The Consumer Financial Protection Bureau is preparing to take the next step in its quest to create new rules for the short-term credit market. Almost a month ago, the CFPB announced its concepts for rulemaking at a field hearing in Richmond, Va. This week, the CFPB began a process to examine the impact its proposal will have on small businesses.
Within the industry, it's already clear the impact will be catastrophic unless the CFPB makes serious changes to its proposal. Indeed, nearly all small businesses in this sector would be forced to shut down under the agency's current plan, leaving their employees without jobs and many of their customers without access to credit.
When Washington regulators like the CFPB approach an issue, they tend to believe that more regulation is better regulation. But for small businesses, more regulation means more compliance costs and more restrictions on who they can do business with and what products and services they can offer. These costs can easily put smaller nonbank lenders out of business.
Over the years, Congress has seen the negative effects that onerous regulations can have on small businesses. That's why it passed the Small Business Regulatory Enforcement Fairness Act, which requires regulatory agencies to formally consider the views of and impacts on small businesses in the early stages of a rulemaking process.
Under the SBREFA process, the CFPB is required to form a panel of small-business owners to examine the impact a rule will have on the small business community. The process brings together the CFPB, the Small Business Administration and the Office of Management and Budget to hear these businesses' views and their ideas on how to make regulations less burdensome.
It is crucial that the CFPB avoid treating this as a check-the-box exercise. Rather, the agency should see it as an opportunity to increase their knowledge and improve its rulemaking proposal. The SBREFA process will allow the agency to gain a different perspective and to consider alternative measures that would protect the consumers who use these services and prevent the imposition of an unnecessary burden on small businesses. It should incorporate the industry's feedback into its proposal, ensuring the concerns of small businesses are addressed in any final rule.
Moreover, if the CFPB wants this rule to protect consumers, it should consider the real-world impact it would have on access to credit. The CFPB's proposed rules would further constrict Americans' already-limited credit options. Consumers fare well with choice. Without it, they are imperiled.
While the economy is growing, so is income inequality. Millions of Americans already live paycheck-to-paycheck, and more than 33 million households lack sufficient access to traditional banking services, according to the Federal Deposit Insurance Corp. For these households, financial services like payday, installment or title loans are often the best option they have to make ends meet.
The ability to choose among options is at the heart of the free-market enterprise system. It is the very essence of personal freedom. Consumers are not served if their "protections" are so overreaching that they have no options or access to credit. In order to maintain the integrity of the rulemaking and protect consumers, it is important that the CFPB truly listen and take into account the very real impact that its actions in Washington have on small businesses, their employees and consumers across America.
Dennis Shaul is chief executive of the Community Financial Services Association of America, which represents non-bank lenders offering payday loans, installment and title loans. He previously served as a senior advisor to former Rep. Barney Frank and was the chief financial regulator in the state of Ohio.