Killing Merchant Cash AdvanceJuly 12, 2014 | By: Sean Murray
It’s a tough time to be in the financing business. The Department of Justice is waging a war against consumer lenders whether they’re operating legally or not and by extension the banks and processors that enable them. That campaign is spilling over into the world of business-to-business transactions with merchant cash advance companies absorbing most of the collateral damage.
It’s a multi-pronged attack on lending. Terms like payday and cash advance have gone from being frowned upon to morally unfit for society.
Looking back, there’s always been a certain stigma attached to the very concept of charging interest, a practice that’s actually banned by a major world religion, Islam. Lenders are often portrayed as the bad guy whether their rate is 100% or 1%. It comes with the territory. There’s always going to be a group that hates the guy for extending his own cash with the expectation of a profit. The existence of predatory lenders continues to reinforce that stigma.
Admittedly from a borrower’s standpoint, I’ve found myself feeling that my interest rates were too high, especially when it came time to write a check at the end of each month to a billion dollar company. But I’ve always acknowledged that the lenders face delinquency risk, default risk, interest rate risk, and inflationary risk all while managing overhead, servicing costs, and profitability expectations.
But more importantly I’ve weighed the trade off…
Did I put the money I borrowed to good use? Did I benefit? If not, my feelings on the terms sour. It only takes 1 bad experience to shape your perception on lenders in general. For instance, if I borrowed money in desperate times to catch up on rent, while having no means to generate additional income to resolve the initial problem, chances are I’m going to feel like I got a raw deal.
Historically, it’s been the class of short term payday lenders or consumer cash advance providers and their alleged schemes to entrap their customers rather than help them that’s led to widespread negative perception of everyone else. Plenty of short term consumer lending companies operate within the law and run clean shops with high rates of customer satisfaction, while others are indeed predatory, dishonest, or illegal. Provoked by the latter and exhausted by the never ending cat and mouse games, government regulators have decided to burn down the village rather than send in a tactical assault team to take out the bad guys. The campaign has had far reaching effects that extend way beyond banking and payment processing. It’s a public censorship campaign and an assault on freedom of speech.
It’s cool to hate Wall Street
The predatory stereotype is stoked by journalists that have little understanding of what it’s like to operate a lending business. Hating lending or more precisely hating Wall Street is en vogue.
A recent story by Bloomberg writer Zeke Faux sought to fan those flames by targeting Columbia University professor Steven Mandis. The story’s original title hit Mandis with a 1-2 combination: How a Goldman Sachs Ethicist Became a High Rate Lender.
- Wall Street: Check
- High Rate Lender: Check
Faux, who specializes in smear pieces, walks the readers through a series of benign events. To the unbiased observer, Mandis actually comes across as quite likable. Even the references to him being like Mr. Rogers are funny. Of course, it’s not the substance that’s supposed to matter. Faux realizes there is no story without preying on the electrically charged emotions of some of his readers. The title has since been changed to, Steven Mandis, a Nasty Neighborhood’s Mr. Rogers
Both narratives create the desired outcome, which is to generate hate, the success of which was evident in the comments, as people called for Mandis to be put in jail while others labeled him a mobster, a rat, and worse.
The 2008 financial collapse is still fresh in everybody’s mind and undoubtedly there were lenders responsible for that. What’s frightening about 2014 is that the assault is hindering free speech. Certain words are outright banned, even at times in an editorial context.
As you may or may not know, I am not directly engaged in financing businesses, even though I sure do talk about it a lot. That doesn’t mean I haven’t been a suspect myself though…
All in a day’s work
When attempting to open a business bank account in 2012, I was declined because the word Capital existed in the title of my LLC. I was subsequently approved by another bank but only on the condition I inserted the following text on my company’s home page, “We are not a payment processor, lender, or financial institution.” It’s still there to this day. My bank account was later terminated anyway.
When opening a bank account for DailyFunder, a publishing company, I was warned by my banker that my account will probably be terminated at some point in the future for containing the word funder in it. What the business actually does is apparently irrelevant. He basically told me to enjoy banking there while it lasts.
Capital and funder are naughty words that are sure to make you a target.
After running advertising sales through payment processor Square, my account was irrevocably banned. In between the transactions and the ban, my account was flagged and I was asked to provide a description of what my business does. As a publisher, I provided information relating to our trade magazine and online forum and the advertising sales they generate. The subsequent permanent ban without explanation led me to write an enraged response on this blog. The irony was buried in the fact that Square employees actually receive the magazine, have been quoted in it, and they themselves operate a merchant cash advance company.
Fortunately because of that connection, I caught their attention and they admitted that the information I had provided when flagged was ignored. The words “cash advance” were seen on the website and thus my account was systematically disabled. Square, still skeptical even after a second round of clarification, turned me down again by saying “unfortunately cash advancing and money transfers are against our terms of service.” A website discussing merchant cash advance was one and the same as being a cash advancing and money transfer business. My account has since been reinstated (and I removed my angry blog post.)
This is a battle I didn’t win. I am banned from advertising on twitter even though I’ve gone through 3 manual reviews. Their final conclusion was that I sell cash advances. As per their last email, “We’ve reviewed your account and confirmed that it is ineligible to participate in the Twitter Ads program at this time based on our Restricted financial products policy.”
The link they included to that policy specifically states, “This policy generally does not apply to: News and information about financial services.” Even though that fits the sites in question exactly, twitter isn’t taking any chances. I’m also banned from other paid advertising services on twitter, such as programs to gain more followers.
The first time I tried to send out a mass email newsletter through Active Campaign, my account was disabled and no emails sent due to suspicion of offering loans and cash advance services. I was luckily able to resolve this.
Worse, a nagging problem impeding regular email communication I thought was caused by my poor Internet connection was later diagnosed to be a mail server filter ban on the word cash advance. I had to speak with my web host about what a merchant cash advance was and they removed the filter after reading my actual email conversations.
Even now one of my email addresses (on a different host) is still banned from emailing gmail accounts due to triggering a keyword spam filter.
Spam I am
Let’s face it. Some bad guys ruined it for everyone. Every day it gets harder and harder just to have a discussion about certain loan products without being questioned or banned. Google has an entire algorithm dedicated to filtering out very spammy queries, a little thing they call the Payday Loan Algorithm
This past weekend we started rolling out a ranking update for very spammy queries: http://t.co/NpUZRqpnBI
— Matt Cutts (@mattcutts) May 21, 2014
It’s very telling. The word payday is practically criminal and companies have decided that anything remotely related linguistically needs to go. it’s better to terminate now and ask questions later. Except they’re not asking questions later, just terminating.
Target and Terminate
Just this past week I was told that ACH processor First ACH was canceling accounts with merchant cash advance companies due to Operation Choke Point pressure. This is the second processor shedding merchant cash advance clients I’ve become aware of. When I asked First ACH directly about whether or not this was true, they responded by saying they were not allowing “cash advance services”. They omitted merchant from their response even though that’s what I asked about. It doesn’t seem to matter in their eyes. Merchant or no merchant, the conversation ends at cash advance.
The actual products and services have become unimportant details. There’s a crusade against the words: Capital, funder, cash advance, loan, payday. The attack originally aimed at illegally operating businesses has expanded to a full scale censorship campaign with no regard for legitimate business practices or free speech.
It’s a stunning parallel to the allegations that the IRS targeted Tea Party groups on name alone.
Censorship has caused me a massive amount of frustration and I spend way too much time fighting battles and submitting paperwork in an attempt to make my case that I am not selling illegal payday lending products.
This must pale in comparison to the companies actually supplying businesses with working capital whose bank accounts and payment processing accounts are being terminated at random. In a recent interview with DailyFunder, Scott Talbott, senior vice president of government affairs for the Washington-based Electronic Transactions Association said, “banks are seeing the lists of so-called risky businesses, and they are terminating long-standing relationships with legal entities.” And Peter Barden, director of communication for the Alexandria, Virginia-based Online Lenders Alliance said, “Our concern is that this is an attempt to shut down an entire industry, not just target the rogue elements or bad apples”
In January, I published a lengthy article in DailyFunder that said a single magazine story in 2005 forever doomed an industry that engaged in the purchase of future credit card revenues, The Green Sheet article which I believe officially coined the phrase merchant cash advance.
The term, which has grown increasingly poisonous has also been losing its original meaning. In a recent survey of industry insiders, 32% believed merchant cash advance was an ambiguous term that could describe the purchase of future credit card revenues or a loan in general. None described it as synonymous with payday lending, though admittedly that wasn’t even a survey response option.
Warning: You have used a restricted word
Each day seems to bring us one step closer to China-style online censorship. Even twitter has outlawed URLs in direct messages that contain banned words or content. Links to this very website and dailyfunder.com are banned in direct messages.
When your own banker tells you that your account might not last because the company name has a word deemed undesirable by the federal government, I get frightened about where this is going. My entire banking, emailing, and socializing experience is becoming increasingly difficult. Filters, restrictions, and bans are daily obstacles I face just to host and promote the discussion of lending and merchant cash advance financing.
The conclusion I draw is that unwarranted government enforcement action is out of control. The merchant cash advance industry, which to date has never been the subject of any legislative or regulatory action is being punished by a campaign waged on illegal players in a completely unrelated industry.
Banning words is banning speech. Private corporations carrying out these restrictive actions are doing it because of the same governmental fears. They’d rather upset customers than become the subject of a random investigation.
For all the time I’ve spent publishing stories about merchant cash advance financing, I’d be lying if I said I didn’t look over my shoulder every now and then and half expect to see a government agent tailing me in the shadows.
The speech police wants all things cash advance dead. Sooner or later something’s gotta change. Either the term gets ditched or there is a defense mounted against government.
These are perilous times, eh comrade?Last modified: July 13, 2014
Sean Murray is the founder of deBanked, a 10-year veteran of the merchant cash advance industry, a casual Lending Club and Prosper investor, the co-founder of Daily Funder, an alternative lending speaker, consultant, writer, and enthusiast. Connect with me on LinkedIn or follow me on twitter.