Finance reform bills approved for debate by the Senate and poised to go before the House could mean bad news for boat dealers if passed in their original form, according to marine lending experts.
As the bills were written, banks providing loans across state lines would have to follow laws in each state instead of using one guideline, which could prompt some national retail lenders to scale back at a time when lending is already sparse.
That's according to Don Parkhurst, vice president of marine lending at SunTrust Bank and president of the National Marine Bankers Association. He said the original bills sought to change 150 years of history where federal financial laws have preempted state financial laws.
Many banks today operate under federal law and the laws governed by the states in which they operate, Parkhurst said. They then export that law to other states where they do business.
"The states have a hodgepodge of different laws, and if we lose the federal preemption ... it would make it hard to be a lender that lends across many states," Parkhurst said.
Instead of using one document, national lenders would have to use 50 different documents, with different terms and rates, and stay up-to-date on each state's evolving financial laws, Parkhurst said.
"Lenders are going to pull back and say it's too much of a pain to lend in states A, B and C, and just lend in D, E and F," he said. "So [the buyer] is going to have a lot fewer choices if this law passes and he's going to pay higher rates because there's less competition."
Another sticking point was the fact that dealers would have to disclose to consumers their profit margins on loans they make and sell to banks, Parkhurst said.
Dealers get loan discounts for volume, but Parkhurst thinks consumers will perceive the profit as "getting ripped off." For example, it would be like mandating that a fast-food chain had to advertise that the drink a customer buys for $2 cost them 10 cents.
"There is no other industry that has to disclose profit margins," Parkhurst said.
Dealers and loan brokers would also be responsible for ensuring loans are consistent with fair lending laws, Parkhurst said. In the past, it has been incumbent on the lender, not the dealer, to ensure loans made weren't discriminatory. Now the dealer would assume liability.
The Marine Retailers Association of America and the National Automobile Dealers Association are seeking exemptions for marine and auto dealers.
The National Marine Manufacturers Association issued a press release Thursday afternoon urging the marine industry to contact senators to ask for support of a marine, auto and RV amendment.
"Dealers should not have the same requirements as financial institutions," said MRAA president Phil Keeter.
The Senate bill was approved for debate Wednesday night, and insiders expect the House bill to follow in the coming week.
"It's very hard for politicians to be against consumer protection right now," Parkhurst said. "There are elements of this bill that directly have to do with the economic meltdown. There is reform needed to prevent a future meltdown like the one we just had. We're not fighting reform; we're just saying this bill has a lot of problems."
Click here for Senate Bill 3217 (Restoring American Financial Stability Act of 2010).
Click here for House Bill 4173 (Wall Street Reform and Consumer Protection Act of 2009).
— Reagan Haynes