Yesterday Investor’s Business Daily posted an article about a new regulation on small business lending. Before leaving office, President Obama is attempting to recreate the mortgage bubble that led to the crash of 2008. This time the crash will be created in the area of commercial loans to small businesses.
The article reports:
The White House complains minority-owned firms don’t have the same access to credit as others. But the result of this new political scrutiny is easy to see: Commercial lenders will be pressured to lower standards, leading to riskier lending and higher defaults (see: mortgage bust, ’08).
The Consumer Financial Protection Bureau has carved out a new executive-level position: “assistant director of small-business lending markets,” which will lead an unprecedented collection of race-based data about loans to “minority-owned businesses.”
Meanwhile, CFPB Director of Fair Lending Patrice Ficklin said the bureau is starting its first fair-lending-focused exams of business lenders. Specifically, regulators will look at “small-business loan underwriting criteria” to see if it has a discriminatory “disparate impact” on minority business owners applying for credit. Marketplace lending will also be under the microscope.
The move is a result of a letter written by 84 House Democrats and 19 Senate Democrats (comprised mostly of Congressional Black Caucus members) to Consumer Financial Protection Bureau (CFPB) Director Cordray asking him to require all lending institutions to disclose the race of small-business owners who apply for loans and the outcome of loan applications. The supposed outcome of this is to remove ‘barriers to small-business creation.’ The actual outcome of this will be that risky loans will be required and banks and institutions that make small business loans will begin to lose money and threaten the economic health of the nation.
Massachusetts Senator Elizabeth Warren has asked Director Cordray to collect the data to make it easier to enforce fail lending laws. Again, we are going to be divided according to race rather than encouraged to work together.
Statistically African-American business owners are more likely to default on business loans. Banks and commercial lenders have to consider that when they make loans. This sort of interference with free market economics can only hurt the economy–not help it. I am against denying anyone a loan because of their race, but I am also against giving someone a loan because of their race. There can be some flexibility in granting these loans, but there also has to be some common sense in protecting the lenders and the people who finance the loans.
The article concludes:
Yet as with mortgages, the assumption is that underwriting standards are racist and must be made more flexible, risks be damned. Since business loans default at higher rates than mortgages, another government-sponsored financial crisis won’t be far behind.
Hold on to your hat.