Why Wall Street Lobbyists Want to Scare Small Businesses

The financial industry and their allies in Congress are using every trick in the book to thwart the Consumer Financial Protection Bureau even before the new agency officially opens its doors in July. That includes trying to cut its budget nearly in half; pushing lawmakers to tighten their oversight of the CFPB; and urging the Federal Reserve and Treasury Department to put it on a short leash. The latest ploy: Frighten small businesses.

In a letter this week to Treasury chief Tim Geithner, industry lobbyist groups including the U.S. Chamber of Commerce, Financial Services Roundtable and Financial Services Institute said the CFPB's consumer protection mandate could squeeze credit for smaller companies. Said Jess Sharp, executive director for the Chamber's Center for Capital Markets Competitiveness, in a statement:

The Dodd-Frank Act gave the CFPB tremendous power, with virtually no oversight, to go after bad actors. If that power isn't used carefully, there could be serious collateral damage to America's job creators. We'll continue to work with the Administration and Congress to create an agency that protects consumers and small businesses while not stifling job creation.

Quite the opposite, in fact. Congress formed the CFPB expressly to stop big banks and other mortgage lenders from engaging in the kinds of practices that led to the housing crash. Since the financial crisis, small businesses around the country have indeed struggled to get loans. But it was the crisis, not the Dodd-Frank financial reform law -- which has yet to be implemented -- that caused credit to evaporate.

Besides, financial firms could lend if they wanted to. Banks are sitting on a record $1.3 trillion in reserves, fueled by the Fed's purchase of Treasury bonds under its policy of quantitative easing. While many smaller banks continue to struggle, the industry as a whole has recovered strongly, posting net income of $21.7 billion for the fourth quarter. And as the economy improves and loan demand rises, banks have started picking up the pace of small business lending (click on adjoining chart to expand).

How consumer financial protections help small business
Contrary to what the financial industry claims, the CFPB will be a boon for small businesses. David Borris, head of the Main Street Alliance, a coalition of small businesses focused on public policy issues, outlines how:

Small businesses are financial consumers, too â€"- we've been harmed directly by deceptive financial products, and we'll benefit directly as abusive lending practices are curtailed.

People need to have money in their pockets to go out and spend in local small businesses. When people get trapped in bad mortgages or deceptive credit arrangements, it saps their disposable income. By guarding against this, the CFPB will help keep money in people's pockets to spend in the real economy.

The consumer bureau will promote a level playing field in lending by regulating shadow lenders, reining in abusive but profitable practices (propagated mostly by larger institutions), and allowing small banks and credit unions to compete on more equal terms.

No one, least of small businesses, benefits from that.

Image from Treasury Department
Related:

• Bank on It: Republicans Are Gunning for the Consumer Financial Protection Bureau
• Elizabeth Warren: Obama Stooge or Wall Street Sourge-in-Waiting?
• How New Credit Card Rules are Helping Consumers -- and Banks
• Financial Deform: Republicans Paint a Bulls-Eye on Dodd-Frank Reforms
• Inside Wall Street's Secret Plan to Bore Holes in the Volcker Rule