Business for Shared Prosperity

Op-Ed By Lya Sorano
The Hill, 3/4/10

Over the past year, financial institutions have put extraordinary pressure on small businesses. They have slashed lines of credit, increased interest rates even for customers that always pay on time, and mailed out more and more reams of incomprehensible fine print that even good lawyers can’t understand.

That’s what’s happening in the real world. As we all know though, Washington is not the real world. In Washington, conservatives and liberals alike prop up small business owners like me and claim to represent their interests at anytime in any moment on any issue.

This gets under the skin of a lot of small business owners in any political climate and surrounding virtually any economic issue. But what is particularly irksome right now is the extent to which the interests that represent the same financial institutions that have put so much pressure on small business owners like me have propped up small businesses as a reason to vote against meaningful financial reform.

The Chamber of Commerce and the bank lobbyists have falsely represented the interests of small businesses particularly aggressively in their fight to kill a new Consumer Financial Protection Agency (CFPA). If the CFPA were to come into being, it would provide protection against unfair credit card rate increases and late fee traps. It would impose “duties of care” on mortgage brokers and ban unfair side payments from lenders to brokers for pushing customers into higher priced loans. Small business owners – who regularly rely on credit card financing and take out home equity lines of credit to get started or stay afloat – would benefit enormously from these reforms. It’s not easy making business plans or budgets when your lender can jack up your rates at any time for any reason.

And small business owners would also benefit from the increased stability that would come with meaningful rules of the road over the credit markets. Had there been adequate rules in the past, there is a good chance that the current deep recession, with its high foreclosure and unemployment rates, would not have occurred, or at least would have been much less severe. And this would have meant much less pain for small business owners and far less business failure. While the big financial institutions were bailed out by the government to avoid death, small businesses don’t have that luxury.

Smart rules can promote better economic conditions for small businesses, and by now we ought to have learned our lesson. Ten years ago, Washington made the mistake of not listening more carefully to Brooksley Born, whose attempts as head of the Commodity Futures Trading Commission [CFTC] to regulate the derivatives markets were thwarted every step of the way. Today, we need to make sure we don’t make the same mistake by ignoring Professor Elizabeth Warren, the chair of the TARP Congressional Oversight Panel and leading advocate of the CFPA.

In a recent briefing I participated in with women business owners, Professor Warren and White House officials made the case clearly that the consumer credit market is broken and will not fix itself. They made clear how the CFPA would help fix the market and also reduce financial illiteracy, which is extremely high in the U.S. and has allowed banks, mortgage companies and credit card issuers to prey on their customers. Women in particular are the victims of financial misdeeds, such as being given higher-cost sub-prime loans when they in fact qualified for lower-cost standard mortgages.

Although the U.S. House of Representatives passed a comprehensive financial services reform bill last year, the Senate is dealing with furious opposition from groups claiming to represent small business and public interest but really representing the big banks.

In the meantime, more families face home mortgage foreclosures and more small businesses are unable to borrow money. “The current crisis,” Professor Warren stated, “began one household at a time,” with families seduced by financial products whose ramifications they did not understand, taking on far more debt than they could handle. And it is continuing every day with the closure of small businesses reeling from devastation wrought by Wall Street.

Unregulated credit markets might work for the big banks by reducing competition, but they haven’t worked for small business owners like me or anyone else. It’s time for the big banks to start thinking about the needs and interests of small business owners.

Sorano is the CEO of The Oliver/Sorano Group, Inc., an Atlanta-based marketing consultancy, and Founder of Atlanta Women in Business, a membership organization of business, career and professional women.

http://thehill.com/opinion/op-ed/84957-consumer-protection-would-help-sm...