Proposed federal legislation could be bad
for business, impair credit

Cont'd – “Consumer protection is a fundamental part of financial regulation; how to do it in the right way is our concern,” said David Hirschmann, president and CEO of the Chamber’s Center for Capital Markets Competitiveness. “Consumer protection failed under the current structure; you only need to look at sub-prime loans, Bernie Madoff and other things. There is lots of failure in the regulatory structure and all that needs to be corrected, but that’s not the debate,” Hirschmann added.

Also opposing the bill are the Independent Community Bankers Association and the New Jersey Bankers Association.

The U.S. Chamber of Commerce maintains the CFPA would add an unnecessary layer of regulation on banks, reduce choices of financial products, stifle innovation and make credit even harder to get.

“The CFPA is the wrong approach to consumer protection,” said Hirschmann. “Rather than directly addressing the failures in regulation that contributed to the current economic crisis, the CFPA simply adds a new agency with unprecedented power on top of a broken regulatory system.”

According to the Chamber many suppliers of consumer financial service products are small firms such as community banks; it contends the CFPA would harm these smaller suppliers because the new agency would impose fixed costs of compliance that weigh disproportionately on smaller firms, and because it would encourage product standardization that benefits larger firms. Also, only larger firms have the sophisticated legal staff to cope with waves of new regulations according to the Chamber’s analysis of the CFPA.

The U.S. Chamber of Commerce maintains that the CFPA will hurt small businesses because many rely on credit cards, home equity loans, auto title loans, and other sources of consumer lending to finance their business. The chamber maintains: the CFPA would likely reduce an important source of credit to small businesses, creating a credit squeeze that would likely result in business closures, fewer startups, and slower growth; and that the CFPA will adopt a “one-size-fits all” approach to consumer protection that ignores the fact that small businesses use consumer financial products in different ways than the average consumer.

“This would create such uncertainty that banks would begin offering only plain vanilla financial products to protect themselves from liability and more visits from the regulators,” Hirschmann said.  “Proponents think that’s a good thing.

“What we know is that as a small business, plain vanilla simply isn’t available,” he continued. “If the small business owner can’t get loans based on title loans, home equity, a personal credit card, they wouldn’t be able to keep their doors open.”

“From our perspective, creation of yet another standalone regulator with sweeping powers is the wrong way to do it; the current structure already suffers from too many layers; adding another layer is a move in the wrong direction,” he continued. “Our beef with the CFPA is that it is overly broad and seeks to regulate those who had nothing to do with the regulatory crisis.”

 “The right approach to improving consumer protection is to first take immediate steps to address the agencies’ failure to use their authority to monitor potential abuses and take the necessary actions to stop them,” continued Hirschmann. “Where there are gaps in regulatory authority, Congress should fill them.”

“Unfortunately the CFPA takes a backward approach,” Hirschmann added. “Rather than focusing on these areas, it focuses on giving a new government agency unprecedented power to regulate industries across the spectrum - not just financial institutions, but hundreds of thousands of other businesses such as every retailer that sells gift cards, every high school and college that provides financial literacy courses, technology companies, media companies, lawyers who advise consumers on tax or debt matters, and many retailers and utilities and doctors that let consumers pay their bills over time.”

The New Jersey Bankers Association also opposes the CFPA.