Financial Poise
Rent-seeking behavior

Shakedown Street: A Tale of Unethical Business Practices

Stealing takes many forms. Obvious examples include instances like armed robbery, burglary, and pickpocketing. But enlightened minds also recognize more subtle forms of thievery that take the shape of unethical business practices, like spending too much time on LinkedIn while on the job (ahem), overbilling for services rendered, or shoddy workmanship. 

But the worst versions of theft rarely look like predictable Hollywood plots or red-handed pilfering. They instead come in the shape of policy. Let me explain.

Legal Robbery in the Rose City

On a recent, two-day visit to Portland, Oregon, a friend pressed me to take her car on Sunday morning for sightseeing. Sightseeing? Solid choice. The car part? Apparently less so.

I found a parking space on a quiet corner near the museum. Being vigilant about parking legally, I carefully located the parking lines, asked a passerby if my space was legitimate (being so close to the corner), read the sign announcing the times for paid parking, and paid my parking fee at the exact time required. I glanced at the ticket and saw something about displaying it inside the window, so I posted it between the seal and the glass of the driver’s side window and went about my business.

When I returned, I discovered a full-fee parking citation for the “crime” of putting my ticket in the wrong window. That’s right. Portland will fine you if you put the ticket on the driver’s side when you curb park. It has to be on the passenger side.

The Baked-in “Getaway Car” for Ticketing

As I researched the rule and how I might get out of the fine, I discovered several things that make this citation look like a deliberate revenue generation scheme and downright unethical business practice:

  • Fine print “gotcha”: Signage provides no indication of placement requirements. Instead, you have to read the fine print on your receipt or the parking payment station screen after paying.
  • Rule switching “gotcha”: Turns out they can still fine you for putting the ticket on the passenger window if you angle park because then it does have to be on the driver’s side.
  • Tourist “gotcha”: If you don’t live in Oregon and need to contest the fine by mail, you have to pay the full fine and accept the court’s determination in advance of knowing it. 
  • Take the deal “gotcha”: The city has a special fee reduction (not elimination) form all ready to go if you got a ticket for posting your fare incorrectly. You have to agree to the reduced fine by using it (no contesting it later), and you only save $16.
  • Known issue “gotcha”: The city website lists displaying the fare incorrectly (e.g., on the wrong window) as one of their top 20 parking violations. Their justification for the rule is that it might endanger an officer to check the window on the street side (even on a sleepy Sunday next to a crossing). Yet if the goal is about officer safety, why limit such a warning to fine print on a small piece of paper?
  • Honorable mention “gotchas”: You have to give them months to decide your case. It appears they won’t get back to you at all if they decline your request. To find out their determination, apparently, you must request a public record, which might be an additional fee.

Are all of these stipulations technically legal? Yes. Are they also representative of unethical business practices? Definitely.

Money Motivations Behind the Questionable Ethics of Policy Implementation

It shouldn’t have been surprising. But as it turns out, these unnecessary, messy stipulations support practices tied to PR and budgets. 

A significant portion of funding for Portland’s Department of Transportation comes from parking tickets. Tickets do not go directly into their pockets (you can thank the court for that). The Department’s own spokesperson has claimed that ticketing over parking violations has always been a money loser.

It’s not actually about the parking, either. Me putting a ticket in the wrong window does not imperil pedestrians or other motorists. It does, however, speak to a broken system. 

Departments of Transportation across the nation face significant budget shortfalls today. Even if the tickets themselves do not generate meaningful revenue, they serve as proof of productivity. This gets leveraged during complex state budget negotiations.

And the rest of us? We (literally) pay the price in stupid fees.

To its credit, Portland finally overturned my parking citation 7 months later. But my experience with Portland’s Orwellian bureaucracy and machinations serve as a parable for businesses seeking to eek out every possible penny from customers.

Parking Tickets, Rent-Seeking, and Other Bad Ideas

The beauty of human endeavor, as it relates to economics, is that each of us has the chance to create things of real value through industry and creativity. We, in turn, get rewarded through voluntary transactions that increase our and society’s overall wealth. 

In an ideal world, businesses and governments would provide only what consumers needed or wanted and would garner revenues that were generally subject to market-based pricing related to their true economic value. I don’t have to tell you twice that we do not inhabit an ideal world.

In economics, rent-seeking behavior is the act of using economic resources and one’s own power (typically at the expense of others) to obtain wealth without injecting resources back into society. Some businesses don’t seem to create sufficient value to attract revenue voluntarily and rely on tricks to squeeze it out of you. 

Notable rent-seeking examples include cell phone contracts, forced valet parking, or the car wash that doesn’t reveal its exorbitant prices until you are trapped in the entrance. And some states’ laws (including Oregon’s) fine you for pumping your own gas because they have had to force-create low-skilled jobs —which is paid for with higher gas prices.

Such policies introduce inefficiency into an already less-than-ideal marketplace. Sometimes that’s necessary. But in other cases, it’s greedy and wasteful. It literally bucks the notion of UX – the user experience – in policy design. In other words, we spend money to make money without delivering actual value to the public being served or courted.

PR Downside Negates Rent-Seeking Upside

Once upon a time, Portland’s parking policies would likely have gone unnoticed by all except those who fell on the wrong side of the law. Today’s world is different. You reading this article proves the point.

Though one might argue that rent-seeking behavior is “part of the game,” it’s a losing strategy in a world where you or your brand can be exposed as greedy or unreasonable. Mobile carriers recognized this with a pivot to “no contract” offerings. Eli Lilly saw the damage in having their pricing strategies called out in a now infamous Twitter policy shift. 

Even Oregon has acknowledged (at least in part) the error of their ways. Personally speaking, my ticket was dismissed. Broadly, Governor Kate Brown has erased much of the parking fine debt that blocked drivers from obtaining a license.

Why stop rent-seeking behaviors? It boils down to money. What previously got framed as a means of revenue generation has turned into a revenue drain when publicity generates legal fees, required PR expenses, and customer attrition. 

Rent-seeking behavior has always been unethical. It’s just become less profitable.

Recenter the User, Recalibrate the Game

Besides seeking catharsis from an unpleasant experience, this article was written to emphasize the consequences of rent-seeking behavior. Oregon likely paid more in administrative costs than my paying the ticket ever would have covered. Your company will face similar consequences if you follow their lead.

Always read all the fine print, even if it’s on a gum wrapper. Most importantly, I hope to remind people in business to strive to create products and services of real value that people actually want to pay for. If you have to extort money out of your customers, then you are missing the mark and need to rethink your business strategy.

Make something people want. Price it competitively. Don’t play games that insult people’s intelligence. In turn, people will pay a fair price and not withhold what is earned. We can all feel proud when we gain our wealth legitimately rather than through unethical business practices.

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This is an updated version of an article from 2019. © 2023. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.

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About Peter Eickelberg

CIO | CCO | RIA | Portfolio Manager | Operations | Compliance | Private Equity | Consultant Strong background in client service, investment research and management, client communications, operations and compliance within the registered investment advisor (RIA) space. Six years registered representative with a major brokerage. Six years leading investment department of a major financial…

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