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Consumer Protection Legislation Clears First Hurdle

Consumer Protection Legislation Clears First Hurdle

House Committee Passes Key Component to President Obama’s Financial Regulatory Reform Effort

Washington, D.C., October 22, 2009 -- The Consumer Financial Protection Agency Act of 2009 (H.R. 3126), which includes the creation of a new federal agency central to President Obama’s financial regulatory reform initiative, was approved by the House Financial Services Committee today.

In reaction to the housing crisis and the collapse of our financial markets, the bill creates the Consumer Financial Protection Agency (CFPA) to protect consumers from risky and deceptive practices in the financial marketplace, while also protecting our country from another economic debacle. The CFPA would oversee and regulate consumer financial products such as credit cards and mortgages.

According to NASE’s November 2008 Housing & Economic Survey, 49 percent of the self-employed used various forms of personal financing (mortgage, home equity, credit card, etc.) to start their businesses. Credit card debt accounted for 28 percent of this total debt. Close to 70 percent of survey respondents indicated that they used various forms of debt (mortgage, home equity, credit card, etc.) to obtain additional cash for their business operations, of which 39 percent was credit card debt.

Micro-businesses and the self-employed have been hit particularly hard during this financial crisis. Their reliance on credit cards, lines of credit and home equity loans to help with the daily operating costs of their business has left the self-employed vulnerable to unpleasant industry practices. Furthermore, due to slow sales and a cash flow crunch resulting from the credit freeze and plummeting home values, some micro-business owners have been forced to close their doors.

“During the financial crisis, business definitely declined for our transmission shop. We had used credit cards to pay bills. Our credit card company cancelled these lines of credit; my husband and I each had a card. Once our lease was up we had to sell our business to our landlord at a huge loss,” commented NASE Member Jere Smith, owner of Lancelot Inc. in Liberty, Mo.

The National Association for the Self-Employed supports creating a transparent and fair financial marketplace with increased consumer protections and consumer education. While NASE Members support efforts to improve financial regulatory reform, the micro-business community wants assurances that small business will have a voice in the regulatory process of the new Consumer Financial Protection Agency, as well as existing regulatory agencies. Regulators must be mindful that new rules do not have the unintended consequence of restricting credit further, or making it more costly for micro-businesses to access financing options.

“Our nations’ smallest businesses have seen the value of their home drop, their retirement savings shrink and their access to credit freeze. Furthermore, they have seen their tax dollars go to shore up the same big institutions that created this financial mess. They want assurances that our government regulators won’t be caught sleeping on the job again,” commented Kristie Arslan, executive director of the NASE.