made a mistake, it’s on you as a company. If you get too many of these complaints, you could lose your merchant account or even face prosecution.

You might have to change your business model to account for less sophisticated customers. Are we exaggerating? Well, here’s the thing—these actions may drive unwitting customers to purchase. What does unwitting mean? Basically, it means “stupid,” but in a less condescending way, it refers to less sophisticated people who don’t take the time to read through everything or understand things fully. It's on you as a business to make sure everything is crystal clear. And here's where it gets tricky—dark pattern allegations include system designs on websites that prey on human cognitive processing frailties. Now, the key word there is "prey." What is the difference between preying on somebody and just letting them voluntarily do something? You're not holding a gun to their head, but if somebody has a cognitive processing frailty, meaning they don’t have the ability to understand something sophisticated or research your product, and they buy it, the government might say that your system is designed to make that sale. If they didn’t take the time to compare products, maybe there’s a better product at a better price, but your website was designed in a way to make the sale—there could be consequences.

Look, if you're a scam company and you're doing fraudulent business practices, you deserve any regulation you get. But we're not talking about that. We're talking about companies that try to do things legitimately and are simply using sales and marketing techniques. If you talk about the pros of your product but not the cons, is that a design that preys on cognitive processing frailties? What does cognitive processing frailty mean? It means that you're putting the burden on your business to account for that reality in the consumer marketplace. That’s an expense you’ll have to deal with, either by over-explaining your product and selling less, or doing more to manage your customers.

Now, let’s look at another expense. In Oregon, there’s a new retirement law that says you must provide a retirement account for your employees. You don’t have to pay for it or contribute to it, but you have to create a system where automatically 5% of each employee’s paycheck goes into a fund. That’s going to cost money to process—you’ll have to set up an account. There are many companies that do this, and it could cost $50-$60 per month per employee to set up this account, and you’ll also need to monitor it. Additionally, you’re on the hook for making sure it’s done properly. There are fines involved if something goes wrong with the account.

Who makes money off this? The plan holder is charged 1% by the plan. Is the Oregon Saves program legally mandatory? Yes, it’s legally mandatory for employers, based on their registration deadlines. No matter whether you employ one or hundreds, all Oregon businesses will need to do something—either enroll employees or file an exemption. If you do it wrong, you're liable for a fine of $100 per employee, up to $5,000 per year. Certain deadlines apply, and employers with five or fewer employees have to have this done by March of next year. This is a significant expense. You don’t have to contribute the money, but you have to set up this system for your employees. Whether this is reasonable or not, you need to plan for it.

Lastly, there’s the issue of shopping cart "jail" in Washington state. Stores face fines to reclaim abandoned carts—even if they were stolen. The city charges $25 for stores to pick up carts from a fenced lot near Seattle, or stores can pay $62 for delivery. If stores don’t reclaim the carts within 14 days, they will be destroyed, and the city will charge an additional $25 for the destruction. The intent is to reduce the number of abandoned carts, but the financial effects are significant. Stores have to pay those fines, and if a lot of carts don’t even make it to the jail, they end up in a river or elsewhere, and it costs $400-$500 to replace a cart.

Stores can’t afford to ignore the issue of abandoned carts because some customers may have difficulty finding carts. If a customer walks into a store and the cart area is empty, they might turn around and leave because they can’t carry all their groceries. This is a problem that businesses are now facing.

These are three examples where businesses have to shoulder the burden of government mandates. Again, whether this is right or wrong is not the issue. The point is that if you’re a business, you need to start factoring in these social costs as an additional expense on your P&L. More mandates will probably be coming down the pipeline, and while you’re not sure what they’ll be, you should be prepared for them. Your area might be different from others, but just be ready for this and let us know which ones you're already dealing with and how that’s affecting your business operations.