One of the chief ways small business owners raise money is through loans.
One of the chief complaints of small business owners is regulations.
The two issues have hit in a head-on collision.
The Consumer Financial Protection Bureau (CFPB) was set up to protect people from falling for scams in the financial industry, and to keep a watch on companies that operate in the space. It has been so mired in controversy over its authority that it now faces dismantling by the new administration.
As the wheels turn in that effort, the controversial government agency has set its sights on small business loans, collecting information and statistics about the loans.
Banks and lenders smell trouble, according to Bloomberg BNA. Is the bureau ramping up for a new round of fair lending lawsuits? Or a whole new range of lending regulations? If it wanted to, the unelected CFPB could enact regulations with the force of law, just as if it were Congress.
The CFPB came from the Dodd-Frank Act that has been in the news lately, as calls for its repeal have run rampant.
The problem with the CFPB’s targeting how small businesses get loans is twofold.
First, there are concerns about the scope of the information the CFPB wants to collect.
The CFPB wants to use a section of an existing law that requires it to collect information about access to credit for small businesses, women-owned businesses, and minority-owned businesses. The CFPB also wants to collect new data on the state of small business lending. It applies to online lenders, as well as bank lenders.
Proponents say this is an effort to save small business owners from unfair lending practices. However, a Pandora’s box is opened whenever a government bureaucracy attempts to expand its so-called collection data efforts.
Lenders, including non-banks and online lenders, could simply curtail making loans to small business owners. They might fear unequal lending lawsuits if their numbers of loans to women-owned and minority-owned businesses are not high enough. Some might make bad loans just to get their numbers up, something that contributed to the housing crisis of 2008.
Some companies may find that dealing with government disclosure is timely and costly. They may find it’s not worth the hassle.
For small business owners, available lenders would be curtailed.
The second problem deals with the many complaints about the CFPB concerning its abuse of power.
The controversial bureau has been under fire for its overreach. Critics also say the CFPB’s data collection efforts may go further than what is allowed by the actual law.