With the new Consumer Financial Protection Bureau formally opening its doors this month, a year after Congress created it to oversee Wall Street’s biggest banks, some lawmakers have begun sounding alarms once again about its impact on community banks and other small businesses.
“While milestones are usually celebrated, this one is marked by uncertainty because the true effect of this new bureaucracy remains to be seen,” Representative Mike Coffman, Republican of Colorado, said at a Congressional hearing on Thursday.
The bureau, a chief component of the Dodd-Frank financial regulatory law, can examine the books of some 110 banks, issue enforcement actions and write new rules for mortgages and credit cards. The bureau, however, has little authority over small businesses.
“Our statutory objectives and authorities focus on financial products and services for consumers,” Dan Sokolov, the bureau’s deputy associate director of research and regulations, said in prepared testimony before the panel. “The bureau does not have jurisdiction over small business credit except in limited cases,” like student lending firms and mortgage brokers.
The bureau cannot oversee these nonbank firms until it receives a director. The Senate Banking Committee plans to hold a confirmation hearing next Thursday on President Obama’s nominee, Richard Cordray, who is opposed by Republicans.
No matter who becomes the consumer bureau’s director, Congressional Republicans argue that the agency could crimp lending to small businesses.
“The creation of a new agency with such broad regulatory authority creates uncertainty which often plays a role in preventing businesses from growing their company and creating jobs,” said Mr. Coffman, who is the chairman of the House Small Business subcommittee on investigations, oversight and regulations, which held its hearing on Thursday.
Democratic lawmakers, ordinarily defenders of the bureau, also raised questions about its power over small businesses. “It is imperative that as the agency develops these regulations we bear in mind the needs of small businesses and not further worsen the current credit shortage these firms face,” said Representative Jason Altmire of Pennsylvania, the subcommittee’s ranking Democrat.
The concerns are a reprise of complaints issued in 2009 when Congress first debated the idea of a consumer-focused agency.
While lawmakers hammered out the details of the Dodd-Frank Act, the United States Chamber of Commerce led a fierce campaign against the bureau, saying in a series of fatalistic radio ads that it would suffocate many small businesses, including the local butcher.
But the fears never materialized.
While the law gave the bureau authority over a wide swath of financial businesses — everything from big banks to payday lenders and mortgage companies — most small businesses were explicitly excluded from its purview. For instance, Dodd-Frank exempted retailers, real estate brokers and car dealerships from the bureau’s oversight. While the bureau is not allowed to inspect or bring enforcement actions against community banks, the small lenders are subject to the bureau’s regulations.
Mr. Sokolov said the bureau might actually make life easier for small businesses, including community banks and other smaller lenders.
“We are already working to reduce burdens on small lenders, and we will continue this work,” he said.
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