The massive federal financial reform bill has finally become law. Despite its 2,000-plus pages of arcane regulatory jargon and legalese, the new measure leaves many unanswered questions about how the new requirements will affect U.S. businesses and consumers. That is because the bill leaves many important regulatory decisions up to government bureaucrats, including the new Consumer Financial Protection Bureau.
However one feels about the financial reform law, it includes some undeniably good news for small businesses. Thanks to an amendment championed by Sens. Olympia Snowe and Mark Pryor, D-Ark., small businesses gain some assurance that they will be treated fairly in new consumer protection regulations.
The Consumer Financial Protection Bureau will develop regulations affecting a wide array of consumer financial products, from credit cards and mortgages to payday loans, among others. While auto dealers were exempted from the new agency’s reach, the bureau still will impose new requirements on millions of small retailers who offer credit payment terms to their customers.
In a bitterly contested battle, Sens. Snowe and Pryor succeeded in including the CFPB among those federal agencies subject to the Small Business Regulatory Enforcement Fairness Act, or SBREFA. Under the Clinton-era law, a covered agency proposing a regulation that is expected to “have a significant economic impact on a substantial number of small entities” must convene a review panel of small-business experts to consider alternatives to the regulation. SBREFA authorizes regulators to then modify the proposed rule, “where appropriate,” to reduce the burden on small businesses while still achieving the objective of the regulation.
By subjecting the new Consumer Financial Protection Bureau to small business review, regulators will get the information needed to tailor rules to the ability of small firms to comply. Too often, government takes a one-size-fits-all approach to business regulation. As a result, small firms in the U.S. bear a heavy and disproportionate regulatory burden. In fact, according to the U.S. Office of Advocacy, the federal small business watchdog, firms with fewer than 20 employees pay, on average, $7,600 per employee each year to comply with federal regulatory requirements, a burden that is 45 percent more than large businesses pay.
Opponents of including the new consumer protection agency under SBREFA argued the panels would bog down legitimate rulemaking efforts. But federal experience with the law shows otherwise. Until now, SBREFA covered the Occupational Safety and Health Administration and the Environmental Protection Agency. Be-tween 1996 and 2005, the EPA convened only 24 small business panels, covering just 2 percent of the nearly 1,300 rules promulgated by the agency during that period.
The inclusion of small business protections in the financial reform act may be a signal that federal policymakers are finally taking a more sophisticated view of small business concerns. Until now, politicians have focused the lion’s share of their attention on tweaking Small Business Administration loan programs, even though they serve just a tiny share of small business. As Elizabeth Warren, chair of the TARP Congressional Oversight Panel, reported in May, efforts to help small businesses through SBA lending programs are unlikely to have broad effect.
In contrast, protections against harmful regulations touch all small businesses and add up to real savings. The Office of Advocacy estimates that the EPA review panels cited above saved small firms nearly $5 billion in unnecessary regulatory costs. Overall, federal small business regulatory reviews have produced nearly $20 bil-lion in savings between 2007 and 2009, alone.
With the small business protections included in the financial reform law, federal lawmakers are beginning to put some substance behind their claims of concern about America’s small businesses. It reflects the recognition that vigorous and effective regulation need not put small firms at a competitive disadvantage and that in-cluding all stakeholders in shaping consumer protections will benefit both consumers and the businesses we are all relying upon to pull the economy out of recession.
Stephen J. Adams was the New England Small Business Advocate for the U.S. Office of Advocacy from 2005 to 2009.