The agency would require understandable disclosure, not the reams of fine print that has trapped business owners in unfavorable credit card contracts. It would prohibit unfair and deceptive practices, not let hazardous products like automobile title loans, which many businesses rely on to manage cash flow, slip through regulatory loopholes. Finally, it would require that lenders offer straightforward financial products, such as transparent credit cards and small business loans, alongside the complicated and price-shrouded products that crowd the marketplace.
Small businesses are an engine for job creation. They represent over half of private-sector employment and create nearly 80 percent of the nation’s net new jobs. But an economic recovery is threatened when small businesses are credit-constrained or rely on high-cost, nonproductive credit and are unable to create new jobs.
1. Raising consumer protections for traditional, and nontraditional, sources of credit – Small businesses rely heavily on credit from a variety of sources for their funding. While banks are still the biggest source of traditional credit, use of largely unregulated credit by small businesses increased by 28 percent from 1997 to 2005. The CFPA would raise consumer protection standards for all types of credit and ensure that consumers are protected from unfair and deceptive credit options, regardless of the type of company offering them. Business owners need the security of knowing that the product they receive from one lender carries the same level of protection as a product from any other lender, and that all lenders––credit cards, trade credit, and independent finance companies included––are offering fair financial products.
2. Eliminating discriminatory lending practices –Women, Latinos, African Americans, and other minorities are a growing percentage of small business owners and employees. Unfortunately, their access to credit is often limited by lending practices with a discriminatory effect. Women- and minority-owned businesses are denied loans at a higher frequency than other businesses with similar characteristics. African American-owned businesses are less likely to use bank financing or trade credit, and more likely to rely on nontraditional credit and personal savings to build their businesses. The CFPA will enforce fair lending laws to ensure that credit is provided fairly and ensure that safe, affordable traditional credit, such as bank loans, can compete with currently unregulated credit providers.
3. Ensure that financial regulators pay attention to small business credit needs – Banking regulators are prohibited from collecting data on gender, race, and ethnicity when making small business loans. This loophole makes it difficult to identify evidence of discrimination, but also making it difficult or impossible to identify new market opportunities. This makes it difficult to conduct thorough fair lending examinations or review consumer complaints of discrimination. The CFPA would collect information on small business credit availability by gender, race, and ethnicity, just as regulators currently do for mortgage lending. This would facilitate enforcement of fair lending laws and help identify business and community development needs and opportunities for women- and minority-owned businesses.
What you can do – contact Rep. Bill Foster at 202-225-2976 and Rep. Melissa Bean at 202-225-3711and tell them to vote yes on H.R. 3126, establishing the Consumer Financial Protection Agency.