SB 448 has just been passed by the State Senate. This bill, called the "Small Business Borrower Protection Act" destroys contractual rights. It claims to protect guarantors. It does so by eliminating their obligations, which they voluntarily agreed to, in order to get a loan from a creditor.
I believe the government consistently infringes on constitutional rights. The most important of those, in my view, is the right to contract. Free people should be able to contract with one another to the full extent possible. This bill strips creditors of rights that were negotiated for, and planned for, in the creation of countless contracts.
In essence, this bill will make guarantors on contracts completely worthless. While some who couch themselves as consumer advocates might laud this Act it misses the point and will have serious unintended consequences.
1. This bill encourages people to ignore promises and obligations. I believe this to be the major philosophical problem with our country and this type of bill is merely a symptom of that philosophical bent. In essences, people who believe in this believe that a promise is something easily retracted, bent or broken. In my view, a promise is a promise and you should keep it. Simple. Any bill that allows people to have a moral out in the form of law is wrong and should be discouraged.
2. This will result in restricted credit to those with poor credit histories, and/or short credit histories. If a new student is seeking a car loan a typical solution to the student lacking credit is a parent or other adult cosigning with the student. The premise is simple, the creditor has another avenue to pursue if the unknown new borrower defaults. If this bill is passed, credit will be restricted to new borrowers as creditors will not be able to take the risk on making loans to these individuals. The same is true of people attempting to rebuild credit.
3. This bill will result in poorer interest rates and terms for those with good credit histories. Creditors make decisions based upon portfolios and overall returns. If a creditor knows that in order to make x profit he will have a reduced pool of people to collect from, he will have to increase the interest rates on the borrowers he does have. That is exactly what will happen.
Urge your representative to vote against this bill.
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