On Wednesday April 5, the House Financial Services Committee will hold its semi-annual hearing on the Dodd-Frank Act and Consumer Financial Protection Bureau (CFPB). Congressional Republicans typically take the opportunity to ask Director Richard Cordray pointed questions about Dodd-Frank and the CFPB, usually invoking small businesses in their opposition.
Ahead of the hearing, Main Street Alliance, a national network of small business owners, and 17 other organizations sent a letter to Congress in support of the Dodd-Frank Act. The letter highlights the benefits of Dodd-Frank and the CFPB for small businesses.
“The 2008 financial crisis caused the worst economy since the Great Depression, decimating the labor market. While all businesses suffered from the crisis, the economic wreckage caused by the financial industry disproportionately hurt small businesses. At the peak of the recession, the job loss rate for businesses with fewer than 50 employees doubled that of businesses with 500 or more employees. And between 2007 and 2012, an astonishing 60% of the total net job losses were in the small business sector. To date, the job creation rate of small businesses lags well behind the pre-recession levels, and small businesses widely struggle to obtain sufficient financing.
That small business owners fared worse during the Great Recession is not surprising. Research shows small firms are far more susceptible to the impact of financial crises than their larger counterparts., Largely reliant on bank capital to fund their growth, small business owners feel the credit market swings more acutely. When economic downturns arise, small business owners are less able to utilize alternative financing sources or dip into financial reserves.
That is why our organizations steadfastly support the Dodd-Frank Act. The law was passed in the aftermath of the Great Recession to ensure that such a crisis never again happens. Recognizing that the economic collapse was largely caused by a regulatory void, the bill substantially changed the supervision of banking institutions. It established the Financial Stability Oversight Council to monitor “too-big-to-fail” banks that pose a risk to the US financial system, imposed more stringent regulatory capital requirements on large and small banks, and instituted the Volcker Rule to separate commercial and investment dealings. The Dodd-Frank Act also created the Consumer Financial Protection Bureau (CFPB), an agency responsible for enforcing compliance with consumer financial laws. These measures restored badly needed stability to the financial markets, increased transparency and accountability, and created vital protections for consumers. The result: a financial system that is markedly safer for small business owners.”