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September 2010

U.S. Chamber Study Exposes Unintended Consequences Of Proposed Agency

Publication Date: 
September 2009


The Chamber's David Hirschmann says that financial consumer protection legislation should make government better—not bigger.

 
A proposed Consumer Financial Protection Agency (CFPA) will not enhance consumer protection and will in fact harm small businesses, particularly their ability to access credit, according to a new study commissioned by the U.S. Chamber.

"The smallest businesses—those we are most counting on to add jobs in the early stages of the economic recovery—have the hardest time obtaining credit," said David Hirschmann, president and CEO of the Chamber's Center for Capital Markets, during testimony before the House Small Business Committee on September 23.  "As a result, they often rely on consumer credit products such as credit cards and title and home equity loans to meet their needs, including payroll. The CFPA would likely have a significant impact on the availability and cost of credit to these businesses. In addition, smaller financial businesses would be significantly disadvantaged by the regulatory burdens of the proposed CFPA."

The administration has proposed creating a new agency that would have authority to oversee a range of financial products, including mortgages, checking and savings accounts, and credit cards, which 77% of small business owners use to help finance their businesses. The proposed agency would mandate that every institution offer a government-designed financial product, reducing the ability of financial institutions to offer alternative products that are tailored to the needs of small business owners. Reduced access to credit and more expensive credit products could result.
 
The Chamber's study, The Impact of the Consumer Financial Protection Agency on Small Business, was authored by Thomas Durkin, an economist who spent more than 20 years researching and monitoring the markets at the Federal Reserve. The study found that because the legislation adopts a "one-size-fits all" approach to consumer protection, it would likely restrict or eliminate altogether small business access to credit, and increase the costs of the credit they would be able to obtain. This "CFPA credit squeeze" could result in business closures, fewer start-ups, and slower growth, ultimately costing a significant number of jobs that would either be lost or not created. 

Speaking at a September 24 event at the Chamber's Washington D.C., headquarters, small business owner Kara Lowrie said thatshe would not have been able to start her mortgage company if an agency such as CFPA had been in place in 1998. Lowrie and her husband took out a home equity line of credit to get their business going in Bossier City, Louisiana, and now as a lender, she finds herself regulated by five different agencies. The problem isn't if there is enough regulation, Lowrie says, but whether there's enough enforcement. Adding another regulator to the mix is just "layering on another agency on a flawed system," Lowrie said. "Small businesses did not get us into this mess," Lowrie says. "Do we drive out small business because the government was unable to enforce regulations already on the books?"

Rep. Walt Minnick (D-ID), a member of the House Financial Services Committee, echoed Lowrie's comments. "It's clear we need more consumer protection and greater transparency," Minnick says, "but I don't think we need another regulator." Minnick called on the Chamber to use its members and influence to help shape the debate. "The U.S. Chamber of Commerce is an organization that is heard," Minnick said.

Read The Impact of the Consumer Financial Protection Agency on Small Business.

Learn more at www.stopthecfpa.com

Comments

fiftycalal 10/12/2009 3:13:39 AM

We are a Pawn Shop and it looks like they want to put us out of business. We are a non-recourse regulated lending company. By difinition we can not effect a borrowers credit for good or bad!
The only thing that Consumer Financial Protection Agency (CFPA) is make it much harder for the un-banked to survive. (Waterville, Maine)
James Jackson 10/12/2009 3:13:39 AM

As a small business employing persons in an area of low employment we feel we have been over regulated for years. We now face more regulations by government officials and every one of these regulations chips away at our bottom line. We offer several products and services and are regualated by Federal, State, County and Local agencies many of which are redundant. Each of these comes with needless fees, are funded by our tax dollars and costs incurred to keep up with them keep us from reinvesting for future growth. We are worried that our business will not turn a profit and therefor will not be marketable to a new owner in the future. These losses have the potential to make our future very bleak. President Obama and the US Congress are under the impression that health care costs are creating poverty when in reality small businesses and therefor families are being regulated out of business and into poverty. We cannot afford President Obama's health care, climate change and CFPA controls. I use the word controls because that is exactly what they are. (Dubois, Wyoming)
Taquilla Hamilton 10/12/2009 3:13:39 AM

Small business emerged in result of community members reasonably affording others within the community benefit(s)of it capacity to service the/a need(s). Their was equity it relationship for the survival of the community. Credibility was determined by character that most often produced profitability from an individual/group/family's labor. Entities of themselves can not regulate character, which will not exist without the standard from which its to be measured. These machines of controls proposed(capitalism and socialism)will not have to stand before God for the demise of families and family businesses survival. Those of you who knowingly impose your motives and schemes to be "king of the mountain" at the expense of the foundation is in for a great fall. The financial help, funded by taxpayers, is not proportionately getting to small businesses. You won't often meet us or see us at a celebratory festivity of the affluent. We work 12-16 hours everyday. We give days work to the neighborhood drunk, drug addict, single parent, prostituting mom, the kid taking care of he family and the illiterate. We're in every race and culture. I agree with James Jackson of Wyoming and fifycalal of Maine. Small business is at the core of every community. Corporate America has no room for the impoverished of our communities. FAMILY Businesses are a deterrent to poverty and therefore crime. Your mechanism are to sterile, cold and calculating to ever be mistaken for family/community (LOVE)concern. Governmental Electorates take care of THE WHOLE AMERICA include the lowliest of your family, then concern yourselves with the rest of the world.
(New Orleans, Louisiana)
Lilly 10/12/2009 3:13:39 AM

I'm very fortunate to be employed by a small business manufacturer. It's a shame that these book-smart politicians think they know what's best for Americans, especially those of us who are lucky to still have a job right now.
We shoulder the burden to pay for all the handouts & their other financial blundering. My one discrepancy is that I would not blame capitalism itself. There will always be greed - we can agree on that. Matter of fact, that's the reason politicians favor more beaucracy, which fuels more government spending & favor swapping.
Money motivates us all - we all want a nice home and need to feed our families. Financial motivation is the ultimate motivator for inventiveness & creativity that benefits us all. Wouldn't we all love our small business to grow into a self-propelling windmill that let's us retire financially secure at some point? In my experience, large corporations can and are community conscious. The couple that I have worked for have organized charitable events, sponsored little league teams, offered education reimbursement, additional benefits like mental health & legal services, etc. The pay wasn't good, so I moved on to something better (supply vs demand).
It only takes one bad seed to make the rest look bad. In our era of failed 401ks, we've had an unusual number of overpaid CEOs who cared nothing for the bottom line nor investors while escaping with their hefty contract payments. That is shameful.
Small business has & will always be the heart of America's employment, but I wouldn't be so quick to target blame @ big business. After all, they buy their products from many small business manufacturers like mine. I'd focus more on bringing jobs back to the US.
That's the main reason for fighting against costly regulations. (Escondido, CA)
Michael Bell, Sr. 10/12/2009 3:13:39 AM

I have been in business for 59 years, and although
most Consumer "Protection" Offices are fair, there
are some who use their powers to cost small businesses unnecessary but very costly legal fees. They don't care that while one individual
is getting free legal help; that private business in order to defend itself must pay high legal
expenses. What started out (under Pres. Carter)
as an idea for good, is making businesses close
and everyone go onto unemployment. (Voorhees, New Jersey)

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