The new consumer-protection rules that Democrats in Congress are drafting as part of the bank regulation bill may harm industries far removed from financial services.
The new legislation might apply to any business that extends credit to its customers. Dentists who allow patients to pay for costly procedures over time represent one example.
“We are exempt [from the consumer-protection regulation] only if we don’t offer any financial arrangements to patients,” Matthew Messina, a dentist in Fairview Park, Ohio, told Bloomberg. “Now I can’t be a nice guy. I don’t want to be a bank.”
Others in his profession feel the same way.
“Orthodontists did not cause this financial crisis, and we should not be a part of this in any way,” Robert Bray, who employs 12 people at five dental offices in the Atlantic City, N.J., area told Bloomberg.
Businesses in other industries are worried, too, including auto dealers, restaurant owners, and advertising agencies and their clients.
The National Automobile Dealers Association notes that most dealers refer buyers to lenders and don’t make loans themselves. Although they may profit from the loans, they say they shouldn’t be subject to the same regulations as the lenders.
“I don’t sell the car until I find somebody to help you pay for it,” Michelle Primm, a Cuyahoga Falls, Ohio, dealer for Audi, Mazda, Porsche, and Subaru, told Bloomberg. “If we shut down credit, we’re not going to sell cars.”
“The local grocer” isn’t being targeted in the bill, says Senate Banking Committee Chairman Christopher Dodd, D-Conn.
“You have to be in the business of financial services or products to be affected,” he said on the Senate floor last week. “We took care of those dentists and others who were worried.”
The bill stipulates that the consumer bureau will be designed to protect Americans against financial-service abuses. It says the bureau’s reach won’t extend to “a merchant, retailer, or seller of non-financial goods or services that is not engaged significantly in offering or providing consumer financial products or services.”
But one problem is that “significantly” isn’t defined, say critics such as the Senate Banking Committee’s top Republican, Richard Shelby of Alabama.
In any case, experts say, the concerns of those outside the financial industry are justified.
“There is a long history of unintended consequences of regulation,” Barry Mitnick, a business professor at the University of Pittsburgh, told Bloomberg.
He points out that the now-defunct Interstate Commerce Commission was created to protect shippers from railroads but ended up protecting the railroads against competitors.
The Senate may end up with plenty of time to adjust the bill, despite Democrats’ efforts to rush it through.
"I must tell you, I don't think this is a couple-of-weeks bill," said Senate Republican leader Mitch McConnell said, according to Associated Press.
It's not that we don't want to pass it, but we do want to cover the subject."
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