Financial Reform and Its Potential Effects on Small Business: The Current Debate

Pundits from all sides are arguing over the best approaches to financial reform… takes a look at the debate over how the proposed Consumer Financial Protection Agency (CFPA) might impact the nation’s small businesses, and entrepreneurs evaluating new opportunities.

When the nation’s mainstream press, newspaper op-ed pages and the blogosphere are overflowing with commentary on an issue as important as financial reform, we all should be paying attention. But let’s face it, all that dense, academic language can put the average person to sleep faster than counting sheep ever could.

In an effort to get each of us to wake up, take notice and even laugh a little, Ron Howard has directed an all-star cast of Saturday Night Live stars, both past and present, in an online sketch for entitled, “Presidential Reunion”.1 Granted, this addition to the ongoing financial reform conversation represents just one side of the debate and its approach to making a point is a little out of the ordinary. But just the mere fact that Howard and stars with last names like Chase, Aykroyd, Carvey and Carrey, among others, saw fit to give their time to the project should tell each of us we need to pay attention.

What Went Wrong and the Need for Reform

Consensus among liberal and conservative pundits alike is that some degree of financial reform is necessary given the nation’s….no, make that the world’s…most recent economic decline. In his recent remarks articulating the need for financial overhaul, Treasury Secretary Timothy Geithner summarized the complexity of just what went wrong:

“…what caused the crisis was not just that monetary policy around the world was too loose for too long. It wasn’t just that a lot of people lent too much and borrowed too much on the unrealistic hope that housing prices would never fall. It wasn’t just that the boards of directors and executives and shareholders failed to prevent massive failures in risk management. This crisis was the result of failures in government policy and oversight, failures in the design and enforcement of rules and regulation. Our regulatory framework was built in a different era for a long extinct form of finance. It long ago fell behind the curve of market developments. Parts of the system were crawling with regulators, but parts of the system were without any meaningful oversight.”2

Recognizing there is a reasonable degree of agreement on the need for some kind of financial reform, the new administration is faced with the challenge of how to best approach it. Its current plan has at its very core a proposal to create a Consumer Financial Protection Agency (CFPA). The debate over whether or not a new regulatory body of this kind would have prevented or will prevent a recurrence of future financial difficulties akin to what has recently transpired is both passionate and dynamic.

As a consumer and a small business owner, it’s important for you to understand the issues and hear the main arguments that are being made from both sides of the debate. Suffice it to say, it’s all extremely complex, so much so that it would be ridiculous to think every aspect of the conversation could be covered adequately here. However, if just knowing a little bit about the positions of those on either side of the issue gets you thinking and wanting to learn more….well then, mission accomplished!

The CFPA Proposal

In a recent article for Time Magazine, Michael Grunwald described the argument for the proposed CFPA in layman’s terms:

“The argument is that finance has become a Wild West of outrageous hidden fees, ridiculous fine print, deceptive come-ons and secret side deals designed to sucker us into predatory rip-offs we can’t afford or escape. And the CFPA is supposed to be the new sheriff in town…It would be like a financial version of the Consumer Products Safety Commission (CPSC), the Food and Drug Administration (FDA) or even the Environmental Protection Agency (EPA).”3

Assuming the creation of a CFPA would be good for the consumer, and there are many who would say otherwise, would it be good for small business? Well, that depends on who you are talking to…

Will the CFPA Be Good for Small Business?

In this corner and opposed to the CFPA…the U.S. Chamber of Commerce, “the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors and regions, as well as state and local chambers and industry associations,”4 and its allies. Although the Chamber is unquestionably one of the most recognized representative bodies of the business community, its actual membership is roughly 300,000 plus. The challengers? A myriad of perhaps less recognizable associations and other organized CFPA-proponent groups, with arguably just as many adherents…maybe more.

So, which side is right, and more importantly, what does each of them have to say when it comes to the CFPA and its potential effects on small businesses around the country?

The Chamber’s assertions that the CFPA would “disproportionately harm small businesses” are very clearly delineated on its “stopthecfpa” website:5

  • The CFPA would restrict access to credit for small businesses and consumers at exactly the wrong time.
  • The bill takes a one-size-fits-all approach that fails to recognize the differences between small business owners and consumers.
  • The CFPA would regulate non-financial businesses that had nothing to do with the financial crisis or the consumers that were harmed.
  • The CFPA would subject businesses to a complex and confusing maze of state and federal regulations and liability.

According to the organization’s Center for Capital Markets President and CEO, David Hirschmann, the U.S. Chamber and its allies are in search of progress, not just change. He asserts that, “What is being proposed will result in a significant reduction in the availability and affordability of credit for consumers and small businesses at a time when they need it most.”6

Those in favor of the CFPA legislation include a vast array of organizations and/or their members, such as the U.S. Women’s Chamber of Commerce, the U.S. Hispanic Chamber of Commerce, the Main Street Alliance and a number of state-based, small business organizations, as well as many others. These organizations have come together and drafted their own petition in favor of the CFPA, which can be found on their Business for Shared Prosperity website.7

The petition reads in part:

  • Small business owners often rely on credit from a variety of sources, including use of personal credit cards and home equity loans, to start, run and expand their businesses.
  • Business owners and consumers need full and fair disclosure of the costs and risks of financial products and services.
  • Those pushing misleading products with hidden risks undercut lenders offering sound mortgages and other credit. Many businesses that survived the initial meltdown are being hurt by credit cuts and denials, abrupt interest rate and fee hikes, and other financial practices.
  • A Consumer Financial Protection Agency will expose unsafe products and services and encourage accountability and fair competition.

Frank Knapp is the President and CEO of the South Carolina Small Business Chamber of Commerce and a fierce supporter of the CFPA. “Small businesses are paying the price for an economic crisis they did not create,” he said. “When the U.S. Chamber of Commerce opposes the CFPA saying that it would choke off credit to small businesses, they are obviously out of touch with the real crisis in small business lending. While the U.S. Chamber cries crocodile tears for small businesses, it really represents the financial institutions responsible for today’s economic crisis and the pain of small businesses.”8

What’s the Conclusion?

It’s a bit uncertain actually. An expert panel consulted for a June 2009 Forbes article9 seemed to agree that more transparency and disclosure in the financial system would be a good thing. However, as more than one panelist pointed out, it would be naïve to think that the creation of a CFPA in and of itself will fix all of our problems. The article goes on to cite some obvious omissions from the administration’s plan, some or all of which may or may not have been addressed in the latest iterations of the proposed legislation, which seems to be changing by the day.

And so the debate on just how to reform our financial regulatory system in order to avoid another Great Recession or an even worse fate continues, as well it should. For as frustrating as a seemingly never-ending argument about just what we must do and how to get it done can be, the alternative is far worse.

In fact, we all need to continue talking and debating and negotiating and yes, even arguing, until some changes are made. However, in our efforts as a nation to do the right thing for consumers and businesses alike, we must also be somewhat expeditious.

As Secretary Geithner said, “If we fail to act, America will lose this opportunity to set the global agenda, to define new high standards for all financial companies and to lead the debate in shaping a level playing field on terms that play to our strengths…if we fail to enact legislation reform here at home, we will be forced to use the limited and inadequate authority we have…At this stage, the debate is not really about financial reform or no reform; about re-regulation or deregulation. It’s a debate about ideas and about the best ways to improve an undeniably flawed system…”10

Sounds like the time is NOW to ask questions, become more informed and make your opinions known….because this time, failure is not an option.

1 Exclusive sketch video directed by Ron Howard entitled “Presidential Reunion” at Corkery, Michael. (March 22, 2010). Geithner: Even Conservatives Heart Financial Overhaul. Wall Street Journal (on-line). Available: Grunwald, Michael. (February 17, 2010). The Case for a Consumer Financial Protection Agency. Time Magazine (on-line). Available:

4 As cited online at

5 Article title: “The Proposed CFPA Will Disproportionately Harm Small Businesses”

6 As cited online at Title: “We Want Progress, Not Just Change” by David Hirschmann, Center for Capital Markets, U.S. Chamber of Commerce, Washington.

8 As cited online at Title: “Business Organizations to Senate: Don’t Drop Consumer Financial Protection Agency”

9 Serchuk, David. (June 22, 2009). The CFPA Is Just OK.

10 Corkery, Michael. (March 22, 2010). Geithner: Even Conservatives Heart Financial Overhaul. Wall Street Journal (on-line). Available: