ALL BUSINESS: Unintended consequences of financial reform that could hit consumers’ wallets

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ALL BUSINESS: Unexpected costs of financial reform

NEW YORK — Here’s the thing about financial reform: It sounds good, until you try to get a car loan or pay your dentist.

Those are the kind of unintended consequences that could emerge from the biggest financial regulatory overhaul the country has seen since the Great Depression.

That doesn’t mean reform isn’t warranted, especially after the worst financial crisis in 70 years. But in order to prevent future crises, Americans’ own finances might take an unexpected hit along the way.

We still don’t know how far-reaching financial reform will be. The final details are still being worked out by a panel of lawmakers. They’re trying to resolve the differences in the House and Senate bills by the end of the month, so that President Barack Obama can sign the legislation into law by July 4.

Two outstanding issues have to do with how a consumer financial protection watchdog will be structured and who it will cover. The House bill would create a stand-alone agency, while the Senate bill would make it an independent arm of the Federal Reserve.

A sticking point is whether businesses like doctors, florists or retailers that don’t primarily make their money extending credit, but do offer such services, should face increased oversight.

Trade groups representing those small businesses are fighting new regulations. They say the extra burden will raise their costs and force them to offer less credit to consumers.

“We’re asking why people who had nothing to do with the financial crisis are being scoped in” to more regulation, says David Hirschmann, who head the U.S. Chamber of Commerce’s Center for Capital Markets.

Part of their argument is the kind of spin you would expect from the chamber. No business one likes the prospect of more regulation. But they also make some fair points.

Consider your dentist: He’s in the business of teeth, not finance. But he happens to let patients pay for costly treatments over at least four installments. As a result, he would be considered a lender under the House financial reform bill and would face new rules. The Senate bill provides for some exemptions.

Your dentist lets you pay for that root canal or new porcelain veneers in installments because he doesn’t complete the dental work in one visit. He also knows that his patients appreciate the flexibility of the payment plan.

But if faced with new regulations, the dentist might stop offering that service. He might have to dedicate extra time and staff toward meeting extra regulatory requirements. He could be more prone to lawsuits or enforcement actions from the new agency.

It could be easier to just have patients to pay upfront.

Local auto dealers also say that new regulation could change how they’ll do business.

Tony Federico of Federico Chrysler Dodge Jeep in Wood River, Illinois, says he’s a middleman in the lending process. He matches up car buyers with banks, credit unions and other auto lenders. He acknowledges that he makes money when arranging auto loans, but he argues customers get a better rate from him than if they went to the bank directly.

Federico says he can buy a loan from a bank with an interest rate of 2.5 percent and then can extend it to a borrower at 3.5 percent. If the same customer went to a local bank in his area about 20 minutes outside of St. Louis, the lowest rate would run around 3.99 percent, he says.

Just like the dentists, Federico says that more regulation will boost his costs. It could mean he does fewer loans, or is less generous in the deals he offers. Consumers then would have to seek out loans elsewhere, which could be less convenient and cost more.

“I am always looking out for my customers’ best interests, but I also want to do deals that are worthwhile,” Federico says.

Nearly four out of five auto loans are distributed by dealerships like Federico’s, according to research by the nonpartisan Cambridge Winter Center for Financial Institutions Policy in Washington. The rest consumers arrange themselves at banks or other lenders.

Consumer groups say dealers should be more heavily regulated because they aren’t just matchmakers. The dealers often decide what interest rates consumers get on loans and can steer car buyers toward loans that give the dealership the highest profits.

Dealers have been aggressively lobbying on Capitol Hill to be exempted from the new consumer protection rules. They got their way in the House bill, but not in the Senate. The White House is against any carve-out for auto dealers.

Financial reform isn’t just about the banks. It could be coming to auto dealerships and dentists’ offices near you.

Let’s hope the new rules strike a balance between protecting consumers without pinching small businesses.

Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)ap.org