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Turmoil for banks wonít help ease credit crisis

The financial services industry is between the proverbial rocks these days. Chastised by Washington politicians and considered untrustworthy by most outside the Beltway, the banks are getting hammered these days. But they also have a talent for setting themselves up as targets.

Take, for example, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act that went into effect last month. It was touted as extending needed protections for consumers by placing restrictions on how banks raise card interest rates, impose late fees and account for payments made on card balances.

Sounds good?

Sure, until you discover Congress screwed up and didnít include small-business cards in the protections. Banks, of course, could improve their image by choosing to extend those protections to small-business card-holders anyway, but donít bet on it.

Just like consumers, dealers have been struggling with rising interest rates and bank fees, including higher costs of accepting credit and debit cards in dealerships. As banks now look to make up the lost revenue from consumer cards because of the new law, many expect small-business cards to become targets for beefed up fees, interest rates and other revenue-raising billing tactics. After all, a very lucrative income stream for banks is now shut off, so banks could easily look to small businesses to make up that revenue.

Just last week, banks were hit again. In passing the health care bill, Democrats in Congress also cut off billions of dollars in subsidies to banks making federally backed student loans. Now the government will start lending directly to student, eliminating banks as the middlemen and chopping another revenue stream for lenders. And if thatís not enough, Congress is still working on a broad financial reform bill thatís seems destined to squeeze banks again.

No wonder the Financial Services Roundtable, which represents the 150 largest banks and insurance companies, has decided to start an ďimage-improvement campaign aimed at showing the financial industry as trustworthy and a positive force,Ē according to a recent Bloomberg News report. The PR campaign is aimed at communicating directly with the American people, explains the Roundtable.

Some say all this turbulence for banks is deserved; others cry government overreach. Itís likely some of each. But one thing seems indisputable: The much-needed end to the current credit crisis is not going to happen as long as banks face such uncertainty and turmoil. And until credit flows again, our industry will remain depressed. So it begs a couple of timely questions for today:

1. Have we reached a point where we, as an industry, should be pushing for 100 percent direct government lending (like student loans) through the Small Business Administration for such needs as floorplanning and even consumer loans for durable hard goods purchases?

2. Have we reached a point where we, as an industry, should join the call for expanding the limits on business loans that the nationís credit unions are currently permitted to make?

Comments

4 comments on “Turmoil for banks wonít help ease credit crisis

  1. Concerned Citizen

    Norm,
    I think you are CRAZY for thinking that the government should even consider loaning money to irresponsible consumers to buy luxury items that they don’t need. Dealers finagling loan amounts to roll over upside down loans for trade-ins helped get us into this mess. Now those loans are the problems of the banks that made them, and rightfully so. Let’s not “loosen up credit” for the sake up jumpstarting the luxury goods industry at the expense of the average taxpayer–who will inevitably end up bailing out whomever made loans that that a prudent banker would not have made.

    Let me ask you this: Would you loan 85% of a stated purchase price (which you really weren’t even sure of) so that someone with average credit could buy the boat of their dreams??? I wouldn’t.

    Would you lend your own personal money to a boat dealer so that he could buy all the new inventory that the factory wanted him to, even though you knew he would probably have a hard time turning it all around at a profit. How about if it was forecast that another 10-20% of boat dealers will go belly up this year???

    I think if the government made spending decisions based good personal values & sound business decisions, and not on propping up special interests, we would all be in better shape in the long run.

  2. Arch

    Norm, #1 is out of the question. #2 is an absolute resounding YES.
    Concerned citizen is right. I have seen very few instances of credit worthy people on solid financial footing NOT be able to get a loan right now. Boat loans are readily available. No doubt the banks have raised the bar, but most of their calls are right on the money.
    As bad as the floor plan situation is, from a consumers perspective, there is no shortage of boats. Consumers can go anywhere and buy any new boat they want. If there is any shortage out there, it’s with quality used boats. The ones that are priced correctly move quickly, those who are upside down can’t sell.
    THE BANKS CERTAINLY SHARE IN THE BLAME FOR THE CURRENT RECESSION, and rightfully so. But the current state of retail and floorplan financing are not to blame for this industry lull. There is plenty of inventory out there and financing for qualified buyers.

  3. Steve S

    Concerned Citizen is right on the money. The “over alllow” game caused lots of damage. Financing 115% of invoice was a complete joke and allowed many dealers to easily re-sell upside down buyers. However, just like with the mortgage mess, you have to place most of the blame with the BANKS WHO SET UP THE PROGRAMS TO BEGIN WITH!

  4. Peter D. Anzo, CMM

    Something needs to be done! I suggested that Brunswick in addition to their J/V with GE create their own floor plan financing. Instead of buying back stock they need to help the dealers by financing floor plans themselves. The banks are finished.

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