You can be forgiven if you're having trouble figuring out what the financial regulatory reform bill means to you. Reportedly logging in at over 2,000 pages, even if it were fully public and finalized, you'd have to take a sabbatical from work to plow through it. Some time in law school would probably help, too. Still, some details – and speculation – have emerged that hint at how small business will be impacted.
If you're a merchant that does a lot of credit card transactions, there are some provisions that are likely to benefit you, according to the New York Times. Under the current bill:
The Federal Reserve would have the authority to ensure debit card transaction fees paid by merchants are "reasonable and proportional" to the cost incurred for processing the transaction. However, the amendment only covers fees charged by the banks involved and not the fees charged by payment networks like Visa and MasterCard. The amendment also does not apply to small banks.
Merchants can offer discounts for certain types of payments – like offering a discount for the use of cash or a check – but can't favor one network over another.
Card issuers have to give merchants a choice of more than one network to process debit or credit transactions. Theoretically, this should open up competition and drive down fees.
The Times also reports that an amendment inserted by Senator Olympia Snowe of Maine would require the Consumer Financial Protection Bureau established by the bill to consider how any proposed regulations would affect the cost of credit to small businesses. Small firms would also get input into any rulemaking that would have "a significant economic impact on a substantial number of small entities." It's unclear at this time how "significant" and "substantial" are being defined.
The Trickle Down Effect
Those are some of the provisions that more or less directly reference small businesses. However, the bigger impact is likely to come in the form of a trickle-down effect, or the dreaded unintended consequences. Right now, these types of impacts are pure speculation but you're likely to hear about them the most as the debate over the legislation rages on.
One area of particular interest to small businesses is how venture capital could be affected. Matteo G. Daste, attorney at law firm Buchalter Nemer in San Francisco, told Inc.com that venture capital funds with over $150 million in assets might fall under the regulatory umbrella of the Investment Advisor Act of 1940. If a VC fund falls under the act, "its business model might be challenged," warns Daste. And though $150 million sounds like a decent chunk of change, it may not be enough to justify the cost of compliance with the act for VCs. Could that mean fewer funds? Smaller funds? What might that mean for more capital intensive start-ups seeking funding?
The consensus of bankers and the economists they employ is that the new banking regulations will increase the cost of doing business for banks, which will in turn make credit more expensive for everyone else because they'll just pass along the costs. The bill "will tend to raise the cost of credit to American consumers and businesses and limit its availability to smaller firms and less credit worthy individuals," Milton Ezrati, an economist with money manager Lord, Abbett & Co., told the Wall Street Journal.
There are also fears that the new legislation and all its regulatory requirements could drive the banking industry to consolidate, as smaller banks might be crippled by the additional costs or have a hard time raising required capital. Fewer banks means less competition, which in turns means customers suffer in the form of - you guessed it - higher costs.
Those higher costs are arguably worth it if the legislation can effectively prevent or minimize the damage of future financial crises. But whether the current bill can do that, of course, is still open to debate.