Consumer Protection Bureau: A Small Business Friend or Foe?

Most business owners would agree that business is already subject to an adequate amount of government regulation. Except, that is, when the topic is regulating financial institutions. In a January 2010 survey of 1,237 small business owners in 13 states, the Main Street Alliance found 67 percent of respondents liked the idea of a consumer financial protection agency, and only 12 percent opposed.

That finding has not come close to settling the fuss surrounding the creation of an entirely new federal agency in the form of the Consumer Financial Protection Bureau. The CFPB is about to start its duties, as soon as Congress approves its director, and the arguments about what it will do and who it will affect are raging. Will CFPB spell "Considerable Financial Peril for (Small) Businesses"? The arguments go both ways:

- The stated purpose of the CFPB is to prevent the sort of ill-advised consumer finance practices, such as overly aggressive subprime mortgage lending, that help lead to the last recession. The American Sustainable Business Council, observes that a stable economy and a marketplace of consumers who aren't over-extended on debt can spend more to support local small business.

- But the U.S. Chamber of Commerce notes that small businesses have had trouble getting financing through conventional commercial loan sources, and worries that small firms could be affected by any tightening of consumer finance. "When traditional sources of commercial lending dry up, small businesses fall back on the consumer tools available to them," Jess Sharp, executive director for the Chamber's Center for Capital Markets Competitiveness said in testimony before a House subcommittee July 28.

- And it's simple good sense to question any added business rule-making body, as Club for Growth spokesman Barney Keller told The Daily Caller. "The CFPB is just another layer of government regulation added to an already over-regulated nation." Indeed, some of the things the bureau will do are already being done by other agencies, including similar state bureaus, and that kind of duplication can breed unnecessary confusion and cost.

- Still, if we're only talking about small business, the impact may be minimal. The New York Times observed that the bureau has authority to go over the books of about 110 mostly big banks and govern mortgages and credit cards, but doesn't directly oversee small businesses. The Times quoted Dan Sokolov, the bureau's deputy associate director of research and regulations, who told the House panel the bureau would focus on financial products and services for consumers, and would only concern itself with small businesses in the areas of student loans and mortgage brokering.

The ultimate answer to the question of whether the CFPB will be good or bad for small business is: Who knows? The bureau has broad powers and a lot will depend on how those powers are exercised. Until President Obama's pick to run the bureau, currently Ohio attorney general Richard Cordray, gets past Congress and takes up the reins, we just don't know what CFPB spells.

Mark Henricks is an Austin, Texas, freelance journalist whose reporting on business, technology and other topics has appeared in The New York Times, The Wall Street Journal, Entrepreneur, and other leading publications. Learn more about him at The Article Authority. Follow him on Twitter @bizmyths.
Image courtesy of Flickr user -= Bruce Berrien =-, CC2.0