This was a busy week for discussion regarding the Consumer Financial Protection Agency (CFPA) that has been proposed as a key part of Congress’ regulatory reform effort. On Wednesday, consumer advocates, the banking industry, and the U.S. Chamber of Commerce presented their perspectives on the new agency before the House Financial Services Committee, and Thursday Federal Reserve Chairman Ben Bernanke followed suit.
When it hasn’t been trying to rewrite history regarding its position on global warming, the Chamber has been one of the organizations leading the charge against the CFPA. To that end, it released a report claiming that a serious (though unquantifiable) amount of job loss would result if the CFPA were to come into existence:
The CFPA would likely reduce an important source of credit to small businesses. This induced credit squeeze comes at a time when it is likely that small business credit will be already highly restricted as the lending industry digs out of the current financial crisis. The CFPA credit squeeze would likely result in business closures, fewer startups, and slower growth. Overall, this would cost a significant number of jobs that would either be lost or not created.
Rep. Jeb Hensarling (R-TX), who has been one of the top crusaders against the CFPA, cited the Chamber’s work, in an attempt to get Bernanke to agree with the notion that the CFPA would cause a credit squeeze, and thus job loss. Watch it:
This all sounds terrible, doesn’t it? A lack of credit causing businesses to downsize, resulting in hoards of job loss, all because of stifling regulation! There’s just one problem with the theory. In 2001, Canada created a consumer protection agency, the Financial Consumer Agency of Canada (FCAC) and, well, none of that happened. As McClatchy reported:
Republicans, backed by the U.S. Chamber of Commerce and bank lobbyists, warn that such an agency would bring punishing costs to consumers and small businesses and could regulate all forms of credit, even tabs at the bar or butcher shop. Canada’s experience suggests otherwise. “I certainly have not seen anything that shows that we are vastly different from the United States in terms of access to credit,” said John Rossi, who heads compliance and enforcement efforts for the Financial Consumer Agency of Canada.
The vice-president of policy at the Canadian Bankers Association did gripe to McClatchy about the fees that the consumer agency imposes on banks, but he “didn’t say these costs were onerous…nor did he suggest that the FCAC has hurt lending, questions that were put to him directly.” And as for job loss, when the agency was created in 2001, the Canadian unemployment rate was 6.9 percent. It was the same rate in 2005, on its way to a low of 5.8 percent before the global economic crisis hit. Not exactly a terrifying jobs record.