1 00:00:00,030 --> 00:00:02,720 Chairwoman Velazquez: I thank everyone for joining us this 2 00:00:02,795 --> 00:00:06,756 morning. And I want to especially thank the witnesses 3 00:00:06,830 --> 00:00:11,314 who have traveled from across the country to be here with us 4 00:00:11,389 --> 00:00:15,499 today. When I talk to small business owners, one of the 5 00:00:15,574 --> 00:00:20,208 first things they mentioned to me is that access to capital is 6 00:00:20,282 --> 00:00:24,916 the lifeblood of their business. Affordable capital, fuels new 7 00:00:24,991 --> 00:00:29,026 startups and helps existing businesses expand into new 8 00:00:29,101 --> 00:00:33,585 markets and grow their customer bases. And we know that when 9 00:00:33,660 --> 00:00:38,368 capital is successful and Unfair Terms, small businesses can do 10 00:00:38,443 --> 00:00:42,478 what what they do best strengthen our communities, and 11 00:00:42,553 --> 00:00:47,261 fuel our economy. Unfortunately, affordable capital can be hard 12 00:00:47,336 --> 00:00:51,745 to come by for many owners, whether it is a taxi cab driver 13 00:00:51,820 --> 00:00:56,005 in New York City pursuing the American dream, or a small 14 00:00:56,080 --> 00:01:00,564 business owner trying to make payroll. predatory lenders has 15 00:01:00,638 --> 00:01:05,347 been targeting individuals and small businesses with loans that 16 00:01:05,421 --> 00:01:09,905 have excessively high interest rates, and unfair and abusive 17 00:01:09,980 --> 00:01:13,717 terms. This is an ongoing problem in many areas of 18 00:01:13,792 --> 00:01:18,201 lending. And today's hearing, we'll highlight one aspect of 19 00:01:18,276 --> 00:01:22,760 this larger issue. In recent years crash advanced firms have 20 00:01:22,834 --> 00:01:27,393 been offering small businesses short term loans that have the 21 00:01:27,468 --> 00:01:31,952 equivalent of a 400%, or more annualized interest rate. Many 22 00:01:32,027 --> 00:01:36,361 of these firms then require borrowers to sign a confession 23 00:01:36,436 --> 00:01:40,770 of judgment just to get the money. Because cash flow is so 24 00:01:40,845 --> 00:01:45,254 vital to a business survival. Many owners feel they have no 25 00:01:45,329 --> 00:01:49,738 choice but to sign away the rights to save their businesses 26 00:01:49,813 --> 00:01:54,671 and provide for their employees. By signing borrowers essentially 27 00:01:54,746 --> 00:01:59,005 waive their legal rights regarding any legal dispute that 28 00:01:59,080 --> 00:02:02,667 may arise. And if one does arise, the lender can 29 00:02:02,742 --> 00:02:07,151 unilaterally declare a default and take actions against the 30 00:02:07,226 --> 00:02:11,710 small business owner. In doing so this lenders have hijacked 31 00:02:11,785 --> 00:02:16,194 our courts by getting rubber stamp judgments without notice 32 00:02:16,269 --> 00:02:20,902 or hearings. Many times small business borrowers only find out 33 00:02:20,977 --> 00:02:25,611 about a judgment against them after the lender begins to seize 34 00:02:25,685 --> 00:02:30,393 bank accounts or other assets. Over the past few years, lenders 35 00:02:30,468 --> 00:02:35,027 have used these instruments to win more than 32,000 judgments 36 00:02:35,102 --> 00:02:39,137 in state courts. What confessions of judgment had been 37 00:02:39,212 --> 00:02:43,696 prohibited under the Truth in Lending Act for consumer loans 38 00:02:43,771 --> 00:02:48,479 since 1985. These protections do not extend to certain types of 39 00:02:48,554 --> 00:02:53,112 commercial loans. That is why I introduced the small business 40 00:02:53,187 --> 00:02:57,821 lending Fairness Act, which will put an end to these predatory 41 00:02:57,895 --> 00:03:02,305 collection practices. By ending confessions of judgment and 42 00:03:02,379 --> 00:03:06,789 commercial lending. We can stop some of the abuses that are 43 00:03:06,863 --> 00:03:11,646 crippling honest small business owners. I find it appalling that 44 00:03:11,721 --> 00:03:16,205 New York State law has made our state a magnet for dishonest 45 00:03:16,280 --> 00:03:21,063 lenders. And I am encouraged by the news that the New York state 46 00:03:21,138 --> 00:03:25,547 lawmaker lawmakers are now taking steps to prevent this out 47 00:03:25,622 --> 00:03:30,405 of state lenders from using our court system to freeze and drain 48 00:03:30,479 --> 00:03:35,113 a borrower's account. But this is not enough. Which is why I'm 49 00:03:35,187 --> 00:03:39,671 working with Senator Brown to close this loophole nationally 50 00:03:39,746 --> 00:03:43,931 as prey. As predatory small business lenders continue to 51 00:03:44,006 --> 00:03:48,415 evolve and find creative ways around the law. Congress must 52 00:03:48,490 --> 00:03:52,376 similarly be proactive in addressing those predatory 53 00:03:52,451 --> 00:03:57,010 practices and rooting out abuses that are harming on his hard 54 00:03:57,084 --> 00:04:01,195 work in small business borrowers. closing this loophole 55 00:04:01,269 --> 00:04:05,604 ensures that predatory predatory lenders cannot use abuse, 56 00:04:05,679 --> 00:04:10,163 abusive practices to seize the assets of small firms without 57 00:04:10,238 --> 00:04:14,796 due process and protects them when they are looking to obtain 58 00:04:14,871 --> 00:04:19,355 a loan. Again, I want to thank the witnesses for being here. 59 00:04:19,430 --> 00:04:23,690 And I now yield to the ranking member, Mr. Chabot for his 60 00:04:23,764 --> 00:04:25,110 opening statement. 61 00:04:25,950 --> 00:04:28,920 Steve Chabot: Thank you, Madam Chair. And before I get into the 62 00:04:28,950 --> 00:04:31,770 substance of my opening statement this morning, I just 63 00:04:31,770 --> 00:04:36,150 wanted to note the passing of a former chairman of this 64 00:04:36,180 --> 00:04:41,130 committee, when I was first elected in 1994, and sworn in 65 00:04:41,130 --> 00:04:44,370 and 95. The Democrats that controlled the House for 40 66 00:04:44,400 --> 00:04:47,730 years at that time. So all the chairman and chairwoman of those 67 00:04:47,730 --> 00:04:51,210 committees were Democrats and so Republicans in 95 became the 68 00:04:51,210 --> 00:04:55,530 chairs and the chairwoman of this committee was Jan Myers. 69 00:04:55,860 --> 00:04:59,700 And she's actually up on the reporters up on the wall and 70 00:04:59,730 --> 00:05:03,510 read up there. Jan was a great member of Congress, great chair 71 00:05:03,540 --> 00:05:07,950 of this committee. She was 90 years old when she passed away 72 00:05:07,950 --> 00:05:13,380 she represented Kansas, and did a great job and, and so we want 73 00:05:13,380 --> 00:05:17,580 to recognize her her leadership and and we wish the best to her 74 00:05:17,580 --> 00:05:21,960 family and she's held very high esteem. would you yield for us 75 00:05:21,960 --> 00:05:22,590 to be happy to yield? 76 00:05:22,590 --> 00:05:25,440 Chairwoman Velazquez: Thank you. And I issue a statement of 77 00:05:25,440 --> 00:05:29,130 purpose statement yesterday, and she represented the spirit of 78 00:05:29,130 --> 00:05:32,340 bipartisanship of this committee. We are here 79 00:05:32,340 --> 00:05:35,670 discussing issues that are important to the small business 80 00:05:35,850 --> 00:05:40,770 community and for for her, and for us, they are not Republican 81 00:05:40,800 --> 00:05:45,660 or Democratic issues. She came here she did her job, and was 82 00:05:45,660 --> 00:05:49,830 very fair, very smart, and committed to serve small 83 00:05:49,830 --> 00:05:52,230 businesses in our nation. I yield back. 84 00:05:52,350 --> 00:05:55,380 Steve Chabot: Thank you. Thank you. reclaim my time i i just 85 00:05:55,380 --> 00:05:59,940 got a notice from the former members of Congress, that I 86 00:05:59,940 --> 00:06:03,120 still am a member because I lost back and oh, wait. So I joined 87 00:06:03,120 --> 00:06:05,490 the former members of Congress and I'm still a member. I don't 88 00:06:05,490 --> 00:06:08,670 think they ever know I got reelected again, so but anyway, 89 00:06:08,700 --> 00:06:12,180 indicated that Jan had passed away. And so she was a great 90 00:06:12,180 --> 00:06:15,300 member. And I think we were both following in her footsteps, the 91 00:06:15,330 --> 00:06:18,960 former chair and the current chair and me as a former chair, 92 00:06:18,960 --> 00:06:24,570 so rest in peace and choosing to greatly as our economy continues 93 00:06:24,570 --> 00:06:27,840 to roar ahead with record unemployment rates, and near 94 00:06:27,840 --> 00:06:31,560 record small business optimism. Our nation's smallest firms 95 00:06:31,560 --> 00:06:34,890 still face obstacles when it comes to financing their 96 00:06:34,890 --> 00:06:39,240 projects and growth. With an onslaught of new technologies, 97 00:06:39,240 --> 00:06:42,480 leaders are reaching small businesses, entrepreneurs and 98 00:06:42,480 --> 00:06:46,830 startups in novel ways. Despite new technological platforms, the 99 00:06:46,830 --> 00:06:50,820 contract between two parties is still where the rubber meets the 100 00:06:50,820 --> 00:06:54,510 road. Often these contracts contain a legal provision that 101 00:06:54,510 --> 00:06:58,350 we're discussing here today. Although confessions of judgment 102 00:06:58,380 --> 00:07:02,040 have been around for ages, the provision has received increased 103 00:07:02,040 --> 00:07:05,280 attention recently at the federal and state level due to 104 00:07:05,280 --> 00:07:09,210 some abuses. Specifically, the provision allows a party to 105 00:07:09,210 --> 00:07:13,860 waive his or her due process rights, bypass litigation and 106 00:07:13,860 --> 00:07:17,490 moved immediately towards a monetary judgment. At the 107 00:07:17,520 --> 00:07:20,970 federal level, the Federal Trade Commission, the FTC is one of 108 00:07:20,970 --> 00:07:24,180 the nation's agencies that oversees consumer protection 109 00:07:24,180 --> 00:07:28,200 laws. In 1984, the FTC determined that the use of 110 00:07:28,200 --> 00:07:32,430 confessions of judgments should be prohibited in all consumer 111 00:07:32,460 --> 00:07:35,700 contracts. Although the FTC through regulation banned 112 00:07:35,700 --> 00:07:39,240 confessions of judgment in consumer contracts, they elected 113 00:07:39,270 --> 00:07:42,720 not to include business contracts in that prohibition. 114 00:07:43,050 --> 00:07:46,770 States, on the other hand, have created a patchwork of rules on 115 00:07:46,800 --> 00:07:50,250 how to treat confessions of judgment, from an outright ban 116 00:07:50,280 --> 00:07:54,210 in some states to allowing them in others. Many other states 117 00:07:54,240 --> 00:07:57,630 that do allow them such as my state, Ohio and Pennsylvania 118 00:07:57,930 --> 00:08:01,590 also require certain guardrails and safeguards to protect 119 00:08:01,590 --> 00:08:05,370 parties involved in these transactions. For example, in 120 00:08:05,370 --> 00:08:10,740 Ohio, warning language must appear on the contract in bold 121 00:08:10,770 --> 00:08:15,900 and, quote, distinctive unquote, lettering. These safeguards help 122 00:08:15,900 --> 00:08:19,440 reduce the chances of small business owners not being aware 123 00:08:19,440 --> 00:08:22,920 of the provision, and are not understanding the provision, 124 00:08:23,070 --> 00:08:26,370 which often leads towards abusive practices. Most 125 00:08:26,370 --> 00:08:28,890 recently, just last week, the state of New York, as was 126 00:08:28,890 --> 00:08:32,460 mentioned, voted to ban all out of state confessions of 127 00:08:32,460 --> 00:08:35,400 judgment. I look forward to hearing from all four of our 128 00:08:35,400 --> 00:08:39,150 witnesses here today about the history of this provision and 129 00:08:39,150 --> 00:08:42,630 how how it has been utilized in recent years. Additionally, I'm 130 00:08:42,630 --> 00:08:46,800 interested in hearing how states have regulated this legal tool. 131 00:08:47,130 --> 00:08:50,130 As we continue to work to create an environment that allows small 132 00:08:50,130 --> 00:08:54,510 businesses to grow, create jobs and flourish, it's important to 133 00:08:54,510 --> 00:08:58,020 look at how states address various issues, including this 134 00:08:58,020 --> 00:09:00,510 one. So I want to thank the witnesses for joining us today, 135 00:09:00,510 --> 00:09:02,730 just as the chairwoman did, and I yield back. 136 00:09:03,000 --> 00:09:05,250 Chairwoman Velazquez: Thank you, Mr. Chabot. The gentleman yields 137 00:09:05,250 --> 00:09:09,990 back. And now I recognize the gentlelady from Kansas, Miss 138 00:09:10,110 --> 00:09:14,610 Davis, for the purpose of making a statement. Miss Myers. 139 00:09:16,500 --> 00:09:19,380 Myers: Thank you, Madam Chairwoman. I appreciate the 140 00:09:19,380 --> 00:09:23,610 opportunity to one just acknowledge the importance of 141 00:09:23,610 --> 00:09:27,570 Jan Myers for the state of Kansas and particularly for the 142 00:09:27,570 --> 00:09:34,320 district I now represent. She was certainly a leader in our 143 00:09:34,320 --> 00:09:40,680 state and as a woman, and elected leadership, I 144 00:09:40,680 --> 00:09:46,800 appreciated her ability to act in a bipartisan way and bring 145 00:09:46,800 --> 00:09:51,600 what I consider to be Midwestern values and pragmatism to not 146 00:09:51,600 --> 00:09:55,800 just politics but to our society in general. I appreciate the 147 00:09:55,800 --> 00:10:00,930 time just wanted to express that Jan Meyers was such an important 148 00:10:00,930 --> 00:10:03,090 figure in Kansas history. Thank you. 149 00:10:04,500 --> 00:10:07,200 Chairwoman Velazquez: The gentlelady yields back. And if 150 00:10:07,200 --> 00:10:10,350 committee members have an opening statement, we will ask 151 00:10:10,350 --> 00:10:13,080 they be submitted for the record. I would like to just 152 00:10:13,080 --> 00:10:17,160 take a minute to explain the timing rules. Each witness gets 153 00:10:17,190 --> 00:10:20,850 five minutes to testify. Our members gets five minutes for 154 00:10:20,850 --> 00:10:24,630 questioning. There is a lighting system to assist you. The green 155 00:10:24,630 --> 00:10:27,720 light comes on when you begin and the yellow light means there 156 00:10:27,720 --> 00:10:31,710 is one minute remaining. The red light comes on when you are out 157 00:10:31,710 --> 00:10:35,520 of time, and we ask that you stay within that timeframe to 158 00:10:35,520 --> 00:10:39,810 the best of your ability. I would now like to introduce our 159 00:10:39,810 --> 00:10:45,720 witnesses. Our first witness is Professor Hosea harbi. PhD 160 00:10:45,750 --> 00:10:49,620 professor Harvey has taught at Temple University's law school 161 00:10:49,620 --> 00:10:53,490 since 2010, where he teaches contracts banking and financial 162 00:10:53,490 --> 00:10:57,480 regulation and consumer law matters focusing on how our 163 00:10:57,480 --> 00:11:01,950 nation's banking laws impact diverse communities. His work is 164 00:11:01,950 --> 00:11:06,090 particularly timing, as we consider as we consider 165 00:11:06,090 --> 00:11:09,390 confessions of judgment in the context of small business 166 00:11:09,390 --> 00:11:12,900 lending and the role that Congress can play to ensure a 167 00:11:12,900 --> 00:11:17,430 fair marketplace. Professor Harvey earned his BA from 168 00:11:17,430 --> 00:11:21,390 Dartmouth College and then went on to Stanford University where 169 00:11:21,390 --> 00:11:27,390 he received his MA JD on his PhD in Political Science. Welcome, 170 00:11:27,450 --> 00:11:32,280 professor Harvey. And you're recognized for five. I'm going 171 00:11:32,280 --> 00:11:36,270 to introduce all the members all at once and then we will start 172 00:11:36,300 --> 00:11:41,010 our second witness is Mr. Jerry bush. Mr. Bush is the 20 year 173 00:11:41,010 --> 00:11:49,110 certified master plumber from Roanoke, Virginia. He owns JB 174 00:11:49,110 --> 00:11:52,680 Plumbing and Heating of Virginia with his father, but was 175 00:11:52,680 --> 00:11:56,550 recently forced to shut down after 30 years of business due 176 00:11:56,550 --> 00:12:00,330 to abusive confessions of judgment associated with cash 177 00:12:00,420 --> 00:12:05,310 advances. Mr. Boss is also the dedicated public servant, having 178 00:12:05,310 --> 00:12:11,010 served as a volunteer fire chief of for 25 years. He currently 179 00:12:11,010 --> 00:12:15,210 lives in Roanoke with his wife of 19 years, who is a cancer 180 00:12:15,210 --> 00:12:20,820 survivor and their 18 year old son. Welcome, Mr. Bush. Our 181 00:12:20,820 --> 00:12:25,440 third witness today is Mr. Shane Haskin. He is a partner in the 182 00:12:25,440 --> 00:12:30,270 Philadelphia Office of white and Williams LLP, a full service 183 00:12:30,270 --> 00:12:35,580 regional law firm with over 240 lawyers in 10. offices, Mr. 184 00:12:35,580 --> 00:12:39,660 Haskin practices in the firm's commercial litigation department 185 00:12:39,690 --> 00:12:44,130 and has nearly 20 years of experience litigating complex 186 00:12:44,130 --> 00:12:49,920 matter. Mr. Haskin holds a JD from Albany Law School and a BA 187 00:12:49,920 --> 00:12:54,360 from Mayville State University, where he graduated summa cum 188 00:12:54,360 --> 00:12:58,800 laude from both school since 2016. Mr. Hosking has 189 00:12:58,800 --> 00:13:03,180 represented more than 50 small businesses and individuals in 190 00:13:03,180 --> 00:13:06,930 connection with high interest lending products located all 191 00:13:06,930 --> 00:13:11,370 over the country. Welcome. And now I would like to yield to our 192 00:13:11,370 --> 00:13:14,730 ranking member, Mr. Chabot to introduce our fifth our final 193 00:13:14,730 --> 00:13:15,330 witness. 194 00:13:15,510 --> 00:13:17,640 Steve Chabot: Thank you, Madam Chair. Our next witness will be 195 00:13:17,640 --> 00:13:21,930 Benjamin Picker. Mr. Picker is a shareholder and attorney at the 196 00:13:21,930 --> 00:13:25,320 law firm of McCaslin keen and Buckman and Devin Pennsylvania, 197 00:13:25,320 --> 00:13:28,680 which is outside Philadelphia. He's an experienced contract 198 00:13:28,680 --> 00:13:31,740 securities and Consumer Protection litigator and has 199 00:13:31,740 --> 00:13:35,700 tried cases in both state and federal courts. Mr. Picker holds 200 00:13:35,700 --> 00:13:38,190 a Bachelor of Arts from the University of Maryland, and his 201 00:13:38,190 --> 00:13:41,100 law degree is from Temple University's Beasley School of 202 00:13:41,100 --> 00:13:43,680 Law. And we want to thank him for being here. We want to thank 203 00:13:43,680 --> 00:13:45,720 all the witnesses for being here. I yield back. 204 00:13:46,770 --> 00:13:49,320 Chairwoman Velazquez: Thank you, Mr. Harvey, you are now 205 00:13:49,320 --> 00:13:51,000 recognized for five minutes. 206 00:13:52,110 --> 00:13:53,910 Harvey: Thank you, Chairwoman Velazquez, Ranking Member 207 00:13:53,910 --> 00:13:56,610 Chabot, and members of the committee. My name is Jose 208 00:13:56,610 --> 00:14:00,240 Harvey, I'm a law professor and consumer law aficionado. I 209 00:14:00,240 --> 00:14:02,520 appreciate the opportunity to appear before you today to 210 00:14:02,520 --> 00:14:06,060 discuss confessions of judgment and proposed small business 211 00:14:06,090 --> 00:14:09,870 lending Fairness Act. I'm here today in my individual capacity 212 00:14:09,990 --> 00:14:13,260 and not as representative of my institution. As you know, a 213 00:14:13,260 --> 00:14:15,450 confession of judgment in its simplest form is simply a 214 00:14:15,450 --> 00:14:18,750 contractual arrangement by which a borrower slash debtor agrees 215 00:14:18,750 --> 00:14:22,590 to forfeit the right to contest a declaration of default. As you 216 00:14:22,590 --> 00:14:26,220 also know, the US Supreme Court in 1972 held that with respect 217 00:14:26,220 --> 00:14:28,920 to business transactions, Confessions of judgment are not 218 00:14:28,920 --> 00:14:32,550 per se unconstitutional. As a result of that Supreme Court 219 00:14:32,550 --> 00:14:35,940 decision, a patchwork of state laws has remained to this day. 220 00:14:36,720 --> 00:14:40,200 As you also know, and we heard earlier in 1985, the FTC did ban 221 00:14:40,470 --> 00:14:43,470 confessions of judgment through the credit practices rule for 222 00:14:43,470 --> 00:14:47,220 certain consumer credit provisions. But despite the FTC 223 00:14:47,220 --> 00:14:49,740 is action, Congress did not choose to extend this 224 00:14:49,740 --> 00:14:52,260 prohibition to business transactions at that time. 225 00:14:53,370 --> 00:14:56,490 Perhaps this choice was informed by belief that business to 226 00:14:56,490 --> 00:15:00,720 business transactions take place between sophisticated parties on 227 00:15:00,720 --> 00:15:03,720 equal footing. However, the recent Bloomberg News 228 00:15:03,720 --> 00:15:07,740 investigation reminds us that that's not always true. by 229 00:15:07,740 --> 00:15:11,070 postulating the business to business transactions are often 230 00:15:11,070 --> 00:15:14,340 if not always on equal commercial footing. We ignore 231 00:15:14,340 --> 00:15:17,220 insights from consumer transactional research about how 232 00:15:17,220 --> 00:15:20,640 power dynamics and predatory behavior might influence 233 00:15:20,640 --> 00:15:24,630 contract terms. We would also falsely expect that businesses 234 00:15:24,660 --> 00:15:28,680 always knowingly engage in commercial transactions, and 235 00:15:28,680 --> 00:15:31,950 that the inattention to fine print that consumers often 236 00:15:32,130 --> 00:15:35,310 utilize is somehow different when that consumer is a small 237 00:15:35,310 --> 00:15:38,970 business. But in a world in which 1000s of drivers for your 238 00:15:39,000 --> 00:15:42,600 app ride based shares longer there, have their own business 239 00:15:43,050 --> 00:15:46,950 and can finance their enterprise with a business loan. Perhaps 240 00:15:46,950 --> 00:15:49,830 the theoretical line between consumer and business credit 241 00:15:49,830 --> 00:15:54,570 transactions has blurred over time. 1099 filings have 242 00:15:54,570 --> 00:15:59,250 increased in recent years 25% In the past two decades, almost 243 00:15:59,280 --> 00:16:04,200 100,000,010 90 nines were filed in a recent tax year. In short, 244 00:16:04,200 --> 00:16:06,960 our conventional understanding of what a small businesses 245 00:16:06,990 --> 00:16:10,680 should evolve just just as our economy has evolved over time. 246 00:16:11,010 --> 00:16:14,640 Sometimes a singular consumer is also a small business. The law 247 00:16:14,640 --> 00:16:17,670 should reflect that. I do acknowledge that confessions of 248 00:16:17,670 --> 00:16:20,070 judgment in business transactions have a limited 249 00:16:20,070 --> 00:16:24,210 purpose if exercised with caution and restraint. However, 250 00:16:24,240 --> 00:16:27,090 the space is rife with abuse and open for substantial reform. 251 00:16:27,870 --> 00:16:30,540 There is also not compelling evidence that eliminating them 252 00:16:30,780 --> 00:16:34,140 in a commercial context will have a chilling effect on credit 253 00:16:34,140 --> 00:16:36,870 acquisition either, although that is a good talking point for 254 00:16:36,870 --> 00:16:41,250 folks that oppose reform. The reason why reform is important 255 00:16:41,250 --> 00:16:44,190 right now is at the state level approach to commercial 256 00:16:44,190 --> 00:16:47,610 confessions of judgment is a fraying patchwork quilt and more 257 00:16:47,610 --> 00:16:51,480 procedure than substance. Here Congress did play a role. 258 00:16:53,130 --> 00:16:56,100 Congress chose to somewhat artificially segregate the way 259 00:16:56,100 --> 00:16:59,820 we think about the regulation of consumer credit transactions 260 00:16:59,940 --> 00:17:04,320 from commercial credit sent transactions. That transactional 261 00:17:04,320 --> 00:17:07,290 national line reinforces the perception that businesses are 262 00:17:07,290 --> 00:17:10,680 on equal footing, are all equally sophisticated, and that 263 00:17:10,680 --> 00:17:14,580 market forces are the best to curb predatory behavior. I think 264 00:17:14,580 --> 00:17:17,190 the small business lending fairness act appropriately 265 00:17:17,190 --> 00:17:20,190 eliminates this false dichotomy between consumer and business 266 00:17:20,190 --> 00:17:23,610 transactions. We don't yet know the full scope of abuse in this 267 00:17:23,610 --> 00:17:26,190 space. The lack of research is what made the Bloomberg 268 00:17:26,190 --> 00:17:30,240 investigation so noteworthy and impressive. But this committee 269 00:17:30,240 --> 00:17:33,750 can still ask whether federal consumer law prohibitions that 270 00:17:33,750 --> 00:17:37,230 we find unfair in one context, can be extended to business 271 00:17:37,230 --> 00:17:40,290 transactions that might also be unfair. I think those 272 00:17:40,290 --> 00:17:45,150 prohibitions should be extended, why they will bring uniformity 273 00:17:45,210 --> 00:17:49,320 and consistency to a space that needs it. It could also reduce 274 00:17:49,320 --> 00:17:52,710 disparate outcomes such as the ones we'll hear about today. The 275 00:17:52,710 --> 00:17:54,930 business models of companies that are egregious offenders 276 00:17:54,930 --> 00:17:57,720 would suffer, which may be appropriate if you think they 277 00:17:57,720 --> 00:18:01,440 engage in unfair practices. Given what we know the small 278 00:18:01,440 --> 00:18:04,140 business lending Fairness Act rests on sound evidentiary 279 00:18:04,140 --> 00:18:08,100 footing. It codifies and extends the FTCs ban on consumer 280 00:18:08,160 --> 00:18:11,280 confessions of judgment to include small business owners as 281 00:18:11,280 --> 00:18:14,490 well. Chairwoman Velazquez, joined by Representative 282 00:18:14,490 --> 00:18:18,150 Marshall, senators, Rubio and brown and others does recognize 283 00:18:18,450 --> 00:18:21,330 the contractual prohibitions, excuse me, provisions that 284 00:18:21,330 --> 00:18:25,350 denied due process can punish small businesses and serve no 285 00:18:25,350 --> 00:18:29,010 compelling purpose. by amending Tila to include a general 286 00:18:29,010 --> 00:18:31,710 prohibition on confessions of judgment for businesses, 287 00:18:31,860 --> 00:18:34,800 Congress could act to prevent the abuses described here today. 288 00:18:35,280 --> 00:18:37,830 This proposed solution is neither partisan nor anti 289 00:18:37,830 --> 00:18:42,570 business. In short, just before, just hours before the 50th 290 00:18:42,570 --> 00:18:45,000 anniversary of the implementation of the Truth in 291 00:18:45,000 --> 00:18:47,970 Lending Act. This Committee's consideration of the small 292 00:18:47,970 --> 00:18:51,420 business lending Fairness Act is an important logical and 293 00:18:51,420 --> 00:18:54,720 necessary extension of TELUS original principles and purpose. 294 00:18:54,870 --> 00:18:57,600 I thank the committee for its efforts and for the opportunity 295 00:18:57,600 --> 00:18:58,800 to testify this morning. 296 00:18:59,520 --> 00:19:01,800 Chairwoman Velazquez: Thank you, Mr. Harvey. Mr. Bush, you have 297 00:19:01,800 --> 00:19:03,600 recognized for five minutes 298 00:19:06,090 --> 00:19:08,520 Jerry Bush: Hello, my name is Jerry Bush, and I want to thank 299 00:19:08,520 --> 00:19:11,880 the committee and Chairwoman everybody for this place. I'm 300 00:19:11,880 --> 00:19:16,470 the former JB Plumbing Heating in Virginia. My father built JB 301 00:19:16,470 --> 00:19:20,520 Plumbing Heating of Virginia 30 years ago, so he give life for 302 00:19:20,520 --> 00:19:23,730 his family. When I graduated from high school I was given a 303 00:19:23,730 --> 00:19:27,300 work truck tool so I could one day support my family like he 304 00:19:27,300 --> 00:19:31,650 did. My father served army and when he turned down he came out 305 00:19:31,650 --> 00:19:35,010 and started to be a plumber. He had to everything from scratch 306 00:19:35,040 --> 00:19:37,950 and he would never given anything. As I took interest in 307 00:19:37,950 --> 00:19:41,970 a company we incorporate 2008 We had very strong company and when 308 00:19:41,970 --> 00:19:45,060 the House market crash it hurts pretty bad but we had a good 309 00:19:45,060 --> 00:19:48,420 name and never had to look for work. We started doing more 310 00:19:48,420 --> 00:19:51,600 commercial work and mainly done all new work and sometimes you 311 00:19:51,600 --> 00:19:55,920 would have to wait 60 days to get your money and a year after 312 00:19:56,160 --> 00:20:00,360 the job is completed receive your 10% retainage when We'd 313 00:20:00,360 --> 00:20:06,810 done a large project 2015 It was not paid around $350,000 This 314 00:20:06,810 --> 00:20:10,320 person had bad position as we tried to fight this contractor. 315 00:20:10,800 --> 00:20:14,520 We had personal guarantees that we hadn't to pay suppliers and 316 00:20:14,520 --> 00:20:18,090 other subs in which this caused us to have judgments. I went to 317 00:20:18,090 --> 00:20:21,990 her bank, Wells Fargo and they turned us down, turns down for a 318 00:20:21,990 --> 00:20:25,170 loan, but the gym owner told me he knew some brokers. And within 319 00:20:25,170 --> 00:20:28,470 a week, I received a call from a broker telling me they could 320 00:20:28,470 --> 00:20:31,920 help. I was at the point where I was hoping to win the lawsuit 321 00:20:31,920 --> 00:20:35,190 with the contract who owed us money. Plus, I had to keep 322 00:20:35,190 --> 00:20:39,300 payroll going into jobs because of contracts, that bra the 323 00:20:39,300 --> 00:20:44,220 broker say we can get a better deal within 45 days that you had 324 00:20:44,220 --> 00:20:49,050 to earn their trust. So I said, okay, they sent me the contract. 325 00:20:49,050 --> 00:20:52,560 And I never seen a professional judgment before and asked about 326 00:20:52,560 --> 00:20:56,760 it. And they say it is just a case you've run away or change 327 00:20:56,760 --> 00:21:02,010 accounts, or we cannot find you. And they never will use them, 328 00:21:02,040 --> 00:21:06,120 they will work with you. And then they will do a funny 329 00:21:06,120 --> 00:21:09,480 company call from the lender as if the broker told you yet as 330 00:21:09,480 --> 00:21:13,020 your broker told you everything, and they will work with you if 331 00:21:13,020 --> 00:21:17,310 you run into problems nearby explained where all they could 332 00:21:17,310 --> 00:21:22,650 do if they want to 30 days go by in house pay my dailies and the 333 00:21:22,650 --> 00:21:26,580 broker comes back and say, Hey, I have a sweet deal. I found 334 00:21:26,580 --> 00:21:29,940 another company will be there for long haul and says my 335 00:21:30,240 --> 00:21:33,300 contract says if I take enough funding, I will go in default. 336 00:21:33,510 --> 00:21:37,800 They respond say No, you're good. We got you. Then when the 337 00:21:37,800 --> 00:21:42,330 time came around for the first one to end, the funding company 338 00:21:42,330 --> 00:21:45,330 will call and say hey, are you ready to renew. And when you 339 00:21:45,330 --> 00:21:48,720 tell them no, they're going to count as see you're working with 340 00:21:48,720 --> 00:21:53,370 somebody else and they force you to renew or default. So then you 341 00:21:53,370 --> 00:21:57,390 got start to have two daily payments and then you keep 342 00:21:57,750 --> 00:22:00,960 getting deeper. And next thing you know, they are taking 343 00:22:01,020 --> 00:22:06,180 $18,000 out daily. They know everyday how much you bring in 344 00:22:06,180 --> 00:22:10,380 everything else. And mostly all made hundreds of 1000s off of 345 00:22:10,380 --> 00:22:14,250 us. And in mouse of the Jasmine show they went back and started 346 00:22:14,250 --> 00:22:18,900 advance again example if you had $10,000 left, and the advance 347 00:22:18,900 --> 00:22:22,680 was 50,000. But the contract amount was 70,000. They would 348 00:22:22,680 --> 00:22:26,640 take 10,000. And as 70,000 because they say it's an a 349 00:22:26,640 --> 00:22:31,650 contract restart that equals legal fees up to 34,000. And 350 00:22:31,650 --> 00:22:36,210 more than a judgment show 114,000 plus the 60,000 gre had 351 00:22:36,210 --> 00:22:40,710 taken out or paid hymns and this is a good reason for them to pay 352 00:22:40,710 --> 00:22:44,310 people like New York marshals because they can force to get 353 00:22:44,310 --> 00:22:48,510 it. When the time came where I needed help to get the payments 354 00:22:48,510 --> 00:22:52,710 reduced. I did not want to take any more funds. And funds were 355 00:22:52,710 --> 00:22:58,500 tight because $18,000.90 $1,000 Weekly, I asked for reduced 356 00:22:58,500 --> 00:23:02,040 payments from Yellowstone they will only make you take a 357 00:23:02,040 --> 00:23:06,750 funding contract and no money in return, they will still charge 358 00:23:06,780 --> 00:23:10,440 the foreign percent, like last chance and Main Street, they 359 00:23:10,440 --> 00:23:13,530 will give reduced payments for five days and come back in a 360 00:23:13,530 --> 00:23:17,430 week or so and say have no warning and take the money out. 361 00:23:17,820 --> 00:23:26,430 August 7 2018 When I had to make a choice of getting 2007 18 and 362 00:23:26,430 --> 00:23:27,630 when I had to make a choice to keep getting deeper closed 363 00:23:27,630 --> 00:23:28,110 doors. 364 00:23:28,440 --> 00:23:31,260 I warned all the funding companies it was going to happen 365 00:23:31,500 --> 00:23:34,110 that Tuesday I had to tell employees and my followers it 366 00:23:34,110 --> 00:23:37,530 was over ahead tell the contractors as well to my 367 00:23:37,590 --> 00:23:41,310 father's face and to watch 20 employees. Everybody still 368 00:23:41,340 --> 00:23:45,000 haunts me the chain reaction was awful personal guarantees frozen 369 00:23:45,000 --> 00:23:47,520 accounts certain people's holding equipment, tools, 370 00:23:47,550 --> 00:23:51,480 hostages, or name was mere hours at the end. The following 371 00:23:51,480 --> 00:23:54,030 company deemed it my father's retirement and money that was 372 00:23:54,030 --> 00:23:58,440 from his social security around end of August 2018. I had 373 00:23:58,440 --> 00:24:03,570 companies tell me two ways out win the lottery. Or if you die, 374 00:24:03,600 --> 00:24:06,900 we can't come after you. When all this was going on I closed 375 00:24:06,900 --> 00:24:10,170 doors and after my wife was going through cancer one day in 376 00:24:10,170 --> 00:24:14,550 January 2018. I didn't want to renew a loan and the gentleman 377 00:24:14,640 --> 00:24:17,670 from one of the funding companies Yellowstone said if I 378 00:24:17,670 --> 00:24:20,850 do not he will default me I told him I was at my wife's chemo 379 00:24:20,850 --> 00:24:25,290 treatment and his words was our sin fliers and to make her feel 380 00:24:25,290 --> 00:24:29,370 better today when I was asked at my dark place when I was with my 381 00:24:29,370 --> 00:24:34,410 dark place I said I will win. I will not let them take my family 382 00:24:34,410 --> 00:24:37,860 no more asset on the bank instead of myself. I want to see 383 00:24:37,860 --> 00:24:41,460 my son grow up I want to be there for my family. But I 384 00:24:41,460 --> 00:24:45,780 cannot take care of them. If I'll never have anything I would 385 00:24:45,810 --> 00:24:49,740 have a right in if I was gone. They came they can't come after 386 00:24:49,740 --> 00:24:53,610 me no more. I was not looking for a way out I was looking way 387 00:24:53,610 --> 00:24:56,850 to fix it in idea it was my fault. I said my goodbyes on 388 00:24:56,850 --> 00:25:01,080 Facebook begging people to make sure my family was okay and did 389 00:25:01,080 --> 00:25:04,590 the hardest thing I ever had do and took appeals did not do 390 00:25:04,590 --> 00:25:08,730 anything. And I wrote and hid myself having a woods a went to 391 00:25:08,730 --> 00:25:13,230 sleep. But as I look now, I was lucky and I was found. My second 392 00:25:13,230 --> 00:25:15,840 chance was very mild, I started to fight again and see my father 393 00:25:15,840 --> 00:25:19,020 age 70 Back to hard labor, and not the best health and how 394 00:25:19,020 --> 00:25:21,810 these companies were making millions. Pitchers them sports 395 00:25:21,810 --> 00:25:25,500 cars, fancy trips, tables of cash they had taken from people 396 00:25:25,500 --> 00:25:28,830 all over the country, every man, every woman, every race, I 397 00:25:28,830 --> 00:25:33,540 started make calls and emails, no local news would hear me and 398 00:25:33,540 --> 00:25:38,250 thereby currency and even local laws. Okay, I finish or. 399 00:25:39,540 --> 00:25:40,710 Chairwoman Velazquez: How much more? 400 00:25:40,740 --> 00:25:41,550 Jerry Bush: Less than a minute. 401 00:25:41,760 --> 00:25:42,240 Chairwoman Velazquez: Okay. 402 00:25:43,560 --> 00:25:46,710 Jerry Bush: Thank you. I have one lawyer from New York contact 403 00:25:46,710 --> 00:25:49,650 me to Bloomberg News. And the story came out and still miss a 404 00:25:49,650 --> 00:25:52,800 lot of details. But this was a good store. And when the story 405 00:25:52,800 --> 00:25:55,800 came out, funding companies hit hoarder, they did all kinds of 406 00:25:55,800 --> 00:25:58,950 crazy stuff. They sent letters to credit cards, which discovery 407 00:25:59,310 --> 00:26:02,670 and asked and receiving kind of bank account numbers, and they 408 00:26:02,670 --> 00:26:05,820 used to freeze my accounts. So with this, I can never have a 409 00:26:05,820 --> 00:26:10,680 bank account. And we'll have judgment. So my records and 410 00:26:10,680 --> 00:26:15,000 personal guarantees. Based I just like to say is that I can 411 00:26:15,000 --> 00:26:20,010 never have account anything. They have judgments. And this 412 00:26:20,040 --> 00:26:21,450 has been hard on my whole family. 413 00:26:21,480 --> 00:26:24,330 Chairwoman Velazquez: Thank you, Mr. Mr. Bush. And now Mr. 414 00:26:24,330 --> 00:26:26,790 Heskin, you're recognized for five minutes. 415 00:26:27,780 --> 00:26:30,510 Heskin: Thank you, Chairman, Chairwoman Velazquez, Ranking 416 00:26:30,510 --> 00:26:33,660 Member chata and the other distinguished members of the 417 00:26:33,660 --> 00:26:40,080 committee. America's small businesses are under attack by 418 00:26:40,530 --> 00:26:44,670 predatory lenders, that are the business equivalent of payday 419 00:26:44,670 --> 00:26:50,550 lending. As New York's highest court described more than 50 420 00:26:50,550 --> 00:26:55,680 years ago. It is the equivalent of sending someone into battle. 421 00:26:57,360 --> 00:27:02,730 Like a warrior of old by discarding their shield and 422 00:27:02,730 --> 00:27:08,760 breaking their sword. I second, the testimony by professor 423 00:27:08,760 --> 00:27:14,670 Harvey, not every small business or every transaction that 424 00:27:14,670 --> 00:27:19,200 involves a business means that they are sophisticated parties. 425 00:27:20,010 --> 00:27:25,410 My clients are very good at what they do. They know how to fix a 426 00:27:25,410 --> 00:27:30,270 boat. They know how to install a sink. They know how to make a 427 00:27:30,270 --> 00:27:36,900 fine wine, all things I can't do. But that doesn't mean they 428 00:27:36,900 --> 00:27:41,940 know how to read a contract and 8.5. It doesn't mean they know 429 00:27:41,940 --> 00:27:46,320 the legal ramifications of signing a confession of 430 00:27:46,320 --> 00:27:52,140 judgment. It certainly doesn't mean that they understand that 431 00:27:52,140 --> 00:27:56,100 they could wake up one morning and have their bank accounts 432 00:27:56,100 --> 00:28:00,630 drained by a New York City Marshal making over $1.8 million 433 00:28:01,020 --> 00:28:05,940 a year on small businesses when they need that money for 434 00:28:05,940 --> 00:28:12,750 payroll. Let me encourage the committee to look at exhibit 435 00:28:12,750 --> 00:28:19,740 number six. To my written testimony. It is a sample of 500 436 00:28:19,800 --> 00:28:26,430 small businesses that have been victimized by the CEO J. It's by 437 00:28:26,430 --> 00:28:32,610 one company. It contains victims. A winery from 438 00:28:32,610 --> 00:28:39,930 California. A craft brewery from Colorado, a nail salon from 439 00:28:39,960 --> 00:28:48,330 Ohio, a diner from Minnesota, a coffee shop from Texas. That's 440 00:28:48,330 --> 00:28:53,430 the definition of Main Street. They're under attack, and they 441 00:28:53,430 --> 00:29:00,930 need help. And it's not just the unsophisticated it preys on even 442 00:29:00,930 --> 00:29:05,880 the most sophisticated. I have here with me today. Cara de 443 00:29:05,880 --> 00:29:13,020 Pietro. She was the Small Business Administration's Small 444 00:29:13,020 --> 00:29:19,380 Business Person of the Year in 2017, and 2018. She was listed 445 00:29:19,380 --> 00:29:23,940 as one of the fastest growing small businesses in the country. 446 00:29:26,130 --> 00:29:33,060 She got preyed upon just last month, where she was fully 447 00:29:33,060 --> 00:29:36,570 complying with the terms of her contract with an MCA company. 448 00:29:36,900 --> 00:29:42,480 And she woke up and found her business accounts frozen. Why? 449 00:29:43,440 --> 00:29:49,290 Because she had the audacity to question an MCA company and say, 450 00:29:49,440 --> 00:29:54,060 Why are you taking out so much money? My revenues are declining 451 00:29:54,180 --> 00:29:59,100 in you're taking double and triple the money Stop it their 452 00:29:59,100 --> 00:30:04,470 reaction freeze their bank accounts, send a co j n. And 453 00:30:04,470 --> 00:30:07,920 here's the next point, it leads right into the next point. 454 00:30:08,430 --> 00:30:13,710 There's more work to do. New York spanning the CEO J is a 455 00:30:13,710 --> 00:30:18,480 great first step. great first step, but guess what? Miss 456 00:30:18,480 --> 00:30:23,850 DiPietro was victimized by Pennsylvania, Pennsylvania, CO. 457 00:30:23,850 --> 00:30:28,800 J, and a Pennsylvania Sheriff froze her bank accounts before 458 00:30:28,800 --> 00:30:37,290 she even had notice. We need to do more. We need to stop it now. 459 00:30:37,680 --> 00:30:42,570 Not tomorrow. Now. Otherwise, the rest of America there will 460 00:30:42,570 --> 00:30:47,340 be more small business victims, just like sophisticated business 461 00:30:47,370 --> 00:30:55,050 and unsophisticated businesses. Now, the next weapon is already 462 00:30:55,050 --> 00:31:00,660 here. The next weapon of the MCA industry is the UCC. I don't 463 00:31:00,660 --> 00:31:05,190 know what can be done about it, but it's just as lethal. They 464 00:31:05,220 --> 00:31:11,520 for the cost of a stamp. They can send a letter to pay pal to 465 00:31:11,520 --> 00:31:17,130 credit card processors to your best company and halt business 466 00:31:17,130 --> 00:31:20,130 and attract and drain your credit card processors. Drain 467 00:31:20,160 --> 00:31:23,730 your PayPal account and ruin your relationship that you've 468 00:31:23,730 --> 00:31:27,210 built with one of your best customers. That has to be 469 00:31:27,210 --> 00:31:34,260 dressed also the next. The next iteration of this of the MCA 470 00:31:34,260 --> 00:31:40,080 industry is also here. It's run a bank. I respectfully submit 471 00:31:40,200 --> 00:31:41,490 that you look into that as well. 472 00:31:44,610 --> 00:31:47,520 Chairwoman Velazquez: Sorry, Mr. Picker, you are now recognized 473 00:31:47,550 --> 00:31:48,570 for five minutes. 474 00:31:49,500 --> 00:31:51,900 Picker: Chairwoman Velazquez, Ranking Member Chabot and 475 00:31:51,900 --> 00:31:54,120 members of the committee. Thank you for the opportunity to be 476 00:31:54,120 --> 00:31:57,930 here today to testify and to discuss the history law uses and 477 00:31:57,930 --> 00:32:00,660 important due process and fairness considerations relating 478 00:32:00,660 --> 00:32:03,660 to confessions of judgment. I want to start off by saying that 479 00:32:03,660 --> 00:32:06,810 I do not disagree with anything that or other witnesses have 480 00:32:06,810 --> 00:32:10,170 said so far, absolutely nothing. My experience is not 481 00:32:10,170 --> 00:32:13,590 specifically with the MCA industry. It is more generally 482 00:32:13,590 --> 00:32:16,230 with the use of confessions of judgment and commercial 483 00:32:16,740 --> 00:32:20,940 transactions and litigation. As has been testified to already a 484 00:32:20,940 --> 00:32:23,760 confession of judgment clauses contractual provision permitting 485 00:32:23,760 --> 00:32:27,510 the plaintiff to take a judgment against a purportedly defaulting 486 00:32:27,540 --> 00:32:30,900 defendant without prior notice. And before commencement of the 487 00:32:30,900 --> 00:32:34,470 lawsuit, thereby skipping the entire normal litigation 488 00:32:34,470 --> 00:32:38,430 process. This concept of confession of judgment has been 489 00:32:38,490 --> 00:32:42,210 around and dates back to perhaps the 13th century. So it's been 490 00:32:42,210 --> 00:32:46,200 around for a very long time as the chairwoman mentioned. During 491 00:32:46,200 --> 00:32:49,590 my nearly 15 years of practicing law, a large part of which has 492 00:32:49,590 --> 00:32:53,100 been litigating business disputes. I both utilized and 493 00:32:53,100 --> 00:32:56,970 defended against confessed judgments. When asked if I like 494 00:32:56,970 --> 00:33:00,360 confessions of judgment as a tool, my response is usually 495 00:33:00,360 --> 00:33:04,290 well, it depends on who's using it me or the other guy. That's 496 00:33:04,290 --> 00:33:08,190 because it's a very powerful tool, but it can be abused in 497 00:33:08,190 --> 00:33:11,610 the wrong hands. However, when used in appropriate 498 00:33:11,610 --> 00:33:16,500 circumstances, it is often a far less expensive way to reach the 499 00:33:16,500 --> 00:33:20,160 same result that would have been reached after years of costly 500 00:33:20,520 --> 00:33:23,970 and needless litigation. In my home state, the Commonwealth of 501 00:33:23,970 --> 00:33:27,060 Pennsylvania confessions of judgment are permitted, but only 502 00:33:27,060 --> 00:33:30,270 in connection with commercial transactions that prohibited 503 00:33:30,270 --> 00:33:33,540 Consumer Contracts such as residential leases. And of 504 00:33:33,540 --> 00:33:37,620 course, as we know in consumer financing transactions. In most 505 00:33:37,620 --> 00:33:41,550 states, confession of judgment is generally prohibited. It 506 00:33:41,550 --> 00:33:44,250 should be noted that through the credit practices rule, which was 507 00:33:44,250 --> 00:33:47,970 promulgated in 1985, the FTC outlawed the use of confession 508 00:33:47,970 --> 00:33:51,150 of judgment and consumer credit transactions, their primary 509 00:33:51,150 --> 00:33:55,560 reasons for doing so we're one consumers often suffer 510 00:33:55,560 --> 00:33:58,680 substantial economic and emotional injury from the use of 511 00:33:58,680 --> 00:34:02,430 confession of judgment and consumer credit transactions. To 512 00:34:02,430 --> 00:34:05,400 consumer credit transactions are often contracts of adhesion, 513 00:34:06,240 --> 00:34:09,090 where the individual consumers have little or no negotiating 514 00:34:09,090 --> 00:34:14,190 power. Three consumers did not understand the provisions, and 515 00:34:14,190 --> 00:34:17,490 for default usually occurred because of issues beyond a 516 00:34:17,490 --> 00:34:22,980 consumers control, such as unemployment or illness. I can 517 00:34:22,980 --> 00:34:27,840 see that many of those same concerns are present in the 518 00:34:27,840 --> 00:34:30,180 small business context, especially when you're talking 519 00:34:30,180 --> 00:34:35,370 about MC A's. As Mr. heskin said, in a different way, the 520 00:34:35,370 --> 00:34:37,590 Pennsylvania Supreme Court has described confessions of 521 00:34:37,590 --> 00:34:40,920 judgment as quote, perhaps the most powerful and drastic 522 00:34:40,920 --> 00:34:45,030 document known to civil law. As a rules result, states that 523 00:34:45,030 --> 00:34:47,790 permit confessions of judgment, including Pennsylvania require 524 00:34:47,790 --> 00:34:50,760 that the provision be placed conspicuously within the 525 00:34:50,760 --> 00:34:54,240 contract, that certain formalities be strictly 526 00:34:54,240 --> 00:34:56,490 followed, and that there be a way for the defendant to 527 00:34:56,490 --> 00:35:01,860 challenge the judgment after the fact. A word of attorney or 528 00:35:01,860 --> 00:35:04,680 confession of judgment clause that is bolded, or capitalized 529 00:35:04,680 --> 00:35:08,160 will ordinarily be sufficiently conspicuous. The Pennsylvania 530 00:35:08,160 --> 00:35:10,830 Supreme Court has compared a non conspicuous confession of 531 00:35:10,830 --> 00:35:14,580 judgment clause to actions of the Roman Thailand Caligula, who 532 00:35:14,580 --> 00:35:17,970 was said to have had the laws inscribed upon pillars so high 533 00:35:18,150 --> 00:35:22,800 that people could not read them. Regarding formalities for 534 00:35:22,800 --> 00:35:25,020 example, Confessions of judgment in Pennsylvania must be 535 00:35:25,020 --> 00:35:28,230 accompanied by a complaint describing paragraph by 536 00:35:28,230 --> 00:35:32,130 paragraph the factual basis for the judgment and must attach a 537 00:35:32,130 --> 00:35:34,350 copy of the instrument or contract permitting the 538 00:35:34,350 --> 00:35:37,620 confession of judgment. In addition, an affidavit must be 539 00:35:37,620 --> 00:35:40,110 included attesting to the fact that the defendant has income of 540 00:35:40,110 --> 00:35:44,610 more than $10,000. The confessed judgment is filed subject to the 541 00:35:44,610 --> 00:35:47,760 misdemeanor penalty relating to the criminal offense of unsworn 542 00:35:47,760 --> 00:35:51,630 falsification to authorities. In some counties like my home 543 00:35:51,630 --> 00:35:54,090 county of montgomery county in Pennsylvania, the court clerk 544 00:35:54,090 --> 00:35:57,870 known as the Python Atari, has its legal counsel even review 545 00:35:57,870 --> 00:36:00,450 all confessions of judgment before they're accepted for 546 00:36:00,450 --> 00:36:02,790 filing to ensure that they comport with all legal 547 00:36:02,790 --> 00:36:06,060 requirements. This can serve to protect both the plaintiff and 548 00:36:06,060 --> 00:36:09,660 the Python Attari from lawsuits. The confession of judgment 549 00:36:09,660 --> 00:36:12,390 procedure in Pennsylvania also comports with a constitutional 550 00:36:12,390 --> 00:36:15,300 guarantee of due process. According to the Supreme Court. 551 00:36:15,780 --> 00:36:18,540 It requires knowing and voluntary relinquishment of pre 552 00:36:18,540 --> 00:36:21,540 deprivation process, and provides a procedure for 553 00:36:21,540 --> 00:36:24,660 challenging the confessed judgment. A confessed judgment 554 00:36:24,660 --> 00:36:27,330 can be challenged by filing a petition with the court within 555 00:36:27,360 --> 00:36:30,480 30 days of receiving notice of the judgment, it can be 556 00:36:30,480 --> 00:36:33,840 stricken, where there's a clear defect on the face of the papers 557 00:36:33,840 --> 00:36:36,600 and can be opened, where the defendant shows that it has a 558 00:36:36,600 --> 00:36:41,130 meritorious defense. As I mentioned earlier, Confessions 559 00:36:41,130 --> 00:36:46,290 of judgment can be abused in the wrong hands. But there are some 560 00:36:46,290 --> 00:36:48,810 common sense ways that Congress could act to protect small 561 00:36:48,810 --> 00:36:51,090 business borrowers against unscrupulous lenders while 562 00:36:51,090 --> 00:36:54,570 protecting the interests of lenders who act appropriately. I 563 00:36:54,570 --> 00:36:56,550 will get into that, but it appears that I'm out of time. 564 00:36:57,870 --> 00:36:59,820 Chairwoman Velazquez: Thank you so much. I'm thankful to all the 565 00:36:59,820 --> 00:37:03,330 witnesses for all the information and compelling 566 00:37:03,330 --> 00:37:07,110 stories that that you have shared with us today. I would 567 00:37:07,110 --> 00:37:13,380 like to start with you, Mr. Bush. I am really particularly 568 00:37:13,380 --> 00:37:17,790 concerned that victims of confession of judgment are 569 00:37:17,790 --> 00:37:22,920 denied due process and not giving any notice before legal 570 00:37:22,920 --> 00:37:27,450 action is taken against them. So Mr. Bush, I would like to ask 571 00:37:27,450 --> 00:37:31,770 you, how do you find out your accounts has been seized and 572 00:37:31,770 --> 00:37:32,790 your money gone? 573 00:37:34,230 --> 00:37:35,400 Jerry Bush: For a couple of reasons. 574 00:37:37,320 --> 00:37:38,490 Chairwoman Velazquez: How do you find out? 575 00:37:38,790 --> 00:37:41,640 Jerry Bush: Normally I check my account? I normally term 576 00:37:41,640 --> 00:37:44,700 accountants in the morning through online or turn around 577 00:37:44,700 --> 00:37:48,750 have a pause by to check that has happened. Now, I know my get 578 00:37:48,750 --> 00:37:51,120 a letter from bank bus two weeks after happen. 579 00:37:51,390 --> 00:37:54,930 Chairwoman Velazquez: Did any entity give you notice? Or did 580 00:37:54,930 --> 00:37:58,920 you only find out once your account has been drained? No 581 00:37:58,920 --> 00:38:05,640 notice no notice. Mister has a heskin you have fought numerals 582 00:38:06,210 --> 00:38:11,190 CLJ battles in court on behalf of victims? How often are 583 00:38:12,630 --> 00:38:16,890 victims given notice that their assets such as bank accounts, 584 00:38:17,160 --> 00:38:19,440 must, might be seized. 585 00:38:20,610 --> 00:38:23,880 Heskin: Hardly ever. And in fact, it's the rare occasion 586 00:38:23,880 --> 00:38:26,940 that they do get noticed. A lot of times they will threaten my 587 00:38:26,940 --> 00:38:29,910 clients and say, with a push of the button, I will drain your 588 00:38:29,910 --> 00:38:30,660 bank accounts. 589 00:38:30,780 --> 00:38:33,180 Chairwoman Velazquez: Mr. Heskin, professor Harvey, do you 590 00:38:33,180 --> 00:38:36,990 think if a small business knew they could have their accounts 591 00:38:37,020 --> 00:38:42,480 drained as a result of signing a confession of judgment? They 592 00:38:42,480 --> 00:38:45,930 will have agreed to the cash advance. Mr. Harvey? 593 00:38:47,070 --> 00:38:51,030 Harvey: Almost always no, I think they would be very wary of 594 00:38:51,030 --> 00:38:52,980 that, particularly if they're in a precarious financial 595 00:38:52,980 --> 00:38:56,700 condition, as many folks who take these loans or advances 596 00:38:56,700 --> 00:38:57,480 are. Thank you. 597 00:38:58,740 --> 00:39:01,440 Chairwoman Velazquez: Does this mean that there is potentially 598 00:39:01,620 --> 00:39:05,730 no meetings of the minds here between the parties, which as I 599 00:39:05,730 --> 00:39:08,610 understand is needed for a valid contract? 600 00:39:10,350 --> 00:39:12,300 Harvey: Since I teach contracts, that's a great question. Thank 601 00:39:12,300 --> 00:39:15,780 you very much. I think that that's true that there is a 602 00:39:15,780 --> 00:39:18,420 certain gap in understanding about what the contractual 603 00:39:18,420 --> 00:39:22,620 instrument is. And I think the law can can change can change 604 00:39:22,620 --> 00:39:25,650 that. Right. When we have provisions that we think are 605 00:39:25,650 --> 00:39:28,170 important. We can highlight them, we can bold them, we can 606 00:39:28,170 --> 00:39:29,850 demand additional accountability. 607 00:39:30,570 --> 00:39:33,870 Chairwoman Velazquez: Thank you. Mr. Haskin. Have you seen the 608 00:39:33,870 --> 00:39:39,000 use of confessions of judgment in any other circumstance, such 609 00:39:39,000 --> 00:39:43,350 as an instances where the borrower is in us vulnerable? 610 00:39:44,970 --> 00:39:46,830 Heskin: I've never seen it in any of my commercial 611 00:39:46,830 --> 00:39:49,440 transactions. I've represented primarily insurance companies, 612 00:39:49,440 --> 00:39:52,110 and we certainly do not use the confession of judgment. 613 00:39:53,700 --> 00:39:57,570 Chairwoman Velazquez: Mr. Bush, I understand you eventually paid 614 00:39:57,600 --> 00:40:05,100 around $600,000 to obtain around 250,000 for your business. Were 615 00:40:05,100 --> 00:40:09,840 you ever made aware that you will have to pay back three 616 00:40:09,840 --> 00:40:11,280 times the amount you borrow? 617 00:40:13,410 --> 00:40:16,860 Jerry Bush: If I understand correctly? Yes, I was aware for 618 00:40:16,860 --> 00:40:20,970 us what I had to pay back was on a contract, but was not aware of 619 00:40:21,000 --> 00:40:24,030 they can default or make their own rules as they went. 620 00:40:25,170 --> 00:40:29,880 Chairwoman Velazquez: How often, Mr. heskin? Do merchant cash 621 00:40:29,910 --> 00:40:34,110 advance companies fully and fairly disclose the true costs 622 00:40:34,110 --> 00:40:37,170 of capital associated with their cash products? 623 00:40:38,010 --> 00:40:42,390 Jerry Bush: I think it's fully disclosed as the cost. What I 624 00:40:42,390 --> 00:40:46,260 don't think is disclosed is the true nature of the transaction. 625 00:40:46,530 --> 00:40:50,910 And the APR. If you were to put the APR on that contract, it'd 626 00:40:50,910 --> 00:40:54,690 be 2,000%. No one in their right mind when 627 00:40:57,270 --> 00:41:00,030 Chairwoman Velazquez: Mr. Hart professor Harvey, by not 628 00:41:00,030 --> 00:41:03,570 disclosing the true cost of capital, such as the excessive 629 00:41:03,600 --> 00:41:07,620 interest rates? Can it be said that this merchant cash advance 630 00:41:07,620 --> 00:41:10,890 companies are not dealing in good faith with small 631 00:41:10,890 --> 00:41:11,610 businesses? 632 00:41:12,330 --> 00:41:14,160 Harvey: Yes, that can be said it's something we would never 633 00:41:14,160 --> 00:41:16,860 tolerate in the consumer transactional environment. 634 00:41:17,730 --> 00:41:19,740 Chairwoman Velazquez: Mr. Heskin, many of the small 635 00:41:19,740 --> 00:41:23,670 businesses you represent do not have in house General Counsel, 636 00:41:23,910 --> 00:41:28,440 or large legal departments. We have also heard that small 637 00:41:28,440 --> 00:41:33,000 businesses are entering into these agreements when they are 638 00:41:33,000 --> 00:41:37,860 most vulnerable. Basic contract law requires that parties have 639 00:41:37,890 --> 00:41:42,660 equal access to information and one party is not under duress. 640 00:41:43,140 --> 00:41:46,350 Does the relationship between the parties and the 641 00:41:46,350 --> 00:41:50,250 circumstances small businesses enter these transactions? 642 00:41:50,520 --> 00:41:54,330 Justify prohibiting confessions of judgment in commercial 643 00:41:54,330 --> 00:41:54,810 lending? 644 00:41:55,380 --> 00:41:58,920 Heskin: Absolutely. The whole purpose of the usury laws is to 645 00:41:58,920 --> 00:42:01,320 protect the necessitous debtor against the their own 646 00:42:01,320 --> 00:42:06,000 desperation. There is absolutely no bargaining power whatsoever. 647 00:42:06,000 --> 00:42:08,280 These are taken or leave at contracts if you want the money, 648 00:42:08,280 --> 00:42:08,760 sign it. 649 00:42:09,270 --> 00:42:12,210 Chairwoman Velazquez: Thank you, Mr. Harvey. On that same 650 00:42:12,210 --> 00:42:13,590 question, any comments? 651 00:42:14,370 --> 00:42:16,230 Harvey: I fully agree with Mr. Heskin. 652 00:42:16,860 --> 00:42:20,370 Chairwoman Velazquez: Thank you. Now my time has expired, and I 653 00:42:20,400 --> 00:42:22,470 recognize the ranking member for five minutes. 654 00:42:22,500 --> 00:42:24,000 Steve Chabot: Thank you, Madam Chair. I'm gonna start with Mr. 655 00:42:24,000 --> 00:42:29,100 Picker if I can. As members of Congress, we often look at how 656 00:42:29,100 --> 00:42:34,080 states are approaching and dealing with various issues. You 657 00:42:34,080 --> 00:42:37,680 mentioned this briefly during your testimony. Could you review 658 00:42:37,680 --> 00:42:42,120 with us again, how confessions of judgment work in Pennsylvania 659 00:42:42,120 --> 00:42:42,750 at this time? 660 00:42:43,440 --> 00:42:48,600 Picker: Yes, the process is when there's a default, the plaintiff 661 00:42:48,600 --> 00:42:51,870 will file the confessed judgment, along with a complaint 662 00:42:52,110 --> 00:42:56,040 laying out the allegations that underlie the default and the 663 00:42:56,040 --> 00:43:01,380 basis for the default notice, must be sent to the defendant. 664 00:43:01,470 --> 00:43:08,070 And they are given 30 days to challenge that. I will submit 665 00:43:08,070 --> 00:43:12,420 though, that sometimes that notice is only sent out along 666 00:43:12,420 --> 00:43:17,940 with a Writ of Execution, whereby assets can be frozen or 667 00:43:17,940 --> 00:43:23,430 taken in the meantime. And the 30 day period begins to run at 668 00:43:23,430 --> 00:43:25,440 that point, of course, the defendant does have the 669 00:43:25,440 --> 00:43:28,230 opportunity to go into court once they receive notice of that 670 00:43:28,230 --> 00:43:34,080 and obtain relief. The defendant during that 30 day period can 671 00:43:34,080 --> 00:43:37,440 file petition with the court seeking to strike or open the 672 00:43:37,440 --> 00:43:40,950 judgment, it can be stricken if there's a defect on the face of 673 00:43:40,950 --> 00:43:43,320 the documents, it does not comply with Pennsylvania law in 674 00:43:43,320 --> 00:43:48,210 some way, or can be opened and then litigated in due course, 675 00:43:48,210 --> 00:43:51,480 like any other litigation matter, if the defendant can 676 00:43:51,480 --> 00:43:54,480 show to the court that they have a meritorious defense. 677 00:43:55,530 --> 00:43:58,170 Steve Chabot: Professor Harvey, let me move to you. Um, in your 678 00:43:58,170 --> 00:44:01,290 testimony, you stated that California has a different 679 00:44:01,290 --> 00:44:04,710 approach. When it comes to confessions of judgment. Could 680 00:44:04,710 --> 00:44:09,390 Could you share with us how, what the difference is how it's 681 00:44:09,390 --> 00:44:10,740 administered in California? 682 00:44:11,220 --> 00:44:13,920 Harvey: Thank you for the question. So California, takes a 683 00:44:13,920 --> 00:44:16,170 more thoughtful approach to in many states, they require 684 00:44:16,170 --> 00:44:20,400 essentially that an independent attorney advised the debtor 685 00:44:20,400 --> 00:44:22,950 before signing an instrument that has a confession of 686 00:44:22,950 --> 00:44:26,280 judgment. In addition, the confession must be under oath. 687 00:44:26,670 --> 00:44:30,390 Those two provisions sort of heightened and call to attention 688 00:44:30,390 --> 00:44:33,180 to both parties, what the provision is and how it works 689 00:44:33,210 --> 00:44:36,780 and serve as a safeguard to make sure that both sides who sign 690 00:44:36,780 --> 00:44:38,250 understand what it might do. 691 00:44:38,910 --> 00:44:42,960 Steve Chabot: Thank you. And I'm going to start with Mr. Picker 692 00:44:42,960 --> 00:44:45,000 and then I'll go down the line anybody that would like to 693 00:44:45,750 --> 00:44:50,190 comment on this? How can we stop the abuses that we've heard 694 00:44:50,190 --> 00:44:53,640 about here today, and we're particularly have a particularly 695 00:44:53,670 --> 00:44:59,310 sympathetic case, Mr. Bush, and we're certainly sorry to hear 696 00:44:59,640 --> 00:45:03,690 about what You and your family had to go through? How can we 697 00:45:03,690 --> 00:45:09,180 stop the abuses but at the same time, keep whatever positive 698 00:45:09,180 --> 00:45:13,710 aspects there are here. And my my, I guess my thinking would be 699 00:45:13,740 --> 00:45:18,210 the situation would be a, you're trying to save a lot of 700 00:45:18,240 --> 00:45:23,640 attorneys fees, like keeping out of court to begin with, you have 701 00:45:23,670 --> 00:45:27,870 a business that needs a loan, but for whatever reason, is 702 00:45:27,870 --> 00:45:31,500 having challenges getting a more standard type of loan, so they 703 00:45:31,500 --> 00:45:36,900 use this as a mechanism. And I would assume that there are, 704 00:45:37,260 --> 00:45:39,900 there are businesses, I would assume it's the majority, 705 00:45:39,900 --> 00:45:43,740 although that may not be the case, that ultimately, don't 706 00:45:43,740 --> 00:45:47,790 fall behind and don't have a terrible experience and get out 707 00:45:47,790 --> 00:45:52,110 of whatever their challenge was, without the devastating thing 708 00:45:52,110 --> 00:45:55,170 that happened to Mr. Bush, for example. So how do we how do we 709 00:45:55,170 --> 00:45:59,520 get rid of the abuses, but keep whatever positive aspects and 710 00:45:59,520 --> 00:46:00,960 I'll go with you, Mr. Picker. 711 00:46:00,960 --> 00:46:04,320 Picker: I believe there's a couple options. One would be to 712 00:46:04,320 --> 00:46:08,460 completely outlaw them in the MCA small business situation. 713 00:46:09,390 --> 00:46:13,980 Another would be to do a better job of ensuring that the small 714 00:46:13,980 --> 00:46:19,530 business is aware of the provision and what it means ways 715 00:46:19,530 --> 00:46:21,720 that that can be accomplished would be making sure that the 716 00:46:21,720 --> 00:46:25,350 provisions are capitalized and bolded. Making sure that there 717 00:46:25,350 --> 00:46:28,320 is a plain language disclosure, perhaps on the first page of the 718 00:46:28,320 --> 00:46:31,290 contract and immediately above the signature line that in plain 719 00:46:31,290 --> 00:46:35,640 language language explains what this means to the small business 720 00:46:35,640 --> 00:46:41,070 owner. Another option which New York has undertaken is maybe the 721 00:46:41,070 --> 00:46:43,770 New York model, where confessions of judgment can only 722 00:46:43,770 --> 00:46:49,110 be filed in the state where the small business is located. 723 00:46:49,290 --> 00:46:50,610 Steve Chabot: Okay, thank you, Mr. Heskin. 724 00:46:52,080 --> 00:46:53,220 Heskin: These transactions. 725 00:46:53,880 --> 00:46:55,380 Steve Chabot: I think your mic might be off there. 726 00:46:55,800 --> 00:46:57,870 Heskin: These transactions involve interstate commerce. 727 00:46:57,960 --> 00:47:01,710 They're wires from state to state regulation and licensing. 728 00:47:01,740 --> 00:47:06,660 If someone has to worry about their license being revoked or 729 00:47:06,690 --> 00:47:10,290 reporting to a regulator, then they will be a little bit more 730 00:47:10,290 --> 00:47:11,820 cognizant about abusing. 731 00:47:12,270 --> 00:47:13,740 Steve Chabot: Thank you, Mr. Bush. 732 00:47:15,240 --> 00:47:17,520 Jerry Bush: Um, the biggest thing I will say you will be far 733 00:47:17,520 --> 00:47:21,600 is, again, we'll be stopping for us where they can do anything, 734 00:47:21,600 --> 00:47:24,330 they want to have some kind of a law or something there basically 735 00:47:24,330 --> 00:47:27,630 says that they just can't go in and take your kale or change the 736 00:47:27,630 --> 00:47:29,070 contract as they want to. 737 00:47:29,670 --> 00:47:31,230 Steve Chabot: Thank you. And professor? 738 00:47:32,190 --> 00:47:34,290 Harvey: I think the California approach is one way but I also 739 00:47:34,290 --> 00:47:37,830 think the FTC with its substantial ability to have 740 00:47:37,830 --> 00:47:40,770 fines for transactions that violate its rules is another way 741 00:47:40,770 --> 00:47:42,780 the same way it might work in COPPA, for example. 742 00:47:43,080 --> 00:47:44,730 Steve Chabot: Thank you very much. My time has expired. Madam 743 00:47:44,730 --> 00:47:45,030 Chair. 744 00:47:45,780 --> 00:47:48,270 Chairwoman Velazquez: Gentleman's time has expired. And now we 745 00:47:48,270 --> 00:47:52,260 recognize the gentlelady from Kansas, Miss Davis. 746 00:47:55,350 --> 00:47:59,490 Davis: Thank you, Madam Chair. I'd also like to thank you for 747 00:47:59,520 --> 00:48:03,390 calling this hearing today. First off, Mr. Bush, thank you 748 00:48:03,390 --> 00:48:10,470 for sharing your story. It's a it is exactly the kind of thing 749 00:48:10,470 --> 00:48:13,770 that members of Congress need to hear the real life impacts of 750 00:48:13,770 --> 00:48:17,970 the policy that we are going to be voting on and legislation 751 00:48:17,970 --> 00:48:21,330 that we're passing. So I appreciate you being so candid. 752 00:48:21,900 --> 00:48:26,040 With your with your story. You know, I represent the Kansas 753 00:48:26,040 --> 00:48:30,720 City Metro Area on the Kansas side, and unfortunately, we 754 00:48:30,720 --> 00:48:36,270 know, a lot in our area about the why, right, wide ranging 755 00:48:36,270 --> 00:48:39,690 effects of predatory lending. We've seen payday lenders prey 756 00:48:39,690 --> 00:48:42,930 on on financially vulnerable people and in the district I 757 00:48:42,930 --> 00:48:46,410 represent, and it hurts a lot of individuals and businesses 758 00:48:46,440 --> 00:48:54,810 alike. The issue that I'd like to address or or hear more 759 00:48:54,810 --> 00:49:01,710 about, Mr. Harvey, you have spoken. Or at least, you know, 760 00:49:01,710 --> 00:49:05,220 you've you've given testimony, and as a law professor, I think 761 00:49:05,220 --> 00:49:10,020 you can probably speak pretty clearly to the due process, 762 00:49:10,350 --> 00:49:14,430 issues that that come up. And then what the chairwoman 763 00:49:14,460 --> 00:49:17,250 referenced earlier about a meeting of the minds when it 764 00:49:17,250 --> 00:49:22,320 comes to contracts. And when we think about the small business 765 00:49:22,320 --> 00:49:28,440 owner who is an expert certainly in in plumbing, or other areas, 766 00:49:28,620 --> 00:49:32,970 we know that those folks are often depending on others to 767 00:49:33,000 --> 00:49:35,430 help with the legal expertise. So when we talk about 768 00:49:35,430 --> 00:49:37,860 sophistication, there is sophistication in a lot of 769 00:49:37,860 --> 00:49:41,430 areas, it just might not be around what they have a right to 770 00:49:41,430 --> 00:49:46,440 in a contract. So could you talk a little bit about about what 771 00:49:46,440 --> 00:49:49,380 that means and what we need to be thinking about as we go 772 00:49:49,380 --> 00:49:52,080 forward and expectation for small business owners. 773 00:49:53,400 --> 00:49:56,370 Harvey: Thank you for the question. I think, where we 774 00:49:56,370 --> 00:50:00,570 began is acknowledging that Tila was designed for kids. Zoomers. 775 00:50:00,930 --> 00:50:05,040 And so because Congress chose to largely exempt business 776 00:50:05,040 --> 00:50:08,040 transactions from that framework. Courts have therefore 777 00:50:08,040 --> 00:50:11,370 had a heightened interest in evaluating fairness and consumer 778 00:50:11,370 --> 00:50:15,480 credit transactions. And thus, by default, a very small 779 00:50:15,840 --> 00:50:20,910 emphasis on sort of evaluating the fairness and due process in 780 00:50:20,910 --> 00:50:23,850 commercial transactions. You know, I think the proposed 781 00:50:23,850 --> 00:50:27,600 legislation is one way to bridge that gap by treating us 782 00:50:27,630 --> 00:50:29,610 businesses the same as consumers, it would be the 783 00:50:29,610 --> 00:50:33,810 beginning of courts, perhaps evaluating businesses under the 784 00:50:33,810 --> 00:50:36,840 same standards that consumer laws applied for the last 50 785 00:50:36,870 --> 00:50:39,300 years. So I think that that's one step. You know, an 786 00:50:39,300 --> 00:50:42,030 additional step might be, for example, having dollar 787 00:50:42,030 --> 00:50:44,430 thresholds for transactions, that will be another way you 788 00:50:44,430 --> 00:50:48,930 might accomplish the same goal. Yes, large banks, having leases 789 00:50:48,930 --> 00:50:51,480 with large companies for hundreds of millions of dollars, 790 00:50:51,720 --> 00:50:54,750 might not need the consumer the protections that smaller 791 00:50:54,750 --> 00:50:56,670 businesses might have. And so there could be a gating 792 00:50:56,670 --> 00:50:59,790 mechanism in a regulation or law that would help to achieve that 793 00:50:59,790 --> 00:51:03,000 as well. And finally, on due process, yes, the Supreme Court, 794 00:51:03,600 --> 00:51:06,360 and many courts and members of Congress have defaulted to the 795 00:51:06,360 --> 00:51:10,170 view that all businesses are sophisticated, right and aware 796 00:51:10,320 --> 00:51:12,570 and read contracts. And it's been said earlier, that's, 797 00:51:12,900 --> 00:51:15,840 that's simply not the correct view. And I think changing the 798 00:51:15,840 --> 00:51:19,170 law is one great step towards changing that view, and changing 799 00:51:19,170 --> 00:51:21,120 courts evaluation of such provisions. 800 00:51:21,750 --> 00:51:25,020 Davis: To follow up on the comment you just made about the 801 00:51:25,020 --> 00:51:29,670 thresholds. Can you tell me a couple of other and this is open 802 00:51:29,670 --> 00:51:34,050 to all, all all the folks giving testimony today, what other 803 00:51:34,050 --> 00:51:39,690 factors might be might be beneficial for us to think about 804 00:51:39,690 --> 00:51:44,220 as far as when when a court is evaluating whether or not there 805 00:51:44,220 --> 00:51:46,140 was a meeting of the minds? And whether or not there's due 806 00:51:46,140 --> 00:51:50,610 process dollar thresholds? Is, is one interesting point, are 807 00:51:50,610 --> 00:51:52,410 there others that you might all recommend? 808 00:51:56,850 --> 00:51:59,640 Harvey: Sure, I think we could focus on the size of the 809 00:51:59,700 --> 00:52:04,200 business, we could evaluate bargaining power after the fact 810 00:52:04,200 --> 00:52:06,630 much like we would do in unconscionability analysis in 811 00:52:06,630 --> 00:52:10,470 consumer law. To be fair, I think the danger with that is we 812 00:52:10,470 --> 00:52:13,980 don't want everyone regulators evaluating all transactions 813 00:52:13,980 --> 00:52:16,650 after the fact. And so I think there would need to be some 814 00:52:16,650 --> 00:52:19,740 objective criteria that specified when a transaction 815 00:52:19,740 --> 00:52:24,120 like this was to unconscionable in the business sense. So for 816 00:52:24,120 --> 00:52:28,470 me, I think the safest default, would either to either be to 817 00:52:28,590 --> 00:52:32,520 outlaw them entirely, to have a Gideon mechanism with money, or 818 00:52:32,520 --> 00:52:35,010 to establish some basic due process that might involve 819 00:52:35,010 --> 00:52:37,830 review by an independent attorney, which again, would be 820 00:52:37,830 --> 00:52:40,590 one additional way in which courts can be confident that the 821 00:52:40,590 --> 00:52:42,660 signers had a chance to evaluate the terms. 822 00:52:44,790 --> 00:52:48,510 Heskin: One last comment, if one of the other things that would 823 00:52:48,510 --> 00:52:52,110 be helpful is to combat the collection practices against 824 00:52:52,110 --> 00:52:56,280 small businesses. And so whatever, whatever threshold the 825 00:52:56,310 --> 00:53:00,690 Congress believes should apply, it would be helpful if the Fair 826 00:53:00,690 --> 00:53:03,270 Debt Collection Practices Act applied to those small 827 00:53:03,270 --> 00:53:03,990 businesses. 828 00:53:04,350 --> 00:53:06,090 Davis: Thank you. I yield back. 829 00:53:09,840 --> 00:53:16,170 Chairwoman Velazquez: We recognize I'm sorry. The gentle 830 00:53:16,170 --> 00:53:20,190 lady's time has expired. She just yield it back. Now we 831 00:53:20,190 --> 00:53:24,810 recognize Mr. Golding from Maine for five minutes. 832 00:53:27,600 --> 00:53:30,000 Golding: Thank you, Madam Chair. And I want to thank you as well 833 00:53:30,000 --> 00:53:33,330 for holding this hearing. You know, just following up on 834 00:53:33,420 --> 00:53:38,520 Congresswoman David's testimony, I think it's I'm sorry. I do 835 00:53:38,520 --> 00:53:41,190 just want to point out so much in policymaking. I think In 836 00:53:41,460 --> 00:53:44,190 instances like this, there's always this question of who can 837 00:53:44,190 --> 00:53:47,730 afford legal counsel and who can on I think that's particularly 838 00:53:47,730 --> 00:53:51,090 true when you're talking about businesses and the size of 839 00:53:51,090 --> 00:53:55,380 their, you know, assets, or even, you know, whether they 840 00:53:55,380 --> 00:53:59,160 have counsel on staff or not, so, just throw that out there. I 841 00:53:59,160 --> 00:54:04,770 hope it's helpful. But, Mr. Bush, you know, I want you to, I 842 00:54:04,770 --> 00:54:08,520 want to thank you for for your testimony and say that this is 843 00:54:08,520 --> 00:54:12,510 something that is fairly I think, common in other areas to 844 00:54:12,510 --> 00:54:15,600 it as a veteran, I can tell you, there's no scene no shortage of 845 00:54:15,600 --> 00:54:18,870 predatory lending off of military bases and others and 846 00:54:18,870 --> 00:54:22,680 the ways that people get, you know, backed into corners, and 847 00:54:22,680 --> 00:54:25,620 it can really have a massive impact on on their lives, on 848 00:54:25,620 --> 00:54:29,490 their family's lives, on their ability to do their job to be 849 00:54:29,490 --> 00:54:32,700 focused on their job to deploy downrange and defend our country 850 00:54:32,700 --> 00:54:34,800 without worrying about what's going on back home and their 851 00:54:34,800 --> 00:54:37,470 bank accounts and in their family's lives. And I think it's 852 00:54:37,500 --> 00:54:41,460 important for people to understand the context of what 853 00:54:41,460 --> 00:54:44,190 is worst about these types of practices. So I wanted to ask 854 00:54:44,190 --> 00:54:49,320 you, if you would, perhaps share with us a little bit more, some 855 00:54:49,320 --> 00:54:53,970 of the consequences for you and your family in particular. How 856 00:54:53,970 --> 00:54:57,060 is the this ordeal impacted your family beyond what you've 857 00:54:57,060 --> 00:54:58,110 already shared with us? 858 00:54:58,740 --> 00:55:01,320 Jerry Bush: Well, basically what does was when our accounts got 859 00:55:01,320 --> 00:55:04,620 frozen everything. I couldn't pay health insurance at the time 860 00:55:04,620 --> 00:55:09,540 my wife has still argued tree for cancer. They was taking 861 00:55:09,570 --> 00:55:12,900 every account they could do, we had like to basically backward 862 00:55:12,900 --> 00:55:18,450 for other people. And it just it hurt your name. I mean it just 863 00:55:18,510 --> 00:55:21,330 and then the threats never stopped. And I still have 864 00:55:21,330 --> 00:55:26,550 threats today, I'm actually had threats past three, four days by 865 00:55:26,550 --> 00:55:31,710 just coming up here. And like Mr. These two German, like I 866 00:55:31,710 --> 00:55:35,670 said, Oh yeah, do just push that button. And they they heavy. 867 00:55:36,330 --> 00:55:41,340 Golding: That's right. Just a follow up to I understand that 868 00:55:41,340 --> 00:55:44,880 you have an 18 year old son planning on continuing his 869 00:55:44,880 --> 00:55:48,210 education, I imagine that this is going to be a potential 870 00:55:48,210 --> 00:55:49,050 problem as well. 871 00:55:50,760 --> 00:55:53,730 Jerry Bush: It is again, like I mentioned earlier, I can have a 872 00:55:53,730 --> 00:55:56,610 bank account, I cannot have nothing in my name, check card 873 00:55:56,610 --> 00:56:00,420 anything because every time I tried to do something, even have 874 00:56:00,420 --> 00:56:05,460 a cosign they come after me. It never stopped saying they like 875 00:56:05,460 --> 00:56:09,750 said this business business was for him to and for him to grow 876 00:56:09,750 --> 00:56:14,670 his family. And all this we lost just by pushing a button. Well, 877 00:56:14,670 --> 00:56:14,880 what 878 00:56:14,910 --> 00:56:16,860 Golding: You're doing the right thing by getting behind the 879 00:56:16,860 --> 00:56:20,640 microphone to talk about this and spread the word. I've seen a 880 00:56:20,640 --> 00:56:24,300 lot of other veterans do this type of thing to help people 881 00:56:24,300 --> 00:56:28,590 understand why you know, this isn't is not right, and how it's 882 00:56:28,590 --> 00:56:30,630 taken advantage of people. So I want to thank you for that. It 883 00:56:30,630 --> 00:56:33,450 takes a lot of courage. But it is important in the threat 884 00:56:33,450 --> 00:56:37,620 aspect of it is really I think what is most disturbing, I know 885 00:56:37,620 --> 00:56:41,610 I have seen people overseas, picking up satphones and 886 00:56:41,610 --> 00:56:44,370 spending their time instead of calling their families trying to 887 00:56:44,400 --> 00:56:46,680 deal with these types of things and the threats that are coming 888 00:56:46,680 --> 00:56:49,080 in against their families. And that's when you know someone's 889 00:56:49,080 --> 00:56:51,870 really predatory is when they're willing to look past all those 890 00:56:51,870 --> 00:56:56,100 types of factors and just resort to threats, you know that their 891 00:56:56,100 --> 00:57:00,120 intent was always not good. I think just to, you know, pivot 892 00:57:00,120 --> 00:57:03,990 in a different direction direction, Mr. Picker as an 893 00:57:03,990 --> 00:57:07,560 attorney, just from a practical perspective, what alternatives 894 00:57:07,560 --> 00:57:10,410 exist for a client who wants to security have a confession of 895 00:57:10,410 --> 00:57:10,950 judgment? 896 00:57:13,440 --> 00:57:15,780 Picker: Well, one thing that was mentioned by Mr. Heskin is the 897 00:57:15,780 --> 00:57:18,450 ability to obtain a security interest through the Uniform 898 00:57:18,450 --> 00:57:21,330 Commercial Code against assets that could include bank 899 00:57:21,330 --> 00:57:24,660 accounts, it could include other assets of the business cash 900 00:57:24,660 --> 00:57:28,980 flow. And as Mr. Haskin said, there can be some of the same 901 00:57:29,430 --> 00:57:32,460 impacts and dangers associated with that as there is with 902 00:57:32,460 --> 00:57:36,360 confession of judgment, because it is fairly easy to execute on 903 00:57:36,360 --> 00:57:41,310 that UCC process. Other than that, you really have the same 904 00:57:41,310 --> 00:57:43,740 remedies. Once you obtain the judgment through the ordinary 905 00:57:43,740 --> 00:57:46,110 course of litigation that you would after a confession of 906 00:57:46,110 --> 00:57:49,170 judgment, you're just given the opportunity to contest the 907 00:57:49,170 --> 00:57:52,710 matter beforehand. So once you obtain a judgment, you can do a 908 00:57:52,710 --> 00:57:55,980 lot of really all the same things, you can have a Writ of 909 00:57:55,980 --> 00:58:00,330 Execution issue to obtain access to a bank account, seize assets, 910 00:58:00,930 --> 00:58:01,980 so on and so forth. 911 00:58:02,940 --> 00:58:06,750 Golding: So in other words, for those lenders and people that 912 00:58:06,750 --> 00:58:09,330 actually want to help small business owners, while also 913 00:58:09,330 --> 00:58:11,940 having some protections for themselves, there are other 914 00:58:11,940 --> 00:58:17,100 means that are not as bad and potentially, you know, ripe for 915 00:58:17,100 --> 00:58:18,450 abuse. And then this 916 00:58:18,720 --> 00:58:21,180 Picker: There are, although I would say they're not certainly 917 00:58:21,180 --> 00:58:25,500 not as expedient, and certainly likely to be much more expensive 918 00:58:25,530 --> 00:58:27,810 to the lender, but yes, they exist. 919 00:58:28,380 --> 00:58:30,450 Golding: Thank you. I mean, clearly, this has been very 920 00:58:30,450 --> 00:58:33,690 expensive to Mr. Bush and his small business and family. Thank 921 00:58:33,690 --> 00:58:34,290 you, Madam Chair. 922 00:58:34,770 --> 00:58:36,570 Chairwoman Velazquez: The gentleman yields back, and we're 923 00:58:36,570 --> 00:58:41,490 gonna go into a second round. I'm gonna I just need to ask two 924 00:58:41,490 --> 00:58:44,400 questions, and then we'll recognize the Ranking Member. 925 00:58:44,760 --> 00:58:51,450 Mr. Mr. Speaker, the terms of many merchant cash advance 926 00:58:51,480 --> 00:58:56,760 agreements require daily repayment. That means one missed 927 00:58:56,790 --> 00:59:01,470 daily payment can result in default, thereby triggering the 928 00:59:01,470 --> 00:59:05,100 confession of church coming clause doesn't this potentially 929 00:59:05,100 --> 00:59:09,390 set up for event will default, the many small businesses in our 930 00:59:09,390 --> 00:59:12,930 economy with less steady or predictable cash flow? 931 00:59:14,430 --> 00:59:17,760 Picker: I cannot say that I'm an expert on the small business 932 00:59:17,760 --> 00:59:23,340 loan or MCA industry. But having a provision that requires daily 933 00:59:23,340 --> 00:59:26,850 repayments certainly increases the risk of default. If you miss 934 00:59:26,850 --> 00:59:30,360 just one payment on a daily basis. That is certainly a 935 00:59:30,360 --> 00:59:30,870 danger. 936 00:59:31,110 --> 00:59:34,800 Chairwoman Velazquez: Thank you. Mr. Heskin. Do you have an 937 00:59:34,800 --> 00:59:40,740 estimate of how much small business capital has been lost 938 00:59:40,980 --> 00:59:46,950 nationwide as a result of this confessions of judgment? If not, 939 00:59:46,950 --> 00:59:51,390 can you give an estimate of how much money your clients have 940 00:59:51,390 --> 00:59:51,930 lost? 941 00:59:52,590 --> 00:59:55,350 Heskin: I can't give an estimate nationwide, but I can give an 942 00:59:55,350 --> 00:59:59,370 estimate as to my clients when this CO j's are entered against 943 00:59:59,370 --> 01:00:05,730 them. They lose everything. There, they risked their home, 944 01:00:06,150 --> 01:00:09,450 their family, their retirement funds when they get trapped in 945 01:00:09,450 --> 01:00:14,400 the cycle of debt. By the time they come to me. There's no 946 01:00:14,400 --> 01:00:15,720 money to hire an attorney. 947 01:00:16,500 --> 01:00:19,530 Chairwoman Velazquez: Thank you. I now recognize the ranking 948 01:00:19,530 --> 01:00:19,890 member. 949 01:00:20,340 --> 01:00:22,140 Steve Chabot: Thank you, Madam Chair. I won't take the full 950 01:00:22,140 --> 01:00:25,050 five minutes. I just had a question. And I guess this was 951 01:00:25,080 --> 01:00:28,170 this is kind of for our staff as well, not necessarily for the 952 01:00:28,590 --> 01:00:32,250 the panelists here unless they would know what I'm going to ask 953 01:00:32,250 --> 01:00:35,580 offhand. And that's it. I'd be interested to know just how 954 01:00:35,580 --> 01:00:41,490 common confessions of judgment, Confessions of judgment are in 955 01:00:41,490 --> 01:00:44,670 the commercial world nowadays, particularly with respect to 956 01:00:44,670 --> 01:00:47,550 small business. In other words, how many are there out there 957 01:00:47,790 --> 01:00:51,780 nationwide? In a typical years, do you know Mr. Heskin. 958 01:00:52,350 --> 01:00:55,650 Heskin: I can answer it this way. Okay. Our firm represents 959 01:00:55,650 --> 01:01:00,420 big businesses, they represent real estate transactions, and 960 01:01:00,420 --> 01:01:03,030 legitimate transactions, legitimate commercial 961 01:01:03,090 --> 01:01:05,550 transactions involving millions of dollars, where they're 962 01:01:05,550 --> 01:01:09,390 sophisticated business attorneys on the other side's big dollar 963 01:01:09,390 --> 01:01:13,440 money. It's used all the time, and it's used effectively. But 964 01:01:13,470 --> 01:01:17,250 it's when you don't have the representation of counsel, when 965 01:01:17,250 --> 01:01:20,580 you don't have the bargaining power, you don't have the 966 01:01:20,580 --> 01:01:23,700 ability to negotiate. That's where it gets abused. 967 01:01:23,730 --> 01:01:27,090 Steve Chabot: Okay, thank you. What I'm asking professor to do. 968 01:01:27,210 --> 01:01:29,820 Harvey: Thank you. Yes. I think this would be a great 969 01:01:29,820 --> 01:01:32,580 opportunity for the CRS to get involved in further research in 970 01:01:32,580 --> 01:01:35,820 this space. The truth is that the Bloomberg study, for 971 01:01:35,820 --> 01:01:38,580 example, you have to go to the county level, you have to do 972 01:01:38,580 --> 01:01:41,520 ground level research in many cases. And so that's simply too 973 01:01:41,520 --> 01:01:44,640 exhausting and expensive for any, let's say, academics, or 974 01:01:44,640 --> 01:01:47,790 other interested parties to do certainly nationwide, it would 975 01:01:47,790 --> 01:01:51,300 take a massive amount of resources to go to each county 976 01:01:51,300 --> 01:01:54,480 courthouse, run through all the records and evaluate them. And 977 01:01:54,480 --> 01:01:57,090 so I think that's one reason why we can't say with any certainty 978 01:01:57,090 --> 01:01:58,230 about the scope of the problem. 979 01:01:58,440 --> 01:02:00,360 Steve Chabot: Okay. Well, the reason for asking the question 980 01:02:00,360 --> 01:02:05,160 is that, you know, how many are there out there? How common is 981 01:02:05,160 --> 01:02:11,640 it? What are the benefits of it? In other words, we I think this 982 01:02:11,640 --> 01:02:15,780 is probably done not just to rip off small businesses or the 983 01:02:15,780 --> 01:02:20,130 public, I'm assuming that there is a positive aspect to this out 984 01:02:20,130 --> 01:02:24,840 there that's enabled this practice to go for quite some 985 01:02:24,840 --> 01:02:28,590 time. Since the 1400s. I think we heard or something like that. 986 01:02:29,850 --> 01:02:34,800 And, and how, you know, how common to the extent I'm talking 987 01:02:34,890 --> 01:02:38,910 percentage wise, are we talking 1% of these? Are we talking 10%? 988 01:02:38,910 --> 01:02:41,220 Of these? Are we talking oh point something percentage of 989 01:02:41,220 --> 01:02:45,810 these that really, ultimately do end up in in something that that 990 01:02:45,810 --> 01:02:51,270 is very detrimental to a person like Mr. Bush here? And in how 991 01:02:51,270 --> 01:02:55,140 many of them? Is it a situation where this business literally 992 01:02:55,140 --> 01:02:58,170 wouldn't have been able to get the loan to continue or to 993 01:02:58,170 --> 01:03:03,330 expand or grow or whatever? And so they actually serve a 994 01:03:03,330 --> 01:03:08,460 purpose? And I don't know if I mean, we certainly know that Mr. 995 01:03:08,460 --> 01:03:11,610 Bush's evidence of that, that somebody can really be hurt by 996 01:03:11,610 --> 01:03:15,540 this. What is the benefit of these things? And then is there 997 01:03:15,540 --> 01:03:20,820 a a reasonable way that that we can modify this either that the 998 01:03:20,820 --> 01:03:24,630 states educate themselves more and do it at the state level, or 999 01:03:24,630 --> 01:03:29,130 we decide at the federal level? That we'd need to take this over 1000 01:03:29,130 --> 01:03:33,600 for whatever reason? So that's, that's really what I'm asking. 1001 01:03:33,600 --> 01:03:37,530 And I don't know if I necessarily want I guess I do. 1002 01:03:37,560 --> 01:03:38,820 Mr. hascon. Go ahead. Sure. 1003 01:03:38,850 --> 01:03:42,840 Heskin: I think it's less than 1%. If I had to, to estimate it, 1004 01:03:42,840 --> 01:03:46,710 I think it's less than 1% of transactions. And where it would 1005 01:03:46,710 --> 01:03:51,330 be useful, if at all, is in the context where someone's actually 1006 01:03:51,390 --> 01:03:55,020 already defaulted. And they're giving separate consideration. 1007 01:03:55,020 --> 01:03:58,080 So I've already breached the contract. And I've got a 1008 01:03:58,080 --> 01:04:01,890 judgment against you already. And I say, I'm going to forbear 1009 01:04:01,890 --> 01:04:05,400 on my enforcement activities. And if I do, I'm going to be 1010 01:04:05,400 --> 01:04:10,050 able to enter the CO J and exercise my rights. That's 1011 01:04:10,260 --> 01:04:11,370 that's overmeyer. 1012 01:04:12,300 --> 01:04:15,360 Steve Chabot: Mr. Picker, would you want to comment on on that? 1013 01:04:15,360 --> 01:04:15,750 Or? 1014 01:04:16,890 --> 01:04:20,160 Picker: I would agree it's probably less than 1%. But that 1015 01:04:20,160 --> 01:04:21,990 being said, in my property, 1016 01:04:22,020 --> 01:04:26,280 Steve Chabot: Just to be clear, are we saying the 1% is where 1017 01:04:26,280 --> 01:04:28,800 it's been abused. And it's a problem or we say in in the 1018 01:04:28,800 --> 01:04:31,500 number of commercial transactions, that we have a 1019 01:04:31,500 --> 01:04:32,070 confession of 1020 01:04:32,070 --> 01:04:36,090 Picker: Judgment and the number of commercial transactions where 1021 01:04:36,090 --> 01:04:39,870 I see confessions of judgment being utilized. Although I must 1022 01:04:39,870 --> 01:04:44,430 say we do I do use them. We represent a lot of commercial 1023 01:04:44,430 --> 01:04:49,800 landlords. And we do generally use confessions of judgment in 1024 01:04:49,800 --> 01:04:55,830 those contexts without abuse. And I would agree, though, that 1025 01:04:55,860 --> 01:05:00,000 certainly a situation where a for instance, a tenant has 1026 01:05:00,000 --> 01:05:02,670 defaulted or someone under a promissory note is defaulted 1027 01:05:02,670 --> 01:05:06,960 already. And as a as part of a forbearance agreement, if there 1028 01:05:06,960 --> 01:05:09,090 isn't a confession of judgment already, I think it's an 1029 01:05:09,090 --> 01:05:12,030 appropriate use of one in that situation, because you're 1030 01:05:12,900 --> 01:05:15,960 helping them out. And you should have a little bit more security. 1031 01:05:16,500 --> 01:05:18,420 If they do default again, under that forbearance. 1032 01:05:18,450 --> 01:05:20,160 Steve Chabot: Thank you, Mr. Bush. I think you were trying to 1033 01:05:20,190 --> 01:05:22,710 get something in there a minute ago. I don't want to, 1034 01:05:23,130 --> 01:05:25,830 Jerry Bush: that's fine. I'll say something real quick. For as 1035 01:05:25,830 --> 01:05:29,340 a contract, like we had to have a license. We're take classes 1036 01:05:29,340 --> 01:05:32,520 like that. I think he's loan companies for finding companies 1037 01:05:32,550 --> 01:05:34,950 are being able to turn around and have certain types of 1038 01:05:34,950 --> 01:05:39,090 classes, certain rules are certain things they do, because 1039 01:05:39,090 --> 01:05:42,630 these companies are growing like crazy. I average 20 calls a day 1040 01:05:42,630 --> 01:05:45,930 from different companies trying to find me at ROI been closed 1041 01:05:45,930 --> 01:05:46,560 for a year. 1042 01:05:47,070 --> 01:05:48,570 Steve Chabot: Thank you. Thank you very much, Madam Chair. I 1043 01:05:48,570 --> 01:05:51,120 said I want to take up the five minutes. And I took five and a 1044 01:05:51,120 --> 01:05:52,740 half minutes. I apologize in your bag. 1045 01:05:53,130 --> 01:05:55,590 Chairwoman Velazquez: Gentleman's time has expired. And now we 1046 01:05:55,590 --> 01:06:00,930 recognize the gentleman from Maine. Mr. Golden. Do you have 1047 01:06:00,930 --> 01:06:01,980 any other questions? 1048 01:06:04,800 --> 01:06:08,880 Golding: Sorry, I thought I thought Dr. Joyce was up. Just a 1049 01:06:08,880 --> 01:06:12,840 couple of quick ones to the Mr. Haskin. You've you've seen a lot 1050 01:06:12,840 --> 01:06:15,630 of this. Obviously, you've fought these in court and 1051 01:06:15,630 --> 01:06:20,310 numerous occasions. Can you tell us just a little bit more, just 1052 01:06:20,310 --> 01:06:23,130 to help us see the bigger picture? How MCA is our 1053 01:06:23,130 --> 01:06:26,370 marketing to small business owners? You know, what's their 1054 01:06:26,370 --> 01:06:29,460 point of contact? Are they using salespeople? Are they working 1055 01:06:29,460 --> 01:06:32,910 with other people? Are they on the internet? How are they 1056 01:06:32,910 --> 01:06:36,300 finding small business owners to sell their product to and under 1057 01:06:36,300 --> 01:06:37,080 what context? 1058 01:06:37,260 --> 01:06:41,490 Heskin: All of the above they they use third party brokers 1059 01:06:41,520 --> 01:06:45,240 which are called ISOs independent sales offices. And 1060 01:06:45,300 --> 01:06:47,760 you don't need a license, you don't need any financial 1061 01:06:47,760 --> 01:06:51,210 experience. In fact, many of in my experience, many of the 1062 01:06:51,210 --> 01:06:53,460 people that are doing this have absolutely no financial 1063 01:06:53,460 --> 01:06:56,700 experience whatsoever. They call you up, they say I'm a small 1064 01:06:56,700 --> 01:06:59,370 small business expert, take these funds is going to help 1065 01:06:59,370 --> 01:07:02,730 grow your business, they fund you and the next thing they know 1066 01:07:02,730 --> 01:07:06,840 they ghost you, you're gone. And they collect a 10% premium on 1067 01:07:06,840 --> 01:07:11,850 the money they find you. And and then then what happens is after 1068 01:07:11,850 --> 01:07:16,290 and this is how they get the leads is UCCS. Once they see 1069 01:07:16,290 --> 01:07:22,080 that one MCA company has issued a loan to them. They can go and 1070 01:07:22,080 --> 01:07:26,040 find the through UCC search, who's who's in need of money. 1071 01:07:26,160 --> 01:07:31,650 And so they cold call them and my clients get calls 50 times a 1072 01:07:31,650 --> 01:07:36,180 day. It's nonstop. It's it's emails, it's cold calls. They 1073 01:07:36,180 --> 01:07:40,380 even cold call my clients after I've sued them, offering to give 1074 01:07:40,380 --> 01:07:43,140 them more money saying you've been such a great clients take 1075 01:07:43,140 --> 01:07:46,620 out more money. And meanwhile, I'm in lawsuits. It's crazy. 1076 01:07:47,940 --> 01:07:50,220 Golding: And they're calling people who are under a lot of 1077 01:07:50,220 --> 01:07:55,560 financial stress, obviously. So absolutely. Last question, and 1078 01:07:55,560 --> 01:08:00,060 then I'm done. Mr. Harvey, the merchant cash advance companies 1079 01:08:00,090 --> 01:08:04,380 are marketing products as business loans. I'm not aware of 1080 01:08:04,380 --> 01:08:09,510 any bank that can make a loan has a 400% interest rate, other 1081 01:08:09,510 --> 01:08:12,450 than limiting confessions of judgment in these kinds of 1082 01:08:12,450 --> 01:08:14,670 commercial transactions should Congress be looking at 1083 01:08:14,670 --> 01:08:18,930 regulating the conduct of of MCA is in general? And should there 1084 01:08:18,930 --> 01:08:23,280 be some kind of rules around interest rates and what they're 1085 01:08:23,280 --> 01:08:24,540 able to sell? 1086 01:08:25,500 --> 01:08:28,680 Harvey: Well, as you know, there are substantial barriers to 1087 01:08:28,680 --> 01:08:32,970 regulating interest rates at this level. Nonetheless, I think 1088 01:08:32,970 --> 01:08:37,140 there's there's good evidence that states that have unlimited, 1089 01:08:37,230 --> 01:08:39,510 more or less interest rates are allowed to poured into right 1090 01:08:39,510 --> 01:08:42,120 other states that don't have them exacerbating this problem. 1091 01:08:42,120 --> 01:08:46,260 That's certainly true. I think MCs can be regulated as quasi 1092 01:08:46,260 --> 01:08:48,510 financial institutions in certain ways that we regulate 1093 01:08:48,510 --> 01:08:52,350 large national banks. And I certainly think that one 1094 01:08:52,350 --> 01:08:56,730 effective way to do so is more transparency. You know, I think 1095 01:08:56,730 --> 01:08:58,470 part of what's happening here is that people are learning that 1096 01:08:58,470 --> 01:09:02,130 one company might have 12 Different DBAs. Right, and it's 1097 01:09:02,130 --> 01:09:05,400 shining a light on who they are, would certainly help consumers 1098 01:09:05,400 --> 01:09:09,720 be more aware of what they're doing. Thank you. Thank you. I 1099 01:09:09,720 --> 01:09:10,260 yield back. 1100 01:09:10,500 --> 01:09:12,420 Chairwoman Velazquez: The gentleman yields back and now we 1101 01:09:12,420 --> 01:09:16,920 recognize Dr. Joyce, Pennsylvania 13, ranking member 1102 01:09:16,920 --> 01:09:20,070 of the subcommittee on rural development, agriculture, 1103 01:09:20,100 --> 01:09:22,800 intrapreneurship and trade for five minutes. 1104 01:09:23,279 --> 01:09:25,109 Dr. Joyce: Thank you, Madam Chairwoman. And thank you, 1105 01:09:25,109 --> 01:09:29,369 Ranking Member Stephen Chabot. First of all, I'm proud to see 1106 01:09:29,369 --> 01:09:34,259 Pennsylvania so represented here on this hearing today. And I 1107 01:09:34,259 --> 01:09:37,859 know that our insights are important. Mr. Picker, I'd like 1108 01:09:37,859 --> 01:09:41,789 to address these questions with you if I may, please. Does the 1109 01:09:41,789 --> 01:09:45,569 Federal Trade Commission currently have any tools to 1110 01:09:45,569 --> 01:09:49,079 police some of these incredibly unfair and deceptive acts and 1111 01:09:49,079 --> 01:09:49,859 practices? 1112 01:09:50,430 --> 01:09:52,350 Picker: Unfortunately, that is not within the area of my 1113 01:09:52,350 --> 01:09:55,770 expertise. Perhaps Mr. Harvey could speak better to that. 1114 01:09:55,800 --> 01:09:57,390 Dr. Joyce: Mr. Harvey, would you please comment? 1115 01:09:58,590 --> 01:10:00,900 Harvey: I would say the short answer is very, very limited 1116 01:10:00,900 --> 01:10:01,350 tools. 1117 01:10:01,920 --> 01:10:05,400 Dr. Joyce: Okay. And for all of you to please answer, you have 1118 01:10:05,400 --> 01:10:07,920 mentioned that some of the states have instituted 1119 01:10:07,920 --> 01:10:11,280 safeguards that the guardrails to protect against the bad 1120 01:10:11,280 --> 01:10:15,330 actors are in place. How effective have these safeguards 1121 01:10:15,330 --> 01:10:19,650 been? Mr. Harvey, I'll ask you to answer first, please. 1122 01:10:19,830 --> 01:10:22,080 Harvey: Thank you. I think the short answer there is we don't 1123 01:10:22,080 --> 01:10:26,250 fully know. Because so much research hasn't been done. We 1124 01:10:26,250 --> 01:10:29,970 can say that. When when the Bloomberg article came out, we 1125 01:10:29,970 --> 01:10:31,950 pay more attention to New York, because that was one of the few 1126 01:10:31,950 --> 01:10:34,830 times which we'd had ample evidence and a deep dive into 1127 01:10:34,830 --> 01:10:38,940 research. I would suggest that by default, all guardrails are 1128 01:10:39,060 --> 01:10:42,660 somewhat designed to be useful safeguards. And so as states 1129 01:10:42,660 --> 01:10:45,060 have more guardrails, you would expect to see confessions of 1130 01:10:45,060 --> 01:10:47,940 judgment being abused less, but I don't think we can be certain, 1131 01:10:47,970 --> 01:10:50,430 I think it's an area in which we need more research to be 1132 01:10:50,430 --> 01:10:50,730 certain. 1133 01:10:52,070 --> 01:10:54,740 Dr. Joyce: So implementing additional guardrails might not 1134 01:10:54,740 --> 01:10:58,250 solve the problem. Without without researching or studying 1135 01:10:58,250 --> 01:10:58,730 further. 1136 01:10:59,780 --> 01:11:02,120 Harvey: I think it would be fair to say that we do know that some 1137 01:11:02,120 --> 01:11:05,600 things do reduce transactional error. We know that fully 1138 01:11:05,600 --> 01:11:08,660 reading and acknowledging agreements, makes it more likely 1139 01:11:08,660 --> 01:11:11,090 that consumers and businesses will pay more attention and make 1140 01:11:11,090 --> 01:11:15,140 better choices. I think forcing bigger disclosure calls more 1141 01:11:15,140 --> 01:11:17,810 attention to terms, I think those things always work. And 1142 01:11:17,810 --> 01:11:20,420 they would work here as well. But I also think it's true that 1143 01:11:20,420 --> 01:11:23,150 we don't have a science for proving how effectively would 1144 01:11:23,150 --> 01:11:25,640 work in this case. And so yes, more research is definitely 1145 01:11:25,640 --> 01:11:26,060 needed. 1146 01:11:26,510 --> 01:11:28,670 Dr. Joyce: Mr. Bush, in your experience, would you love to 1147 01:11:28,670 --> 01:11:32,120 comment on that on additional safeguards? And in the states 1148 01:11:32,120 --> 01:11:34,070 have implemented them? Do you see impact? 1149 01:11:35,300 --> 01:11:38,990 Jerry Bush: I will see impact if we have more guards. But I guess 1150 01:11:38,990 --> 01:11:41,000 the biggest thing that we do right now, it just more 1151 01:11:41,000 --> 01:11:45,380 education. For as you know, let everybody knows they Hey, you 1152 01:11:45,380 --> 01:11:48,590 know, these loans are here, double check. Not all funding 1153 01:11:48,590 --> 01:11:52,100 companies are bad, but just more education watch out for the ones 1154 01:11:52,100 --> 01:11:52,910 that there are. 1155 01:11:53,990 --> 01:11:56,750 Dr. Joyce: So is my take home message to this committee 1156 01:11:56,750 --> 01:12:01,280 hearing today, that there are not all bad actors at education 1157 01:12:01,280 --> 01:12:06,830 might be a bigger role than I came in here understanding. Mr. 1158 01:12:06,830 --> 01:12:07,220 Bush? 1159 01:12:07,610 --> 01:12:10,850 Jerry Bush: Okay. Well, what I'm saying is that, I'm not saying 1160 01:12:10,850 --> 01:12:13,190 that all foreign companies are bad. What I'm saying is that we 1161 01:12:13,190 --> 01:12:17,210 need certain more education, and it's just from my porch, right, 1162 01:12:17,210 --> 01:12:21,170 Taurus, being a contractor or President take these loans, is, 1163 01:12:21,170 --> 01:12:25,370 you know, more education for us. You know, let people know that 1164 01:12:25,430 --> 01:12:29,180 if you do have a judgment, you know, they can do more do not go 1165 01:12:29,180 --> 01:12:32,240 by what the broker says, You cannot go by exactly what he 1166 01:12:32,240 --> 01:12:34,160 says he or she says. 1167 01:12:34,550 --> 01:12:36,410 Dr. Joyce: I understand. Mr. Heskin, would you like to weigh 1168 01:12:36,410 --> 01:12:37,220 in on this, please? 1169 01:12:37,400 --> 01:12:42,410 Heskin: Sure. States do put in safeguards, they ban co J's. But 1170 01:12:42,410 --> 01:12:46,130 there's one problem, the Full Faith and Credit Clause. They 1171 01:12:46,130 --> 01:12:51,170 can enter a judgment in New York, even though it's illegal 1172 01:12:51,170 --> 01:12:54,740 to do it, it's void. The minute the ink hits the paper and 1173 01:12:54,740 --> 01:12:59,420 Massachusetts doesn't matter. They get the judgment in New 1174 01:12:59,420 --> 01:13:03,440 York, they can domesticate it to Massachusetts, and even though 1175 01:13:03,440 --> 01:13:07,880 it's against a boring to their strong public policy, they have 1176 01:13:07,880 --> 01:13:11,720 to honor it. So there are safeguards. States don't want 1177 01:13:11,720 --> 01:13:13,250 these, but they're forced upon. 1178 01:13:14,150 --> 01:13:15,890 Dr. Joyce: Mr. Picker, would you like to weigh in on these 1179 01:13:15,890 --> 01:13:16,490 safeguards? 1180 01:13:16,850 --> 01:13:21,020 Picker: Yes. And just to clarify, the reason that they 1181 01:13:21,020 --> 01:13:23,900 can go ahead and file in New York, where everybody's in 1182 01:13:23,900 --> 01:13:26,270 Massachusetts as these contracts, often times we'll 1183 01:13:26,270 --> 01:13:28,730 have a choice of venue or jurisdiction provision, which 1184 01:13:28,730 --> 01:13:33,110 allows them to do that. That being said, I don't know that I 1185 01:13:33,200 --> 01:13:36,050 agree or disagree with Mr. Haskins, Full Faith and Credit 1186 01:13:36,590 --> 01:13:43,940 position there. Many states have statutes or have held that 1187 01:13:43,970 --> 01:13:46,400 courts have held that confessions are against public 1188 01:13:46,400 --> 01:13:51,020 policy. And I do believe that where a judgment such as 1189 01:13:51,020 --> 01:13:53,360 confession of judgment would be against the public policy of the 1190 01:13:53,360 --> 01:13:56,600 state where it's being transferred to, and maybe Mr. 1191 01:13:56,600 --> 01:13:58,610 Harvey could speak better to that I do believe that they do 1192 01:13:58,610 --> 01:14:01,610 have a option to not recognize that judgment. 1193 01:14:02,690 --> 01:14:04,400 Dr. Joyce: Mr. Harvey, would you like to weigh in on that? 1194 01:14:04,700 --> 01:14:07,820 Harvey: Yes, briefly, I think the Civil Procedure issue is 1195 01:14:07,850 --> 01:14:12,260 with is alive and well, and states have not agreed. I'd also 1196 01:14:12,260 --> 01:14:15,710 like to add one final thing, if I may. I recognize that it's 1197 01:14:15,740 --> 01:14:18,650 been hotly disputed. But the CFPB consumer complaint 1198 01:14:18,650 --> 01:14:21,590 database, did shed a lot of light on consumer practices. 1199 01:14:21,920 --> 01:14:26,660 There could in theory be a large database of complaints by 1200 01:14:26,810 --> 01:14:31,460 businesses that had experience with large MCA is that 1201 01:14:31,460 --> 01:14:33,710 transparency might help to reduce bad actors in that 1202 01:14:33,710 --> 01:14:34,460 industry as well. 1203 01:14:35,420 --> 01:14:37,580 Dr. Joyce: Gentlemen, thank you. Thank you for traveling here 1204 01:14:37,580 --> 01:14:40,190 from Pennsylvania. Madam Chair, I yield. 1205 01:14:40,700 --> 01:14:42,920 Chairwoman Velazquez: The gentleman yields back. Well, let 1206 01:14:42,920 --> 01:14:45,560 me take this opportunity to thank all of you for being here 1207 01:14:45,560 --> 01:14:50,060 today and shedding light into an issue that I believe the federal 1208 01:14:50,060 --> 01:14:55,760 government should play a role to make sure that businesses 1209 01:14:55,910 --> 01:15:00,680 particularly small businesses are protected and And it means 1210 01:15:00,680 --> 01:15:04,550 that we have a lot of work to do. I am pleased this committee 1211 01:15:04,550 --> 01:15:08,570 took the time to shine a much narrower light on this practice, 1212 01:15:08,810 --> 01:15:12,650 especially as Congress look to act quickly to prohibit 1213 01:15:12,680 --> 01:15:15,860 confessions of judgment and extend protection to small 1214 01:15:15,860 --> 01:15:19,970 business owners in commercial transactions. I will also ask 1215 01:15:19,970 --> 01:15:23,930 unanimous consent that members have five legislative days to 1216 01:15:23,930 --> 01:15:27,560 submit statements and supporting materials, materials for the 1217 01:15:27,560 --> 01:15:31,400 record without objection, so order and if there is no further 1218 01:15:31,400 --> 01:15:34,400 business to come before the committee, we are adjourned. 1219 01:15:34,490 --> 01:15:35,090 Thank you. 1220 01:15:35,840 --> 01:15:36,260 Unknown: Thank you.