The Georgia State Senate has introduced SB 448, which is titled, "Small Business Borrower Protection Act." Reduced to its basics it provides that if a community bank sells a note at a discount to a third party, the borrower that personally guaranteed the full amount would not be responsible for paying any more than what the note was sold for. In other words this bill, authored by free market Republicans, would interfere with the contract relationship between the borrower and a lender (in this case the community bank), and by law rescind the promise to pay that the borrower signed. Banks and other businesses often sell their notes for one reason or another based on what they hope is their best business judgment. If the debt is one they want off the books, and if the bank can find someone to buy it at a discount and thus pass the risk to the purchaser, that is a good thing for all concerned. Why should the new holder of the note not be allowed to seek full payment on it? Why should the borrower/promisor be allowed off the hook just because there is a new holder of that note?
How many of us have had our mortgages sold at a discount? Has anyone received a letter advising that the amount due has been reduced to the price of the sale of that note? This bill is bad for commerce and restricts the ability of a bank to make a business decision in its own interest. That is what free markets and capitalism are about. The borrowers who signed the personal guarantees took the risk that they would have to dig deep if their investment did not pan out. If the development had succeeded beyond expectations, would they have rewarded a third party holder of the note with a nice bonus? SB 448 seems to have Majority Speaker Chip Rogers' fingerprints all over it. Recall that he and Congressman Tom Graves signed personal guarantees to a bank on a motel project that went south. And these two staunch Republicans who tout less regulation, a philosophy of letting the markets work, risk and reward in capitalism, personal responsibility, etc., were successful in arguing before a judge that they should not be held liable for their written personal guarantees for about $2 million, and the judge bought it.
Must be nice to have that kind of influence.