Could A Reduction In Regulations Lead To Trouble For Commercial Lending?

A decrease in regulations is one of the many things President Trump campaigned on, but could too much de-regulation end up proving harmful for the commercial lending industry?

Much to the chagrin of liberals everywhere, the electoral college made the election of Donald Trump official, and his recent inauguration made it a reality. The question on the minds of many, of course, is whether he is going to follow through on what he promised or if he will soften his stance or reverse course altogether.

One thing he is expected to have a heavy impact on is the economy. One of his many campaign promises involved reducing the level of regulations the government currently has imposed upon bankers. It is not hard for one to wonder, however, if his policies will indeed help American companies and business people compete or if they will end up making life more difficult for those involved in commercial lending?

Could The Commercial Lending Industry Gain Too Much Control?

The fine line that Trump will need to walk when it comes to whatever form of deregulation he chooses to pursue will be leaving enough regulations in place to appropriately guide lenders while not looking over their shoulders.

It’s their money, so the banks have the right to keep tabs on who they lend to, but where things can get tricky is when they cross the line from acting as consultants for their clients to potentially being guilty of interfering with and controlling a client’s business.

The possibility will break back memories for long-time members of the commercial lending industry of the Farah Manufacturing case in Texas. It was one of the early lender-liability cases where the bank was held liable for a series of actions that amounted to interference in the eyes of the court.

Today, lenders refer to the case as the “Pottery Barn” rule—you break it, you own it. This, of course, meant that following the decision, lenders were not eager to offer help forcing borrowers to figure it out on their own essentially.

How Thin Will The Line Become?

This was likely hard for many lenders to deal with since they tend to succeed when the people they lend money to flourish. But thanks to the Farah Manufacturing case, they were forced to sit on their hands and let their customers figure it out for themselves. Could they have helped save some of their former clients with a little assistance? Possibly, but the fear of litigation can be a strong motivation for sitting still and not speaking up.

But if the regulations become less stringent, they can get a little more involved once again without having to worry about litigation. There will still be some regulation, but there is no telling just how much Trump plans on leaving in place.

So, when he does pull the trigger, there will still be a line they must walk between “consulting” and “interfering” but it may not be as precarious as it once was.

Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
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About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.