What Does Financial Reform Legislation Mean to Small Business?

The Restoring Financial Stability Act of 2010, which was signed into law on July 21, 2010, is a massive bill of over 2,000 pages. Purportedly, the measure is designed to make sweeping changes in the U.S. financial regulatory system.

What will it do to or for small business? No one really knows for sure.  Here are some things to watch for:

Commercial lending
The measure is a regulatory nightmare and some are predicting that small banks will be unable to handle the additional compliance and could be forced out of business. This would be disastrous for small businesses that depend heavily on community banks for lines of credit and other sources of funding.

Angel investing
Many small businesses unable to obtain commercial financing have turned to private sources, including angel investors. Angel investors had been at risk for stricter standards but the final bill retained the annual income requirement of $200,000 and minimum asset requirement of $1 million for angel (“accredited”) investors, as requested by the Angel Capital Association. For more about the impact of the bill on angel investors, go here.

Financing for customers
Here’s where things may get very tricky. Under the bill there is a new Consumer Financial Protection Bureau (CFPB), which is dedicated to enforcing consumer protection laws. No one knows how the bureau will operate, but it could make it more difficult or at least more complicated for businesses to advance credit to their customers.

Other changes
The bill limits so-called “swipe fees” paid by merchants to accept debit cards. According to the National Retailer Federation, debit card swipe fees charged to retailers and other business by Visa and MasterCard banks totaled $20 billion in 2008. Under the new law, swipe fees must now be “reasonable” (whatever that means) and proportional to the banks’ actual costs for processing the transactions.

The bill makes it clear that merchants can offer discounts or other benefits for customers paying cash or for other payment arrangements. Merchants are allowed to set minimum purchase thresholds of up to $10 for charging purchases by credit card.

The bottom line is that the bill leaves too many questions unanswered to assess the impact on small business at this time. Clearly, there is a lot on which to keep a close watch.


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