While unemployment remains relatively high, it is important to recognize that small businesses and their employees have borne the brunt of job loss with over 90 percent of all job loss since 2009. Meanwhile, the housing market and mortgage industry – usually drivers of economic growth and employment – may actually exacerbate the problems facing small businesses. Upcoming mortgage regulations, such as the CFPB’s RESPA/TILA disclosure rule with compliance costs estimated in excess of $100 million, will likely increase the burden for small businesses, particularly smaller banks and nonbanks. Federal banking regulators should remember that small businesses face an uphill battle in complying with these regulations. At the same time, these businesses are essential to the recovery of the economy and restoring credit access to all consumers.
Tim Rood, The Collingwood Group
The Bureau of Labor Statistics will release the U.S. Employment Situation report for the month of July this Friday, August 3, 2012.
In June the economy added few jobs, and the unemployment rate remained at 8.2 percent, representing 12.7 jobless Americans.
Small businesses and their employees across the country have shouldered the brunt of these job losses as more and more small businesses have failed since 2008. Small business job loss has devastated smaller communities whose economies depend on small businesses for growth and employment.
Data from the U.S. Census Bureau indicates that approximately 90 percent of all job loss since 2009 was the result of a small business closure. This portion represents over three million jobs lost, likely in the regions of the country that need them the most.
Earlier this week, the House Committee on Small Businesses hosted a hearing on the impact of the new financial regulator’s, the Consumer Financial Protection Bureau (CFPB), regulations on small businesses in the financial services marketplace.
While the statutory provisions creating the CFPB establish certain safeguards for smaller banks and nonbanks, committee members still expressed a variety of concerns with the immense burden on small businesses required to comply with the CFPB’s regulations.
Ranking Member Nydia Velazquez (D-NY), described the critical role that small nonbanks play in providing alternative housing credit for many Americans.
Representative Scott Tipton (R-CO) cited an implementation cost estimate of $101 million for mortgage industry for the CFPB’s proposed Real Estate Settlement and Procedures Act (RESPA) and Truth in Lending Act (TILA) disclosure rule. Representative Tipton expressed concern that these compliance costs were diverting capital away from business development and growth.
The CFPB certainly faces a dangerous balancing act in implementing these regulations in a manner that minimizes the burden on small businesses. Small business review panels for rulemakings to detail the issues related specifically to small businesses are a step in the right direction, but the CFPB is the only Federal banking regulator required to convene such panels.
As CFPB Director, Richard Cordray, recognized himself in his testimony, small businesses are a “critical growth engine” for the U.S. economy. Therefore, it is essential that any new financial regulations don’t exacerbate the stressors facing small businesses and further increase unemployment.