No one wants a repeat of the financial catastrophe experienced in the last couple of years, so for the most part Washington regulation is a welcome development.
In the course of regulating these large companies, there may be some good news for small businesses (the law isn’t final yet, so details are not firm):
- Merchants would not be charged “swipe fees” when customers use debit cards.
- Small businesses would be exempt from the regulatory umbrella of a new consumer financial protection bureau created under the new law if they meet certain conditions, including that they do not sell financial products, they do not securitize consumer debt, and they meet accepted definitions for a small business. Thus, businesses that offer customers financing, such as mom-and-pop stores that have house accounts, wouldn’t be subject to the new regulation.
But don’t celebrate just yet. In the course of regulating the big banks and financial institutions, there are some negatives that could result:
- Retailers could face pricing complications. Merchants would be permitted to charge customers different amounts depending on the type of credit card used. Sounds reasonable since merchants may pay more to American Express than to MasterCard. But this entails more administrative work for merchants; it’s unclear how customers could react. Merchants could give discounts for customers paying in cash or with debit cards. Again, this would present a challenge for merchants to compute what the discounts should be.
- Banking fees for small businesses may rise. Because of changes in bank regulation, the era of free checking for small businesses could be at an end.
Bottom line: The law isn’t final yet. The Senate passed Restoring American Financial Stability Act of 2010 on May 26. It must now be reconciled with the House’s Wall Street Reform and Consumer Protection Act of 2009 that passed last December. It could be a while before the true impact on small business of the new law is determined.