CFPB’s Regulatory Overreach Is Actively Harming Small Businesses

June 6, 2024 10:00 pm
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Kathy Kraninger BankThink re: credit card late fee rulemaking

Rather than fueling uncertainty, the CFPB should be devising strategies that facilitate clearer policies that bring more certainty to lending markets, writes the president and CEO of the Small Business and Entrepreneurship Council.

Timon – stock.adobe.com

Consumer confidence and uncertainty have wavered since the end of the pandemic. Inflation continues to take its toll, worrying small-business owners and consumers about its future course. With inflation moving higher, those worries have swelled. Predictability is needed and the government can play an important role in achieving that end, but only if policy moves in a rational direction.

A major driver of uncertainty is regulatory activism and overreach. Federal government agencies are expanding their scope and grip beyond their traditional or statutory domains. Regulatory threats and costs are draining optimism and forcing small businesses to waste resources that could be used to survive inflationary pressures or invest in more productive uses. At a time when profits are already squeezed and consumers are tightening their belts, the federal government should not be piling on with new costs.

The Consumer Financial Protection Bureau is one such federal entity that is piling on with intrusive regulation and ignoring the effects of these actions on small businesses. One such example, falling under the category of labeling appropriate business activity as abusive, is the mandate that caps credit card late fees at just under $10. The harmful consequences of this CFPB mandate will make its way to countless small businesses. The disparate impact not only affects small firms in the financial sector, but also small-business consumers that need capital to operate and grow.

In a newly released index from the American Financial Services Association, or AFSA, twice as many lenders reported that conditions have worsened over the first three months of 2024. In almost every category — including customer demand, funding costs and the performance of outstanding loans — indicators worsened. In part, this grim picture is due to federal regulatory activity that is vastly disrupting and undermining the important lending services the financial sector provides.

Make no mistake, this is a sector dominated by small lenders, and many focus on small-business financing. This source of capital is critical to local small businesses for meeting key needs, such as operational costs, initial startup financing, new equipment and technology or business expansion. Already, access to capital is difficult for many small-business owners, and aggravating that difficulty is uncertain economic conditions and rising interest rates. According to the Small Business and Entrepreneurship Council’s last Small Business Checkup Survey, 63% of owners rated the availability of capital as “fair” or “poor” and 53% reported that the lack of access was hampering operational capacity. A similar sentiment was found in a recent Goldman Sachs 10K Small Business Survey, where 77% of business owners said they are concerned about their ability to access capital.

When small lenders and local small businesses simultaneously express unease, this is not a good sign for our economy. In fact, it should raise reg flags for policymakers, elected officials and regulators alike. The CFPB, like other regulatory agencies, must not only be flexible in their regulatory approach, but actively engage with small-business owners and the broader industry to understand the downstream effects of its regulatory proposals. Rather than fueling uncertainty, the CFPB should be devising strategies that facilitate clearer policies that bring more certainty to lending markets.

Capital is a key ingredient for fueling entrepreneurship, innovation and small-business success. Entrepreneurs and small businesses need capital and abundant financing options. Helping to facilitate clear lending guidelines that encourage and enable finance options are goals the CFPB needs to embrace. When financial options are protected, consumers and small businesses are protected. And isn’t that what the Consumer Financial Protection Bureau claims it is all about?

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