1 00:00:00.000 --> 00:00:03.317 Speaker 1: With you Mr. Chair, Madam Vice Chair, colleagues. 2 00:00:03.385 --> 00:00:07.448 Thanks for being here today for the record. Seth Howard, I'm 3 00:00:07.515 --> 00:00:11.714 pleased to present HB 664. Just very quickly, I'm joined today 4 00:00:11.781 --> 00:00:15.573 by representatives of the Maryland Retailers Association 5 00:00:15.641 --> 00:00:19.703 and Bankers Association, the Maryland cash campaign, as well 6 00:00:19.771 --> 00:00:24.105 as Luis Peck, Director of Public Policy for the Lending Club. 6x 7 00:00:24.172 --> 00:00:28.167 four establishes a regulatory framework for businesses that 8 00:00:28.235 --> 00:00:32.230 engage in sales based financing transactions which the bill 9 00:00:32.298 --> 00:00:35.819 defines as financing transactions are paid over time 10 00:00:35.886 --> 00:00:39.746 is a percentage of sales or revenue where the payment may 11 00:00:39.814 --> 00:00:44.012 increase or decrease decrease depending on the volume of sales 12 00:00:44.079 --> 00:00:47.939 made, or revenue received by the recipient. The bill also 13 00:00:48.007 --> 00:00:52.408 prohibits a person from engaging in the business of making you're 14 00:00:52.476 --> 00:00:56.809 soliciting sales based financing transactions, unless the person 15 00:00:56.877 --> 00:01:01.075 is licensed. In recent years, and especially in the last year, 16 00:01:01.143 --> 00:01:04.664 small businesses have increasingly been turning to a 17 00:01:04.731 --> 00:01:08.862 controversial type of financing called online lending. Online 18 00:01:08.929 --> 00:01:13.128 lending comes in several forms, with what is commonly referred 19 00:01:13.195 --> 00:01:16.581 to as merchant cash advances being one of the most 20 00:01:16.649 --> 00:01:20.982 problematic and prominent online lenders provide a business with 21 00:01:21.050 --> 00:01:25.180 an immediate influx of cash but the consequences can often be 22 00:01:25.248 --> 00:01:29.040 devastating for the business owners and their creditors. 23 00:01:29.107 --> 00:01:32.899 Online lending is the merchant to merchant equivalent of 24 00:01:32.967 --> 00:01:36.894 consumer payday lending and industry that is notorious for 25 00:01:36.962 --> 00:01:41.025 its predatory practices and abusive rates of interest, which 26 00:01:41.092 --> 00:01:45.155 is why this body banned the practice a few years ago, online 27 00:01:45.223 --> 00:01:49.082 lenders have managed to get around lending regulations by 28 00:01:49.150 --> 00:01:52.942 calling what they do merchant cash advances not loans, a 29 00:01:53.009 --> 00:01:56.734 distinction with very little difference. Online lenders 30 00:01:56.801 --> 00:02:00.661 advance a lump sum of money to a business in exchange for 31 00:02:00.729 --> 00:02:04.317 repayment repayment paid from the borrower's accounts 32 00:02:04.385 --> 00:02:07.838 receivables. Many of these online lenders call this 33 00:02:07.906 --> 00:02:11.969 practice a sale. For example, a merchant borrows $1,000 from 34 00:02:12.036 --> 00:02:16.438 online online lender, the lender sells the $1,000 to the merchant 35 00:02:16.505 --> 00:02:20.636 in exchange for a percent of the merchants credit card sales. 36 00:02:20.703 --> 00:02:24.698 Each day the lender takes 20% of the merchants credit cards 37 00:02:24.766 --> 00:02:28.626 transactions until the 1000 hours is paid back along with 38 00:02:28.693 --> 00:02:32.756 $400 for the sellers fee. It's not uncommon for the interest 39 00:02:32.824 --> 00:02:36.886 rates on these transactions to be anywhere from 100 to 400%. 40 00:02:36.954 --> 00:02:41.084 Because online lenders structure their financing as a sale as 41 00:02:41.152 --> 00:02:45.215 opposed to a loan, they can circumvent the crushing interest 42 00:02:45.282 --> 00:02:49.548 rates. Limitations placed on via the state's, online lending is 43 00:02:49.616 --> 00:02:53.950 so costly and draconian and the repayment obligation and opposes 44 00:02:54.017 --> 00:02:57.741 it can often lead to default and insolvency. This is an 45 00:02:57.809 --> 00:03:02.007 interstate whose business model was clearly focused on preying 46 00:03:02.075 --> 00:03:06.341 on vulnerable small mom and pop businesses that are desperately 47 00:03:06.408 --> 00:03:10.742 needed quick financing. Problems with online lending have caught 48 00:03:10.810 --> 00:03:14.737 the attention of the Federal Reserve, which recently did a 49 00:03:14.805 --> 00:03:19.138 survey of small businesses about the subject. The survey found a 50 00:03:19.206 --> 00:03:22.930 laundry list of concerns, ranging from aggressive sales 51 00:03:22.998 --> 00:03:26.789 tactics and intentionally confusing sales techniques and 52 00:03:26.857 --> 00:03:31.055 websites with well hidden fine print that exposes the borrower 53 00:03:31.123 --> 00:03:35.253 to abusive interest rates and opportunities for the lender to 54 00:03:35.321 --> 00:03:39.587 seize assets. If the business's sales don't cover the repayment 55 00:03:39.655 --> 00:03:43.717 plan. I mean, to say this, I want you to look at some of the 56 00:03:43.785 --> 00:03:47.509 inconsistencies for the verses that in the opposition's 57 00:03:47.577 --> 00:03:51.030 testimony versus the consistencies in the proponent 58 00:03:51.098 --> 00:03:54.754 testimony. You know, if you look at innovative lending 59 00:03:54.822 --> 00:03:58.478 performance, testimony and opposition, they talk about 60 00:03:58.546 --> 00:04:02.744 updated SmartBox metrics, which include APR APR equivalent for 61 00:04:02.812 --> 00:04:06.739 products like matte, Merchant cash advances. Then when you 62 00:04:06.807 --> 00:04:10.937 look at Rapid Finance, they talk about there's no guidance or 63 00:04:11.005 --> 00:04:14.729 language applying to APR to commercial financing, or to 64 00:04:14.797 --> 00:04:18.927 sales based transactions. When you look at Innovative Lending 65 00:04:18.995 --> 00:04:23.261 talks about following the 2000, this is paragraph four, five of 66 00:04:23.328 --> 00:04:27.323 their testimony it says unless businesses were seeking more 67 00:04:27.391 --> 00:04:31.250 than 1 million in financing banks, were not providing the 68 00:04:31.318 --> 00:04:35.178 financing small businesses needed speaking directly about 69 00:04:35.245 --> 00:04:39.376 the 2008 crash. Well, that's probably because local and state 70 00:04:39.444 --> 00:04:43.168 banks, which are heavily federally federally regulated, 71 00:04:43.235 --> 00:04:47.298 it would you know they would be providing these loans and it 72 00:04:47.366 --> 00:04:51.428 would be too aggressive for them. And let me get to that. It 73 00:04:51.496 --> 00:04:55.220 says right here in rapid finances' third paragraph line 74 00:04:55.288 --> 00:04:59.486 two of their testimony there is no personal guarantee required 75 00:04:59.554 --> 00:05:03.278 to the business owner because there are no there are no 76 00:05:03.346 --> 00:05:07.002 persons No guarantees the risk is placed on the funder 77 00:05:07.070 --> 00:05:11.132 translation highly aggressive, high interest rates. When you 78 00:05:11.200 --> 00:05:15.263 look at ETA's testimony, they talk about May we all know the 79 00:05:15.330 --> 00:05:19.122 difference between May and shall. And there's some other 80 00:05:19.190 --> 00:05:23.591 things in these testimonies that as I'm sure as you pour through, 81 00:05:23.659 --> 00:05:27.451 you'll have plenty of questions. For example, it says an 82 00:05:27.518 --> 00:05:31.581 effective regulatory enforcement occurs and regulations only 83 00:05:31.649 --> 00:05:36.050 apply to a subset of an industry and not the industry as a whole. 84 00:05:36.118 --> 00:05:39.977 We're concerned that the proposed regulation suffers from 85 00:05:40.045 --> 00:05:44.379 this problem. And we would like time to address the issue. Well, 86 00:05:44.446 --> 00:05:48.035 this is year two, we have had time. And this would be 87 00:05:48.103 --> 00:05:51.556 statewide, and under careful consideration from the 88 00:05:51.624 --> 00:05:55.415 subcommittee and the committee. So it would apply to the 89 00:05:55.483 --> 00:05:59.749 industry as a whole in Maryland. And with that, I would ask you 90 00:05:59.817 --> 00:06:02.864 to look closely at the inconsistencies in the 91 00:06:02.931 --> 00:06:07.129 unfavorable testimonies and the consistencies in the favorable 92 00:06:07.197 --> 00:06:11.192 testimonies. And with that, I asked for a favorable report. 93 00:06:11.260 --> 00:06:12.750 Thank you, colleagues. 94 00:06:13.290 --> 00:06:16.380 Madam Chair: Questions were delegate Howard, delegate 95 00:06:16.380 --> 00:06:16.980 prospering. 96 00:06:17.910 --> 00:06:19.950 Speaker 2: Thank you, Madam Chair, a delegate Howard. I 97 00:06:19.950 --> 00:06:21.990 believe this is the bill last year you had. 98 00:06:21.990 --> 00:06:25.260 Speaker 1: It is it is 1478 was the bill number last year. 99 00:06:25.380 --> 00:06:27.810 Speaker 2: Right. And so last year it was a ban, this is 100 00:06:27.810 --> 00:06:34.110 regulating it correct? So is it now all commercial lending going 101 00:06:34.110 --> 00:06:38.040 to? Is they all going to honor the same standard? Is it going 102 00:06:38.040 --> 00:06:42.360 to come one standard across the commercial lending or just rapid 103 00:06:42.360 --> 00:06:43.230 finance? 104 00:06:43.380 --> 00:06:46.680 Speaker 1: No, I'm not trying to target Rapid Finance. I mean, 105 00:06:46.680 --> 00:06:49.590 I'm not trying to single anybody out. I'm trying to create a 106 00:06:49.590 --> 00:06:52.650 regulatory structure for any of the loan lending mechanisms that 107 00:06:52.650 --> 00:06:55.560 fall under this language. 108 00:06:56.730 --> 00:07:00.540 Speaker 2: Okay, okay. Yeah. I mean, I mean, if we single them 109 00:07:00.540 --> 00:07:01.350 out, because they're. 110 00:07:01.380 --> 00:07:03.240 Speaker 1: Yeah, no, I'm not trying to do that. I'm not, you 111 00:07:03.240 --> 00:07:05.790 know, they're just their testimonies here in front of me. 112 00:07:05.790 --> 00:07:10.320 I'm not trying to, you know, beat them up. Personally, may be 113 00:07:10.320 --> 00:07:13.380 a great company. I don't know, you know what I mean, but they 114 00:07:13.380 --> 00:07:17.220 might not be? I don't know. Okay. But I'm not trying to 115 00:07:17.220 --> 00:07:18.000 single them out. 116 00:07:18.600 --> 00:07:22.380 Speaker 2: I guess my question is, right, as we put the this in 117 00:07:22.380 --> 00:07:26.340 place, I mean, it is a form of commercial lending. Would that 118 00:07:26.730 --> 00:07:29.910 apply across the board to all other commercial lenders? 119 00:07:30.120 --> 00:07:32.670 Speaker 1: No, I think this was specifically speak to merchant 120 00:07:32.670 --> 00:07:33.510 cash advance. 121 00:07:34.500 --> 00:07:36.030 Speaker 2: Okay. Alright. Thank you. 122 00:07:37.500 --> 00:07:42.630 Madam Chair: Delegate Qi. Thanks, madam chair. 123 00:07:42.870 --> 00:07:44.910 Delegate Qi: So I do want to kind of understand from a 124 00:07:44.910 --> 00:07:48.180 sponsor, so we were looking at this to ban it this year, and 125 00:07:48.180 --> 00:07:49.950 now you want to regulate it? 126 00:07:50.040 --> 00:07:53.880 Speaker 1: Yeah, I agree that an outright ban maybe is not the 127 00:07:53.880 --> 00:07:59.430 way to go. But I think a regulatory scheme, and a 128 00:07:59.430 --> 00:08:04.890 licensing scheme is, you know, at a minimum, what we should be 129 00:08:04.890 --> 00:08:05.430 looking at. 130 00:08:06.150 --> 00:08:09.990 Delegate Qi: So so some of the problems we had before with some 131 00:08:09.990 --> 00:08:13.320 of the issues with the banning and why we were why we were 132 00:08:13.320 --> 00:08:17.640 thinking we were looking at it was because people couldn't tell 133 00:08:17.640 --> 00:08:20.580 what they the transparency, they really couldn't tell how much 134 00:08:20.580 --> 00:08:24.360 they were paying from APR, and most people understand the APR. 135 00:08:25.920 --> 00:08:28.230 So have we overcome that too? 136 00:08:28.290 --> 00:08:31.620 Speaker 1: Well, I would have to ask the, I'm sorry, Pam, you 137 00:08:31.620 --> 00:08:35.640 would have to ask the opponents of the bill because under the 138 00:08:35.640 --> 00:08:39.870 Smart Box metrics, it will include APR or APR equivalent. 139 00:08:40.080 --> 00:08:42.720 But according to testimony last year, there was no way to set 140 00:08:42.720 --> 00:08:47.370 APR, we don't have an APR. So it I'm getting the sense that 141 00:08:47.400 --> 00:08:50.460 that's some of the players don't, you know, the left hand 142 00:08:50.460 --> 00:08:53.040 doesn't know what the right hand is doing and some of the way in 143 00:08:53.040 --> 00:08:56.250 some ways so according to innovative lending performance 144 00:08:56.250 --> 00:09:01.980 Association, it says that they can include APR APR equivalent 145 00:09:01.980 --> 00:09:06.360 for products like MC A's, and that don't have a defined term 146 00:09:06.360 --> 00:09:09.750 says that write their quote, total cost purchase price around 147 00:09:09.780 --> 00:09:12.720 amount disbursement amount. And then when you look at other 148 00:09:12.720 --> 00:09:18.480 testimony, it talks about the I guess, Tila does not provide any 149 00:09:18.480 --> 00:09:21.450 guidance or language and applying APR to commercial 150 00:09:21.450 --> 00:09:25.020 financing, or more specifically to sales based financing 151 00:09:25.020 --> 00:09:28.200 transactions. So it looks like some people were are sort of 152 00:09:28.200 --> 00:09:30.960 doing it and some people aren't or, you know. 153 00:09:32.010 --> 00:09:34.650 Delegate Qi: But from your perspective as this as a 154 00:09:34.650 --> 00:09:39.690 sponsor, you you want to be able to tell what APR is, is that 155 00:09:39.720 --> 00:09:41.040 that's what you're looking for. 156 00:09:41.130 --> 00:09:43.020 Delegate Howard: Or something equivalent. I think that people 157 00:09:43.020 --> 00:09:47.820 should be able to look at an interest rate and make a 158 00:09:48.570 --> 00:09:49.860 decision based on. 159 00:09:49.860 --> 00:09:51.000 Delegate Qi: Yeah, understanding. I'm trying to 160 00:09:51.000 --> 00:09:53.550 know because we went from banning to regulating whether 161 00:09:53.550 --> 00:09:56.940 the regulations that are okay with you as the sponsors what 162 00:09:56.940 --> 00:09:57.450 I'm asking, 163 00:09:57.630 --> 00:10:00.360 Speaker 1: Yeah, well, we talked to you know, we talked in over 164 00:10:00.360 --> 00:10:05.730 the summer, and a little bit about this, Senator Kramer and 165 00:10:05.730 --> 00:10:12.210 some others and, you know, yeah, I think I think it's appropriate 166 00:10:12.210 --> 00:10:14.580 to have a regulatory and licensing scheme. 167 00:10:16.020 --> 00:10:20.670 Delegate Qi: In this licensing scheme. I guess the CFR would do 168 00:10:20.670 --> 00:10:26.670 that. Are they guideline on limits to interest rates at all 169 00:10:26.700 --> 00:10:29.190 that we would be looking at? Or some? 170 00:10:30.060 --> 00:10:31.740 Delegate Howard: I don't know, I'd have to look, I honestly 171 00:10:31.740 --> 00:10:33.180 Pam, I don't know. I got to look that up. 172 00:10:33.330 --> 00:10:36.150 Delegate Qi: I mean, look at what is your desire there? As 173 00:10:36.150 --> 00:10:36.540 the sponsor. 174 00:10:37.380 --> 00:10:40.200 Speaker 1: Say the question again. Would you be used. To cap 175 00:10:40.200 --> 00:10:40.500 it? 176 00:10:40.740 --> 00:10:42.930 Delegate Qi: Yeah. Would you be interested in having some 177 00:10:42.930 --> 00:10:46.620 limits? Or capping it at some, what is your desire as the 178 00:10:46.620 --> 00:10:47.820 sponsors what I'm asking? 179 00:10:49.380 --> 00:10:52.530 Speaker 1: Well, I mean, part of me, it is a different industry, 180 00:10:52.530 --> 00:10:55.680 and it is a more aggressive lending. So I understand that 181 00:10:55.680 --> 00:10:58.440 and taking that into account. I also feel like there should be 182 00:10:58.440 --> 00:11:02.850 some type of cap. But I also feel like that there is this is 183 00:11:02.850 --> 00:11:07.410 aggressive. And and I do know that there in some cases, not 184 00:11:07.410 --> 00:11:14.400 all, that there are no personal guarantees. To export. That's a 185 00:11:14.400 --> 00:11:16.290 good question. I have explored a little bit more. 186 00:11:17.220 --> 00:11:19.470 Delegate Qi: Okay. Thank you. Thank you, Madam Chair. 187 00:11:19.920 --> 00:11:21.930 Madam Chair: Sure. Any other questions for delegate Howard? 188 00:11:23.460 --> 00:11:30.420 Alright, seeing none, we'll move on to Robin McKinney. Miss 189 00:11:30.420 --> 00:11:36.060 McKinney seemed okay, there she is. 190 00:11:37.020 --> 00:11:40.230 Robin McKinney: Everything catching up. Members of the 191 00:11:40.230 --> 00:11:43.260 economic matters committee. My name is Robin McKinney. I'm the 192 00:11:43.260 --> 00:11:47.580 co founder and CEO of the Cash Campaign of Maryland. We help 193 00:11:47.580 --> 00:11:49.620 low to moderate income individuals across the state to 194 00:11:49.620 --> 00:11:53.250 become more financially secure. And we work with a host of small 195 00:11:53.250 --> 00:11:57.090 business owners to help them to be tax compliant and to make 196 00:11:57.090 --> 00:11:59.850 sure that they are able to access capital in the ways that 197 00:11:59.850 --> 00:12:04.230 they want. And we are here in support of this bill, mostly for 198 00:12:04.230 --> 00:12:08.280 three reasons. One is the cost of capital. We are very 199 00:12:08.280 --> 00:12:12.330 concerned about how expensive these loans are. We need 200 00:12:12.330 --> 00:12:15.240 guardrails, which is why we're supporting the regulation to 201 00:12:15.240 --> 00:12:19.020 make sure that these businesses know exactly how much the cost 202 00:12:19.020 --> 00:12:22.410 of capital is going to be. We have seen through this committee 203 00:12:22.410 --> 00:12:24.780 in the great leadership of the General Assembly that we have 204 00:12:24.780 --> 00:12:27.990 put caps in the past. So from the cash perspective, it's 205 00:12:27.990 --> 00:12:30.930 really important that there is a cap on rates, we have said that 206 00:12:30.960 --> 00:12:35.040 33% for a personal loan, which is already high is high enough 207 00:12:35.040 --> 00:12:38.610 on a personal loan. So we think that having a cap again, just to 208 00:12:38.610 --> 00:12:41.790 have some guardrails on this industry is important. And we 209 00:12:41.790 --> 00:12:47.250 have heard of a lot of targeting specifically of minority owned 210 00:12:47.250 --> 00:12:50.160 businesses, black and Latino businesses, particularly in 211 00:12:50.160 --> 00:12:52.920 Prince George's in Montgomery County, where people are going 212 00:12:52.920 --> 00:12:56.280 door to door pushing on businesses, who would they know 213 00:12:56.280 --> 00:12:59.160 or that are having tough economic times. And I can say 214 00:12:59.160 --> 00:13:02.430 that cash has personally been targeted, because we have free 215 00:13:02.430 --> 00:13:06.210 tax preparation sites at some small business locations, which 216 00:13:06.210 --> 00:13:09.480 are listed on our website. And so we have been actually 217 00:13:09.480 --> 00:13:14.220 targeted by some of these, these businesses also. So the last so 218 00:13:14.220 --> 00:13:17.580 it's cost to capital, it's targeting black and Latino 219 00:13:17.610 --> 00:13:21.690 businesses. And then also on the note of disclosure, the timing 220 00:13:21.690 --> 00:13:24.780 of the disclosure is incredibly important that it's not at the 221 00:13:24.780 --> 00:13:28.080 end once everything's signed, but before someone commits to a 222 00:13:28.080 --> 00:13:31.410 deal, they understand exactly how much it's going to cost. And 223 00:13:31.410 --> 00:13:33.660 for those reasons, we urge a favorable report. 224 00:13:35.160 --> 00:13:36.750 Madam Chair: Thank you, Mr. McKinney questions for Mr. 225 00:13:36.750 --> 00:13:40.560 McKinney. Alright, seeing none. 226 00:13:43.110 --> 00:13:45.960 Robert Anton: Thank you, Madam Chairman, Robert Anton on behalf 227 00:13:45.960 --> 00:13:49.080 of the Maryland Bankers Association, and we do support 228 00:13:49.080 --> 00:13:53.010 this legislation we supported it last year, you know, we are 229 00:13:53.010 --> 00:13:56.580 lenders, and we've spent a lot of time looking at this and 230 00:13:56.580 --> 00:14:00.960 considering it. No bank, no bank in the state of Maryland, 231 00:14:01.230 --> 00:14:07.320 engages in this type of transaction at all. The we spent 232 00:14:07.320 --> 00:14:10.830 a lot of time last year discussing the federal reserve 233 00:14:10.830 --> 00:14:14.700 study which this sponsor mentioned. And if any of you 234 00:14:14.700 --> 00:14:18.360 have questions or concerns about this legislation, I'd urge you 235 00:14:18.360 --> 00:14:22.290 to take a look at the federal reserve study, which I forget 236 00:14:22.290 --> 00:14:25.680 how many pages long it is, but it really runs through it. I 237 00:14:25.680 --> 00:14:28.140 think, you know, the question that you're going to get I think 238 00:14:28.140 --> 00:14:31.380 are the concerns you're going to get particularly is about the 239 00:14:31.380 --> 00:14:38.010 APR and as the sponsor said that the APR can't be calculated on 240 00:14:38.010 --> 00:14:44.010 these transactions. And I think the key here is to be able to 241 00:14:44.010 --> 00:14:47.700 have a small business and I would point out that this only 242 00:14:47.700 --> 00:14:53.310 applies to transactions were the amount of the quote loan unquote 243 00:14:53.310 --> 00:14:58.800 if you want to call it that or that is $500,000 or less. So 244 00:14:58.800 --> 00:15:01.260 we're not talking about you know, have big transactions for 245 00:15:01.260 --> 00:15:04.770 talking about small businesses. And the whole purpose, I think 246 00:15:04.770 --> 00:15:10.740 of the bill more than anything is to be able to have a small 247 00:15:10.740 --> 00:15:14.790 business person, look at the transaction, and be able to 248 00:15:14.790 --> 00:15:18.420 compare it to what he can get someplace else. And you know, 249 00:15:18.420 --> 00:15:22.950 it's confusing how these transactions work. This bill 250 00:15:22.950 --> 00:15:26.550 calls for I think, as much as anything. Regulation. This 251 00:15:26.550 --> 00:15:31.470 industry is totally unregulated, and calls for disclosure so that 252 00:15:31.470 --> 00:15:34.470 small businesses can take a look and know what they're what 253 00:15:34.470 --> 00:15:37.650 they're getting. You know, there are a lot of different things in 254 00:15:37.650 --> 00:15:40.200 this bill to address concerns that have been raised all over 255 00:15:40.200 --> 00:15:45.330 the country. And we think it's a it's a fair ability to good bill 256 00:15:45.330 --> 00:15:49.110 for small business lending and we'd urge a favorable report. 257 00:15:49.140 --> 00:15:49.560 Thank you. 258 00:15:50.400 --> 00:15:56.580 Madam Chair: Thank you. Questions for Mr. Anton? Seeing 259 00:15:56.580 --> 00:15:59.010 none, Miss Lachlear. 260 00:16:00.630 --> 00:16:02.700 Haley Lachlear: Haley Lachlear here on behalf of the Maryland 261 00:16:02.700 --> 00:16:05.700 Retailers Association. Last year the legislation that was 262 00:16:05.700 --> 00:16:08.940 introduced, or correct was an outright ban on these types of 263 00:16:08.940 --> 00:16:12.600 products. We clearly heard from the industry over the interim, 264 00:16:12.630 --> 00:16:15.060 and even some concerns on this committee that we should be 265 00:16:15.060 --> 00:16:18.390 regulating these products instead, which is a bill that 266 00:16:18.390 --> 00:16:21.780 we're here in support of and presenting to you today. I'd 267 00:16:21.780 --> 00:16:26.040 again draw your attention to and the the sponsor of the bill 268 00:16:26.070 --> 00:16:28.620 started to talk about this a little bit. The massive 269 00:16:28.620 --> 00:16:32.190 reporting series Bloomberg Businessweek has released with 270 00:16:32.190 --> 00:16:35.550 story after story about the problems with sales based 271 00:16:35.550 --> 00:16:39.240 financing companies and their predatory nature. They are now 272 00:16:39.240 --> 00:16:42.360 one of the most visible and well marketed lending products and 273 00:16:42.360 --> 00:16:45.840 businesses are suckered in completely unclear about what 274 00:16:45.840 --> 00:16:49.350 they're getting themselves into with quick and easy cash. The 275 00:16:49.350 --> 00:16:52.560 sick reality is that they end up then having to pay back and 276 00:16:52.560 --> 00:16:57.390 upwards of 400% interest with massive upfront fees. And you 277 00:16:57.390 --> 00:16:59.790 heard what this bill does from the sponsor, but I want to hit 278 00:16:59.790 --> 00:17:03.120 on two important areas in the bill, the cap, and it is 279 00:17:03.120 --> 00:17:06.780 incredibly important as the interest rates these unregulated 280 00:17:06.780 --> 00:17:09.990 companies are getting away with is flat out criminal and it 281 00:17:09.990 --> 00:17:13.140 traps a small business into a cycle of debt that they will 282 00:17:13.140 --> 00:17:16.770 never escape, with many having to take out another advance to 283 00:17:16.770 --> 00:17:20.370 try to cover the first. Banning confessions of judgment is also 284 00:17:20.370 --> 00:17:23.460 highly important. Before borrowers get a loan, they have 285 00:17:23.460 --> 00:17:25.830 to sign a statement giving up their right to defend 286 00:17:25.830 --> 00:17:28.950 themselves. If the lender takes them to court. It's like an 287 00:17:28.950 --> 00:17:33.120 arbitration agreement, except the borrower always loses. Armed 288 00:17:33.120 --> 00:17:36.240 with a confession the lender can without proof accused borrowers 289 00:17:36.240 --> 00:17:39.570 of not paying and legally seize their assets before they even 290 00:17:39.570 --> 00:17:42.540 know what's happened. In dozens of interviews and court 291 00:17:42.540 --> 00:17:46.020 pleadings, borrowers describe lenders who forged documents 292 00:17:46.170 --> 00:17:49.320 lied about what they were owed or fabricated defaults out of 293 00:17:49.320 --> 00:17:51.990 thin air. And finally, these FinTech lenders are 294 00:17:51.990 --> 00:17:54.390 intentionally doing anything and everything they can to kill 295 00:17:54.390 --> 00:17:59.520 these bills. Do not be fooled. Maryland shouldn't be along with 296 00:17:59.760 --> 00:18:03.330 New York and California that have moved legislation. And I'd 297 00:18:03.330 --> 00:18:07.320 also mentioned that the FTC is stepping in as well. We urge 298 00:18:07.320 --> 00:18:09.840 Maryland to do the same and urge a favorable reporting. 299 00:18:10.800 --> 00:18:12.810 Madam Chair: Thank you. Any questions for Miss Lachlear? 300 00:18:14.670 --> 00:18:16.920 Okay, see none. Mindy Lehman? 301 00:18:21.330 --> 00:18:23.640 Robert Anton: I believe she's testifying in another committee, 302 00:18:23.640 --> 00:18:24.240 Madam Chair. 303 00:18:24.690 --> 00:18:30.660 Madam Chair: Alright, Louis Cadencepeck. Thank you. Sorry, I 304 00:18:30.660 --> 00:18:31.530 mispronounced your name. 305 00:18:31.560 --> 00:18:33.270 Louis Candencepeck: Oh, it's Louis Candencepeck members of 306 00:18:33.270 --> 00:18:37.110 committee. Thank you so much for this opportunity to be here. No 307 00:18:37.110 --> 00:18:39.030 problem at all right. So my name is Louis Cadencepeck. I'm the 308 00:18:39.030 --> 00:18:42.690 Director of Public Policy at Lending Club. Lending Club is a 309 00:18:42.690 --> 00:18:46.530 fintech company and a bank. Over the last decade, we facilitated 310 00:18:46.530 --> 00:18:49.050 about one and a half billion dollars of financing to 311 00:18:49.050 --> 00:18:52.830 borrowers in Maryland. We're also online lending and fintech. 312 00:18:52.830 --> 00:18:56.250 So I would just want to propose that what makes online lending 313 00:18:56.490 --> 00:18:59.160 responsible or irresponsible isn't whether it's online or 314 00:18:59.160 --> 00:19:02.310 not, it's the cost and the transparency and the sorts of 315 00:19:02.310 --> 00:19:06.150 problems that Kaylee and delegate Howard were describing. 316 00:19:06.810 --> 00:19:09.420 When I launched Lending Club small business lending program 317 00:19:09.450 --> 00:19:13.710 in 2014, offering lower cost transparent loans to small 318 00:19:13.710 --> 00:19:18.870 businesses underserved by banks. We saw very immediately that 319 00:19:18.900 --> 00:19:21.030 many of our small business customers were being dragged 320 00:19:21.030 --> 00:19:24.420 down by a wave of new predatory small business financing 321 00:19:24.420 --> 00:19:28.620 products, which this bill focuses on. And today it is much 322 00:19:28.620 --> 00:19:31.260 worse because small businesses are struggling already on the 323 00:19:31.260 --> 00:19:35.160 ropes with the struggles related to COVID. This is happening all 324 00:19:35.160 --> 00:19:38.730 over the country. But very glad to see today Maryland taking 325 00:19:38.730 --> 00:19:42.660 steps to do something about it. I've worked with legislators in 326 00:19:42.660 --> 00:19:45.840 California and in New York to pass Small Business truth and 327 00:19:45.840 --> 00:19:51.360 lending laws on which House Bill 664 is partially based. Those 328 00:19:51.360 --> 00:19:54.750 laws passed with overwhelming bipartisan support, as well as 329 00:19:54.780 --> 00:19:57.420 broad support from the small business community nonprofit 330 00:19:57.420 --> 00:20:00.810 advocacy groups, and industry. We all agree that small 331 00:20:00.810 --> 00:20:03.660 businesses simply deserve to be told the price they're going to 332 00:20:03.660 --> 00:20:07.230 be charged in a transparent way. So I'm here especially to answer 333 00:20:07.230 --> 00:20:09.870 any questions you may have about the truth and lending portion of 334 00:20:09.870 --> 00:20:14.610 the bill. As Mr. Hinton referenced, Federal Reserve 335 00:20:14.610 --> 00:20:17.850 research in no less than four reports has found that small 336 00:20:17.850 --> 00:20:21.750 businesses are often misled by the pricing matrix commonly used 337 00:20:21.750 --> 00:20:25.620 today in sales based financing. And in fact, Federal Reserve 338 00:20:25.620 --> 00:20:28.470 research specifically describes merchant cash advance with the 339 00:20:28.470 --> 00:20:31.980 words potentially higher cost and less transparent credit 340 00:20:31.980 --> 00:20:34.830 product. Those are the words of the Federal Reserve researchers. 341 00:20:35.670 --> 00:20:38.460 As a quick note, these merchant cash advance products are quite 342 00:20:38.460 --> 00:20:40.920 different than traditional factoring. If that's a helpful 343 00:20:40.920 --> 00:20:44.370 distinction, we can do it. Federal Reserve research has 344 00:20:44.370 --> 00:20:46.950 also found that black and Hispanic owned businesses are 345 00:20:46.950 --> 00:20:50.580 about twice as affected by these higher costs less transparent 346 00:20:50.580 --> 00:20:55.680 credit products, just as Robin and Maryland cash described. So 347 00:20:55.680 --> 00:20:58.290 why has the Federal Reserve research and New York and 348 00:20:58.290 --> 00:21:02.580 California and now Maryland proposed that APR in particular, 349 00:21:02.880 --> 00:21:05.670 be the standard of transparent disclosure as opposed to some 350 00:21:05.670 --> 00:21:11.070 other metric? It's because APR is the only metric that enables 351 00:21:11.070 --> 00:21:14.550 apples to apples comparison of products with different amounts, 352 00:21:14.760 --> 00:21:18.030 different charges and different lengths. That's why APR has 353 00:21:18.030 --> 00:21:21.150 become the standard of transparent pricing vetted over 354 00:21:21.150 --> 00:21:24.690 50 years of the federal Truth in Lending Act. You really can't 355 00:21:24.690 --> 00:21:27.210 say it better than delegate Pipi did in discussing the last 356 00:21:27.210 --> 00:21:30.330 legislation saying the APR is big and bright, the borrower can 357 00:21:30.330 --> 00:21:33.060 see what it costs and they can decide for themselves whether to 358 00:21:33.060 --> 00:21:36.210 take the loan or not. To calculate APR for sales based 359 00:21:36.210 --> 00:21:39.540 financing. Providers simply use the formula and the Federal 360 00:21:39.540 --> 00:21:43.110 Truth in Lending Act. That same formula works for sales based 361 00:21:43.110 --> 00:21:46.170 financing, the leader plugins, some estimates and the Truth in 362 00:21:46.170 --> 00:21:48.960 Lending Act at the federal level doesn't describe how to do those 363 00:21:48.960 --> 00:21:53.310 estimates. But that's what House Bill 664 does. It provides two 364 00:21:53.310 --> 00:21:56.100 methods to guide those estimations, which is the same 365 00:21:56.100 --> 00:21:58.980 approach that New York and California took. I'd encourage 366 00:21:58.980 --> 00:22:02.100 Maryland's do the same, I'd also encourage you to consider not 367 00:22:02.100 --> 00:22:05.580 capping APR is below 36% based on other standards around the 368 00:22:05.580 --> 00:22:09.930 country, and also to apply the street and lending standards not 369 00:22:09.930 --> 00:22:12.870 only to sales based financing, but to loans lines of credit 370 00:22:12.870 --> 00:22:14.910 factoring in the other product, small businesses are making 371 00:22:14.910 --> 00:22:18.150 choices between which California and New York have done. Thank 372 00:22:18.150 --> 00:22:18.720 you very much. 373 00:22:19.140 --> 00:22:22.650 Madam Chair: Thank you. Any questions for Mr. Candencepeck? 374 00:22:24.840 --> 00:22:26.820 Seeing none, Kimberly Ford? 375 00:22:27.960 --> 00:22:30.000 Louis Candencepeck: Yes, Vice Chair Domaine members of the 376 00:22:30.000 --> 00:22:32.700 committee. I'm Kim Ford, Senior Vice President of Government 377 00:22:32.700 --> 00:22:36.720 Relations with Fiserv. Some of you know Fiserv, we acquired 378 00:22:36.720 --> 00:22:39.360 first data, which was a large Maryland company as well, we 379 00:22:39.360 --> 00:22:42.870 have about 2000 employees in the state. One of Fiserv's core 380 00:22:42.870 --> 00:22:46.380 business offerings is a payment is payment processing. So that 381 00:22:46.380 --> 00:22:49.830 means we sign businesses up who want to take some form of 382 00:22:49.830 --> 00:22:53.550 electronic payment like a credit or debit card. And we also are a 383 00:22:53.550 --> 00:22:57.030 point of sale terminal manufacturer. So our product in 384 00:22:57.030 --> 00:23:01.140 the market is called Clover. So Clover has one of these merchant 385 00:23:01.140 --> 00:23:04.200 cash advance products called Clover capital. And I just 386 00:23:04.200 --> 00:23:06.810 wanted to share a little bit about how that product works. 387 00:23:06.810 --> 00:23:09.870 But before I do that, I want to just, you know, assert to this 388 00:23:09.870 --> 00:23:13.320 committee that we are favorable with amendment. So we are fully 389 00:23:13.320 --> 00:23:16.320 supportive of you know, the licensing regime and more 390 00:23:16.320 --> 00:23:18.990 disclosure, understand some of the complaints that are in the 391 00:23:18.990 --> 00:23:24.150 market out there. But we do have some concerns with the cap. But 392 00:23:24.150 --> 00:23:26.910 again, let me just quickly talk about how Clover capital works. 393 00:23:26.910 --> 00:23:30.960 So it is available only to existing Clover customers. So 394 00:23:30.960 --> 00:23:33.420 it's not an online lender, we're not going out there and 395 00:23:33.420 --> 00:23:36.960 soliciting, you know, customers for this. These have to be 396 00:23:36.960 --> 00:23:39.390 existing businesses that are processing transactions with 397 00:23:39.390 --> 00:23:43.410 clover. And when they apply for this merchant cash advance, we 398 00:23:43.410 --> 00:23:46.410 look at their daily receivables. So what have they been bringing 399 00:23:46.410 --> 00:23:49.770 in in terms of debit and credit transactions, and then we come 400 00:23:49.770 --> 00:23:52.920 up with an amount with them based on what that those daily 401 00:23:52.920 --> 00:23:56.910 receivables have been. We as a payment processor feel like 402 00:23:56.910 --> 00:23:59.730 we're ideally situated to be able to provide this type of 403 00:23:59.730 --> 00:24:03.180 product, because we can see the economic health of that business 404 00:24:03.210 --> 00:24:05.370 again, based on their their debit and credit card 405 00:24:05.370 --> 00:24:08.460 transactions that are coming in. So we tell our Merchant 406 00:24:08.460 --> 00:24:10.770 customers on the front of the agreement, what the purchase 407 00:24:10.770 --> 00:24:14.550 price is, how much they'll receive, how much this will cost 408 00:24:14.550 --> 00:24:17.970 them and then the total repayment amount. And what we do 409 00:24:17.970 --> 00:24:21.150 is we work with that business to set a percentage of how much 410 00:24:21.150 --> 00:24:24.540 they want us to pull from their daily earnings in order to pay 411 00:24:24.540 --> 00:24:28.560 that advance back. So to be clear, this transaction is not a 412 00:24:28.560 --> 00:24:31.680 loan, it's not subject to an interest rate or a fixed payment 413 00:24:31.680 --> 00:24:35.700 schedule or a fixed repayment term. We fund this product on 414 00:24:35.700 --> 00:24:39.450 our own and if the business closes, that's a loss to us. We 415 00:24:39.450 --> 00:24:43.500 do not engage in confessions of judgment. So again, this is 416 00:24:43.500 --> 00:24:46.590 really based on daily receivables and if the business 417 00:24:46.590 --> 00:24:49.890 is not bringing in anything, then they're not going to repay 418 00:24:49.920 --> 00:24:53.700 an amount that day. So, again, you know, we do think this 419 00:24:53.700 --> 00:24:56.100 legislation is workable. We would encourage you know, 420 00:24:56.100 --> 00:24:58.890 continuing to work with Delegate Howard and members of the 421 00:24:58.890 --> 00:25:01.890 committee on the case up issue so that this product can still 422 00:25:01.890 --> 00:25:04.650 be available in the market. And I'm happy to answer any 423 00:25:04.650 --> 00:25:05.280 questions. 424 00:25:05.820 --> 00:25:06.570 Madam Chair: Thank you. 425 00:25:06.870 --> 00:25:07.290 Kim Ford: Thank you. 426 00:25:08.130 --> 00:25:13.110 Madam Chair: Any questions for Miss Ford? Alright, seeing none. 427 00:25:13.980 --> 00:25:14.940 Mr. DiPietro. 428 00:25:15.780 --> 00:25:17.790 Chris DiPietro: Madam Chair, Chris DiPietro, on behalf of 429 00:25:17.790 --> 00:25:22.800 Pfizer, I'm here with with Kim. I think Kim did a great job in 430 00:25:22.830 --> 00:25:27.000 explaining a little bit how Fiserv's product is a little 431 00:25:27.000 --> 00:25:29.610 different that you might hear from some of the other folks 432 00:25:29.610 --> 00:25:33.330 that you're going to hear testimony from, again, we only 433 00:25:33.570 --> 00:25:37.740 offer this product offering to people who are availing 434 00:25:37.740 --> 00:25:42.150 themselves of the of the clover platform. So we have that track 435 00:25:42.150 --> 00:25:46.860 record. We know what their daily receivables are, are made. So we 436 00:25:46.860 --> 00:25:51.030 do have amendments that we have drafted. We are finalizing some 437 00:25:51.060 --> 00:25:56.040 explanation to those amendments, we will get that to the sponsor, 438 00:25:56.040 --> 00:25:58.440 Delegate Howard, as well as committee staff and the 439 00:25:58.440 --> 00:26:01.740 subcommittee chair for a review, we'd be happy to sit down and 440 00:26:01.740 --> 00:26:06.210 discuss our main issue. We think most of the bill is workable. We 441 00:26:06.210 --> 00:26:09.570 are with you on the the licensing aspect, we think the 442 00:26:09.570 --> 00:26:13.740 disclosure piece, it all can be worked out, we agree that there 443 00:26:13.740 --> 00:26:16.500 needs to be some rules to the road about how this product is 444 00:26:16.500 --> 00:26:20.610 offered. And it's disclosed properly. And businesses do 445 00:26:20.610 --> 00:26:23.130 understand what they're entering into when they do these. But you 446 00:26:23.130 --> 00:26:27.960 have to understand this is a different type of vehicle that a 447 00:26:27.960 --> 00:26:31.110 business would avail themselves if they had to go to a bank. And 448 00:26:31.110 --> 00:26:33.480 I used to be a commercial lender. Before I was a lobbyist, 449 00:26:33.480 --> 00:26:36.930 I was a commercial lender, for a large financial institution for 450 00:26:36.930 --> 00:26:40.170 10 years, we didn't make loans, commercial loans unless there 451 00:26:40.170 --> 00:26:44.220 was some form of collateral. And I think a lot of the folks that 452 00:26:44.250 --> 00:26:48.210 avail themselves of this type of product, do so because they 453 00:26:48.210 --> 00:26:51.480 don't have the collateral or the personal guarantee that they can 454 00:26:51.480 --> 00:26:55.740 make to get the access quick capital, especially if you're a 455 00:26:55.740 --> 00:26:59.970 small business in a cash crunch that may be approaching a period 456 00:26:59.970 --> 00:27:02.970 of busy time where you know, those receipts are going to be 457 00:27:02.970 --> 00:27:07.380 coming in and you can repay that that advance. So we are here 458 00:27:07.380 --> 00:27:10.590 favorable with amendment. I'm happy to answer any questions. 459 00:27:10.710 --> 00:27:12.690 And we look forward to working with the sponsor and the 460 00:27:12.690 --> 00:27:14.220 proponents of the bill. Thank you. 461 00:27:14.820 --> 00:27:16.740 Madam Chair: Thank you. Questions for Mr. DiPietro? 462 00:27:17.070 --> 00:27:17.850 Delegate Howard. 463 00:27:18.900 --> 00:27:20.400 Delegate Howard: Chris, I look forward to seeing those 464 00:27:20.400 --> 00:27:25.080 amendments. I appreciate your phone call. But on that same 465 00:27:25.080 --> 00:27:29.220 token, I understand what you're saying about you know cap. And I 466 00:27:29.220 --> 00:27:31.380 understand this is a more aggressive lending because you 467 00:27:31.380 --> 00:27:34.650 aren't looking at his country. Clover is clearly I don't know 468 00:27:34.650 --> 00:27:37.380 what the history they're looking at, or as I know what they're 469 00:27:37.380 --> 00:27:39.510 looking at. They're looking at their daily receipts. 470 00:27:39.570 --> 00:27:41.160 Chris DiPietro: Exactly. That's what they are looking at. 471 00:27:41.280 --> 00:27:43.200 Delegate Howard: Yeah, but for how long? And those type of 472 00:27:43.200 --> 00:27:44.160 things? I don't know. 473 00:27:44.190 --> 00:27:44.550 Chris DiPietro: Right. 474 00:27:44.790 --> 00:27:49.080 Delegate Howard: But I mean, let me ask you this, just two people 475 00:27:49.080 --> 00:27:52.650 talking over a fence post? I mean, do you really think fair 476 00:27:52.650 --> 00:27:54.090 that somebody's charged 400%? 477 00:27:56.400 --> 00:27:57.960 Chris DiPietro: Um, I. 478 00:27:58.470 --> 00:28:03.480 Delegate Howard: Do you think I mean, is is 100% enough. I 479 00:28:03.480 --> 00:28:05.610 that's what I'm getting at with some of the caps 480 00:28:05.670 --> 00:28:08.700 Chris DiPietro: Understood. I think the problem when you get 481 00:28:08.700 --> 00:28:13.050 into the cap, it just doesn't fit into the product offering. I 482 00:28:13.050 --> 00:28:16.080 mean, what happens and Kim can probably answer this a little 483 00:28:16.080 --> 00:28:19.230 bit better than I can because she's more intimately familiar 484 00:28:19.230 --> 00:28:24.180 with how it works at Fiserv. But but my understanding is that if 485 00:28:24.180 --> 00:28:28.350 your your small business, your tobacco shop, needed in advance 486 00:28:28.350 --> 00:28:32.250 for for $10,000, to get you through a period of time, you're 487 00:28:32.250 --> 00:28:37.230 going to know that 10,000 plus a factor of the fee, so you're 488 00:28:37.230 --> 00:28:42.450 gonna know what that is upfront. So how you repay that is through 489 00:28:42.480 --> 00:28:47.970 a portion of your daily receipts that are going to be taken, 490 00:28:48.000 --> 00:28:51.600 we're going to take a portion of that, and you can decide is by 491 00:28:51.600 --> 00:28:54.570 understanding you can decide whether you as a business owner 492 00:28:54.570 --> 00:28:58.800 want to be aggressive, inverting that money, and do up to 20% of 493 00:28:58.800 --> 00:29:01.500 your daily receipts through the through the terminal. And to 494 00:29:01.500 --> 00:29:04.770 repay that. Or if you want to be less aggressive, and you want to 495 00:29:04.800 --> 00:29:08.220 maybe do five or 10% of your daily receipts. And I think 496 00:29:08.250 --> 00:29:12.180 therein lies the rub. Because if you go the longer route, and 497 00:29:12.180 --> 00:29:15.420 you'd take longer to repay, because that's more comfortable 498 00:29:15.420 --> 00:29:19.200 for you, as a business owner, that's going to change this APR 499 00:29:19.200 --> 00:29:24.690 calculation. Or if you run into a period where your daily 500 00:29:24.780 --> 00:29:28.380 receipts aren't what you think they're going to be, that also 501 00:29:28.380 --> 00:29:31.320 is going to impact the length of time it's going to take you to 502 00:29:31.320 --> 00:29:35.610 repay that. So that's where we get into the problem of if we go 503 00:29:35.610 --> 00:29:39.480 with a 24% cap, we're gonna run into problems and we're not 504 00:29:39.480 --> 00:29:43.500 going to be able to meet that because it's dependent on other 505 00:29:43.500 --> 00:29:47.400 factors, the the lifecycle of your business, how much you 506 00:29:47.400 --> 00:29:50.010 decide you want to have, how aggressive you want the 507 00:29:50.010 --> 00:29:53.340 repayment to be. Can I turn it over to you and see if I 508 00:29:53.730 --> 00:29:55.020 adequately stated that? 509 00:29:55.590 --> 00:29:57.390 Delegate Howard: I think we got a good sense of it. I want to 510 00:29:57.390 --> 00:30:01.110 ask Louis, can you weigh in on this on how This was done on all 511 00:30:01.110 --> 00:30:04.890 these other states, you've worked closely with them. 512 00:30:04.950 --> 00:30:09.600 Obviously, this question has come up, how did they breach 513 00:30:09.600 --> 00:30:10.230 this hurdle? 514 00:30:11.070 --> 00:30:13.470 Louis Candencepeck: Sure, with respect to the hurdle of 515 00:30:13.470 --> 00:30:18.060 calculating an APR for sales based financing products, that 516 00:30:18.060 --> 00:30:21.480 hurdle is reached. Many providers of these kinds of 517 00:30:21.480 --> 00:30:26.190 products already do calculate APRs. As someone referenced, 518 00:30:26.250 --> 00:30:31.710 it's part of the Smart Box, for example. And the truth and 519 00:30:31.710 --> 00:30:35.580 lending, APR formula, all you have to do to use it is just 520 00:30:35.580 --> 00:30:38.820 plug in how much money goes in and how much money comes out. 521 00:30:38.940 --> 00:30:44.070 And when those things happen. And to Chris's point when he 522 00:30:44.070 --> 00:30:47.550 described when a, when a small business decides whether they're 523 00:30:47.550 --> 00:30:49.560 going to what portion of their sales are going to go to 524 00:30:49.560 --> 00:30:52.110 repayment, that just changes the numbers that you plug into the 525 00:30:52.110 --> 00:30:54.810 formula. And then you plug them in, and you get an APR. And that 526 00:30:54.810 --> 00:30:58.170 allows you to make a comparison, as Chris described, you know, 527 00:30:58.170 --> 00:31:02.070 you don't, these these products, the payments, you don't know 528 00:31:02.070 --> 00:31:04.320 what they're going to be exactly, you have to estimate 529 00:31:04.320 --> 00:31:06.870 it. Because if a small business sells more, they repay you 530 00:31:06.900 --> 00:31:09.780 quicker, they sell less, they repay slower, that's an 531 00:31:09.780 --> 00:31:12.720 advantage of these products in some ways. Not everything is bad 532 00:31:12.720 --> 00:31:17.190 about them. But the bill is able to incorporate that by just 533 00:31:17.190 --> 00:31:21.030 saying here's a framework for estimations. And this is the 534 00:31:21.030 --> 00:31:23.040 same framework that California and New York have used. 535 00:31:23.190 --> 00:31:25.020 Chris DiPietro: And just to be clear, I have to say this, the 536 00:31:25.020 --> 00:31:27.990 California, and we're operating in California in New York. So we 537 00:31:27.990 --> 00:31:31.710 can operate in this question. We are operating in those states. 538 00:31:31.710 --> 00:31:35.850 But but but they do not have rate caps in these states, this, 539 00:31:35.850 --> 00:31:39.840 if passed would be the most aggressive legislation in the 540 00:31:39.840 --> 00:31:43.440 country, we want to keep this product available to small 541 00:31:43.440 --> 00:31:47.580 businesses in Maryland. Because again, if we cannot offer this 542 00:31:47.580 --> 00:31:50.340 product with because of the rate cap, that's going to force these 543 00:31:50.340 --> 00:31:54.660 small businesses to go to a traditional lending institution 544 00:31:54.660 --> 00:31:58.650 like Mr. Anton represents on this on this issue. And they may 545 00:31:58.650 --> 00:32:01.980 not be able to qualify because they don't have the collateral. 546 00:32:02.820 --> 00:32:06.660 Or they may not be able to act with the speed that these 547 00:32:06.660 --> 00:32:09.870 products can act with. I mean, with these products, because we 548 00:32:09.870 --> 00:32:14.940 have a history of what your your tobacco store sales are, through 549 00:32:15.060 --> 00:32:18.540 that run through the clover terminal, we know we can predict 550 00:32:18.540 --> 00:32:21.990 pretty accurately how much we're willing to advance to you. And 551 00:32:22.020 --> 00:32:26.580 again, Miss Ford can can give much more detail to to that 552 00:32:26.580 --> 00:32:27.180 process. 553 00:32:27.330 --> 00:32:29.670 Speaker 1: Let's let's I appreciate it. I think we got a 554 00:32:29.670 --> 00:32:32.670 good sense of it. I'm good Madam, Vice Chair. 555 00:32:32.910 --> 00:32:34.170 Madam Chair: Thank you. Delegate Qi. 556 00:32:36.570 --> 00:32:38.520 Delegate Qi: Thank you, Madam Chair. Just just quickly, it may 557 00:32:38.520 --> 00:32:44.400 be if you don't have details you can get to me later. Are there 558 00:32:44.790 --> 00:32:48.420 significant differences between the California and the New York 559 00:32:48.420 --> 00:32:54.150 bill? Or are they pretty much the same? You say they neither 560 00:32:54.150 --> 00:32:57.660 one have caps. But I know they both do transparency. Anything 561 00:32:57.660 --> 00:33:00.240 else that may be different between the two? 562 00:33:00.630 --> 00:33:04.050 Chris DiPietro: I would turn that over to Kim to answer I 563 00:33:04.050 --> 00:33:07.830 believe I'm not sure if California has the estimated APR 564 00:33:07.860 --> 00:33:11.190 or not. But I know New York does. And I think Kim might have 565 00:33:11.190 --> 00:33:12.000 more detail on that. 566 00:33:12.540 --> 00:33:14.100 Louis Candencepeck: Sure delegate, I would just say so 567 00:33:14.370 --> 00:33:17.610 both of them are do have disclosure requirements. So 568 00:33:17.610 --> 00:33:20.670 California has not actually finalized its regulation on 569 00:33:20.670 --> 00:33:23.550 this. So there is some change that could still happen. And the 570 00:33:23.550 --> 00:33:26.910 state of New York has not yet issued regulations. So we're 571 00:33:26.910 --> 00:33:30.120 still trying to figure that out. So we'll have to get back to you 572 00:33:30.120 --> 00:33:33.360 on that. But they do provide. Again, it's a disclosure, but 573 00:33:33.360 --> 00:33:36.030 they provide some flexibility, like delegate, Howard mentioned 574 00:33:36.030 --> 00:33:39.240 where you can do, essentially, what's more of an estimated APR. 575 00:33:40.110 --> 00:33:43.830 Speaker 1: Thank you, Louis, as you work on both those is that I 576 00:33:44.730 --> 00:33:46.140 mean is there, did we miss anything? 577 00:33:46.380 --> 00:33:49.020 Louis Candencepeck: No, that's accurate. The text of 664 draws 578 00:33:49.020 --> 00:33:51.360 primarily on the New York bill, which basically takes the good 579 00:33:51.360 --> 00:33:54.000 ideas in California that didn't fit into the statute that are 580 00:33:54.000 --> 00:33:56.220 now being moved forward in the regulation and putting them in 581 00:33:56.220 --> 00:33:59.100 the statute, which is what you're all be doing in 664. 582 00:33:59.670 --> 00:34:01.530 Chris DiPietro: And to be completely fair, some of our 583 00:34:01.530 --> 00:34:04.440 amendments address is because some of those requirements of 584 00:34:04.440 --> 00:34:07.170 the New York merging the New York and California together 585 00:34:07.230 --> 00:34:10.200 that are in the bill as introduced just don't quite work 586 00:34:10.200 --> 00:34:13.140 and we are offering some amendments to clean up some of 587 00:34:13.140 --> 00:34:16.350 that not to do harm to the bill, but just to clean it up and make 588 00:34:16.350 --> 00:34:17.580 it work more effectively. 589 00:34:17.820 --> 00:34:18.180 Louis Candencepeck: Okay. 590 00:34:21.750 --> 00:34:25.230 Madam Chair: Any other questions? Alright, we will move 591 00:34:25.230 --> 00:34:27.990 on to the opposition. Patrick Sigfried. 592 00:34:33.150 --> 00:34:34.830 Patrick Sigfried: Good afternoon, Madam Chair, members 593 00:34:34.830 --> 00:34:37.050 of this committee. My name is Patrick Sigfried and I'm here 594 00:34:37.350 --> 00:34:40.350 today on behalf of Rapid Financial Services. Rapid was 595 00:34:40.350 --> 00:34:43.290 founded in 2006 and has been headquartered in Montgomery 596 00:34:43.290 --> 00:34:46.380 County since its inception. To date, we have provided over $2 597 00:34:46.380 --> 00:34:49.170 billion in working capital to small businesses throughout the 598 00:34:49.170 --> 00:34:53.400 United States. We employ nearly 200 employees at our Bethesda 599 00:34:53.400 --> 00:34:57.240 office. Our financing products include but are not limited to 600 00:34:57.690 --> 00:35:01.710 sales based financing which is a subject of 664 This type of 601 00:35:01.710 --> 00:35:04.140 financing allows small businesses to sell a portion of 602 00:35:04.140 --> 00:35:07.680 their future revenue in exchange for immediate working capital, 603 00:35:07.740 --> 00:35:10.440 in a sales based financing transaction there is no 604 00:35:10.440 --> 00:35:14.160 repayment term, there is no interest rate. And there are no 605 00:35:14.160 --> 00:35:16.680 set payment amounts. And most importantly, there is no 606 00:35:16.680 --> 00:35:20.070 personal guarantee required of the business owner. Because 607 00:35:20.070 --> 00:35:22.560 there's no personal guarantee the risk is placed on the 608 00:35:22.560 --> 00:35:25.740 funder. Rapid takes the risk of the business slowing down or 609 00:35:25.740 --> 00:35:28.830 even failing. Last year, I testified to these benefits of 610 00:35:28.830 --> 00:35:31.830 sales based financing. And unfortunately, the COVID 611 00:35:31.830 --> 00:35:34.560 pandemic has proven just how important they can be to small 612 00:35:34.560 --> 00:35:38.490 businesses, as many businesses were shut down due to COVID. 613 00:35:38.730 --> 00:35:41.880 Those businesses with a sales based financing product were not 614 00:35:41.880 --> 00:35:46.650 required to make any payments. Moreover, if these businesses 615 00:35:46.650 --> 00:35:49.800 had to shut their doors forever, the business owners will not be 616 00:35:49.800 --> 00:35:52.410 responsible for any remaining balance because there's no 617 00:35:52.410 --> 00:35:56.760 personal guarantee. In contrast, small business loans and line of 618 00:35:56.760 --> 00:35:59.250 credit products that are not regulated by this bill and would 619 00:35:59.250 --> 00:36:03.360 not be subject to this bill, would they were required to to 620 00:36:03.390 --> 00:36:06.060 continue to make payments on the terms of those transactions 621 00:36:06.090 --> 00:36:08.640 throughout COVID. And the business owners who guarantee 622 00:36:08.640 --> 00:36:11.310 those transactions are going to still be obligated to ensure 623 00:36:11.310 --> 00:36:15.690 that the lender is repaid. Nationwide Rapid has over 290 624 00:36:15.690 --> 00:36:18.330 customers with sales based financing accounts that 625 00:36:18.330 --> 00:36:21.450 experience decreased revenue as a result of COVID. In the event 626 00:36:21.450 --> 00:36:24.600 that these businesses ultimately fail, rapid would take the loss 627 00:36:24.600 --> 00:36:28.650 of over $9 million. However, the owners of these businesses would 628 00:36:28.650 --> 00:36:32.490 not owe Rapid anything, in Maryland rapid has 10 customers 629 00:36:32.490 --> 00:36:35.310 that have been severely impacted by COVID. If these businesses 630 00:36:35.310 --> 00:36:38.580 unfortunately, do not survive the pandemic, their owners will 631 00:36:38.580 --> 00:36:42.480 walk away debt free. While we oppose HB 664, we are committed 632 00:36:42.480 --> 00:36:44.910 to working with this committee and the sponsors to create 633 00:36:44.910 --> 00:36:47.130 thoughtful and comprehensive legislation to regulate 634 00:36:47.130 --> 00:36:48.090 commercial financing. 635 00:36:50.820 --> 00:36:53.790 Madam Chair: Any questions for Mr. Sigfried? Delegate Howard? 636 00:36:55.080 --> 00:36:57.540 Delegate Howard: Thanks, Madam Vice Chair, Patrick, you said 637 00:36:57.540 --> 00:37:02.640 that these guys walk away, scot free. You know, last year I 638 00:37:02.640 --> 00:37:05.850 referenced I was very upset. Last year, I referenced that 639 00:37:05.850 --> 00:37:08.820 there's hundreds of lawsuits on your behalf filed throughout the 640 00:37:08.820 --> 00:37:12.510 United States. I mean, that 20 pages and at the top of the 641 00:37:12.510 --> 00:37:16.770 Maryland judiciary case search, it says big letters can't fit 642 00:37:16.770 --> 00:37:21.840 anymore. On the search. I mean, these folks aren't walking away 643 00:37:21.840 --> 00:37:24.600 scot free. You want to walk me through that or? 644 00:37:25.170 --> 00:37:27.570 Patrick Sigfried: Sure. Sure delegate Howard. Actually most 645 00:37:27.570 --> 00:37:30.780 of those accounts are actually loans, which again, are not 646 00:37:30.780 --> 00:37:33.480 subject to the bill that you're proposing. You're right. In some 647 00:37:33.480 --> 00:37:36.780 instances, there were sales based financing transactions 648 00:37:37.080 --> 00:37:40.170 that resulted in a judgment. But that's only because there was a 649 00:37:40.320 --> 00:37:42.630 default of the contractual provisions regarding the 650 00:37:42.630 --> 00:37:46.020 guarantee as to the performance of the contract, not the 651 00:37:46.020 --> 00:37:49.590 repayment, but that the merchant would continue to cross, process 652 00:37:49.590 --> 00:37:53.970 their credit cards as they were doing prior to being funded. And 653 00:37:53.970 --> 00:37:57.300 because of some instance, sometimes where they are adding 654 00:37:57.360 --> 00:38:00.210 an additional credit card processing terminal in order to 655 00:38:00.210 --> 00:38:04.080 avoid getting, sending rapid any portion of the transaction. And 656 00:38:04.080 --> 00:38:07.350 those instances, that's when the performance guarantee of the 657 00:38:07.350 --> 00:38:10.290 business owner comes into play. But again, there is no personal 658 00:38:10.290 --> 00:38:14.460 guarantee of the business owner that they ensure that the the 659 00:38:14.490 --> 00:38:17.250 MCA or sales based financing transaction is repaid. 660 00:38:17.820 --> 00:38:19.800 Delegate Howard: There would be a personal guarantee based on 661 00:38:19.800 --> 00:38:21.360 the outcome of the court case, correct? 662 00:38:22.290 --> 00:38:22.680 Patrick Sigfried: No. 663 00:38:22.740 --> 00:38:25.050 Delegate Howard: I mean, so the judge wouldn't award you any 664 00:38:25.050 --> 00:38:27.300 financial monetary damages? 665 00:38:28.110 --> 00:38:30.270 Patrick Sigfried: Not as to the guarantor, again, if there was 666 00:38:30.390 --> 00:38:33.390 if there is no violation of the of the covenant to continue to 667 00:38:33.390 --> 00:38:36.270 operate their business as they had been operating it, there 668 00:38:36.390 --> 00:38:38.850 would be no liability for the business owner. And again, 669 00:38:38.910 --> 00:38:44.310 that's exactly what happened in COVID. Again, 290, 293 customers 670 00:38:44.310 --> 00:38:47.880 throughout the country, if they ultimately fail, if we were to 671 00:38:47.880 --> 00:38:50.610 sue them in court, we would not legally be allowed to get a 672 00:38:50.610 --> 00:38:52.800 judgment against them, because again, that's the way this 673 00:38:52.800 --> 00:38:53.880 transaction works. 674 00:38:54.810 --> 00:38:55.290 Delegate Howard: Thank you. 675 00:38:56.790 --> 00:39:00.570 Madam Chair: Any other questions for Mr. Sigfried? See none, we 676 00:39:00.570 --> 00:39:02.010 will move on to Chris Grimm. 677 00:39:05.250 --> 00:39:07.530 Chris Grimm: Members of the Committee My name is Chris Grimm 678 00:39:07.530 --> 00:39:10.650 on behalf of the Innovative Lending Platform Association. I 679 00:39:10.650 --> 00:39:14.880 appreciate the opportunity to testify today. While we do 680 00:39:14.880 --> 00:39:17.790 support a lot of what's in this bill, particularly the 681 00:39:17.790 --> 00:39:20.580 disclosure portion, unfortunately, we do have to 682 00:39:20.580 --> 00:39:25.200 oppose because of the rate cap ILP believes very strongly in 683 00:39:25.200 --> 00:39:30.330 disclosure, we created the Smart Box in 2016, to give small 684 00:39:30.330 --> 00:39:34.440 business financing providers an easy way to provide key 685 00:39:34.440 --> 00:39:38.700 disclosure metrics to their potential customers. We work 686 00:39:38.700 --> 00:39:42.300 very, very closely with Louis and Lending Club and the 687 00:39:42.300 --> 00:39:45.030 Responsible Business Lending Coalition on the legislation in 688 00:39:45.030 --> 00:39:48.120 New York. We worked very hard over two years to get that bill 689 00:39:48.120 --> 00:39:52.350 passed, we feel is the gold standard in regulating small 690 00:39:52.350 --> 00:39:55.650 business financing and believe very, very strongly that 691 00:39:55.650 --> 00:40:00.210 disclosure is the best way to regulate this industry. We 692 00:40:00.210 --> 00:40:03.540 testified last year in opposition because that bill 693 00:40:03.540 --> 00:40:08.040 would have banned these products for Maryland small businesses. 694 00:40:09.240 --> 00:40:12.570 Putting an arbitrary rate cap has the same impact, you are 695 00:40:12.570 --> 00:40:15.480 essentially going to ban the product, because it is not 696 00:40:15.480 --> 00:40:19.290 economically feasible to offer these products under that 697 00:40:19.290 --> 00:40:23.280 arbitrary ban. Or they'll only be available to the businesses 698 00:40:23.550 --> 00:40:26.790 that have the collateral or the credit history or the banking 699 00:40:26.790 --> 00:40:30.510 relationship, to take advantage of them. And there are other 700 00:40:30.510 --> 00:40:33.690 financing options for those businesses. So we support 701 00:40:33.690 --> 00:40:36.330 disclosure, we think it's very, very important. We supported New 702 00:40:36.330 --> 00:40:40.170 York's law, from start all the way through to the finish, we 703 00:40:40.170 --> 00:40:43.830 are opposed to rate caps, it ends up taking away a valuable 704 00:40:43.830 --> 00:40:47.580 choice for Maryland, small businesses. Our members offer 705 00:40:47.640 --> 00:40:50.850 these products as well as traditional term loans, lines of 706 00:40:50.850 --> 00:40:54.300 credit, factoring, so our members run sort of the full 707 00:40:54.300 --> 00:40:59.850 gamut of products in this space. But again, rate caps are 708 00:40:59.850 --> 00:41:02.310 essentially a ban and we have to oppose this bill because of 709 00:41:02.310 --> 00:41:05.700 that, but would love to work on a solution that brings greater 710 00:41:05.700 --> 00:41:08.250 disclosure and transparency for Maryland small businesses. 711 00:41:09.270 --> 00:41:11.580 Madam Chair: Thank you, Mr. Grimm. Any questions for Mr. 712 00:41:11.580 --> 00:41:13.680 Grimm? Delicate Howard. 713 00:41:14.310 --> 00:41:17.670 Delegate Howard: Thank you, Madam Vice Chair. Mr. Grimm, we 714 00:41:17.670 --> 00:41:20.940 heard testimony earlier that customers walk away. Have you 715 00:41:20.940 --> 00:41:24.150 ever, from these loans, and should they default on them? As 716 00:41:24.180 --> 00:41:27.300 per seized? And Patrick, maybe you want to weigh on this too, 717 00:41:27.300 --> 00:41:32.070 have you ever seized any account or locked any accounts or gone 718 00:41:32.070 --> 00:41:35.820 in and gotten money out of any accounts of customers that 719 00:41:35.820 --> 00:41:39.780 breach their contract with you and then were found in court to 720 00:41:39.780 --> 00:41:41.730 not have breached their contract? I guess where I'm 721 00:41:41.730 --> 00:41:42.360 going with that. 722 00:41:43.290 --> 00:41:45.750 Chris Grimm: I don't believe so. But I can check some of our 723 00:41:45.750 --> 00:41:49.140 members, right, we have a dozen members, all with different 724 00:41:49.140 --> 00:41:52.680 business models. I can check on that. And happy to get back to 725 00:41:52.680 --> 00:41:58.200 you. I do not believe so. Part of our Association's sort of 726 00:41:58.200 --> 00:42:02.400 ethical guidelines are to not use confessions of judgment. And 727 00:42:02.400 --> 00:42:04.410 so you know, I will double check. 728 00:42:04.830 --> 00:42:09.180 Speaker 1: Yeah, and I think everybody here agreed, even last 729 00:42:09.180 --> 00:42:13.650 year, that confessions of judgment were horrible. We had a 730 00:42:13.650 --> 00:42:16.500 good starting point there, and we're objective moving forward 731 00:42:16.500 --> 00:42:20.280 there. But I guess my question is, is that what is your 732 00:42:20.280 --> 00:42:25.140 recourse? I mean, you know, you're not looking at a 733 00:42:25.140 --> 00:42:27.510 business's history, you're not looking at a business's credit, 734 00:42:27.510 --> 00:42:30.390 you're not looking, you're just you know, some guy, some guy or 735 00:42:30.390 --> 00:42:34.680 gal has been in business 30, 30 days, they want 10 grand, and 736 00:42:34.980 --> 00:42:37.380 then they default, what is your recourse to get your get your 737 00:42:37.380 --> 00:42:37.710 money. 738 00:42:38.400 --> 00:42:41.460 Chris Grimm: So our members do do an underwriting. So even if 739 00:42:41.460 --> 00:42:44.490 they are doing a merchant cash advance or sales based financing 740 00:42:44.490 --> 00:42:48.780 product, they are looking at past receivables. And most of 741 00:42:48.780 --> 00:42:51.600 our concurs customers have been in business for at least a year. 742 00:42:51.600 --> 00:42:56.010 So there's at least a year of events to look at. But some are 743 00:42:56.010 --> 00:42:58.770 in business for shorter, some are looking for potentially 744 00:42:58.770 --> 00:43:02.310 startup capital. Part of the product in front, and one of the 745 00:43:02.310 --> 00:43:04.770 benefits of the product is that there is no recourse. 746 00:43:05.280 --> 00:43:07.200 Delegate Howard: So they determine a pay back or interest 747 00:43:07.200 --> 00:43:09.930 rate based on some type of underwriting but they large, 748 00:43:10.080 --> 00:43:12.300 your point is, is that they have a formula determined to 749 00:43:12.300 --> 00:43:13.500 determine an interest rate? 750 00:43:16.110 --> 00:43:19.020 Chris Grimm: So that's a complicated question. So in the 751 00:43:19.020 --> 00:43:21.960 underwriting process, right, our members who offer these products 752 00:43:21.960 --> 00:43:25.860 are looking at you know previous sales history, previous bank 753 00:43:25.860 --> 00:43:29.040 account data, and are estimating about how long it's going to 754 00:43:29.040 --> 00:43:32.370 take them to get paid back. Right, they have an idea. And 755 00:43:32.370 --> 00:43:36.780 that's why in our updated SmartBox, you know, after 756 00:43:36.780 --> 00:43:40.140 California passed their law and working in New York, we have a 757 00:43:40.140 --> 00:43:42.990 mechanism for calculating an estimated APR. And that's 758 00:43:42.990 --> 00:43:45.510 because when doing the underwriting, or if you provide 759 00:43:45.690 --> 00:43:48.870 $10,000 in financing to a business, you're expecting them 760 00:43:48.870 --> 00:43:53.760 to pay you back $14,000, you're going to take 1.5% of their 761 00:43:53.760 --> 00:43:57.240 daily sales, you can crunch the numbers looking at what their 762 00:43:57.240 --> 00:44:00.330 average daily sales are, and come up with an estimated term 763 00:44:00.330 --> 00:44:04.290 and with that estimated term, can provide an estimated APR. 764 00:44:04.560 --> 00:44:06.540 Speaker 1: I think that's exactly what Louis was talking 765 00:44:06.540 --> 00:44:10.530 about earlier, a little bit. Um, but what is your legal recourse? 766 00:44:10.560 --> 00:44:14.850 I mean, it's, you know, I got to imagine, you know, and what's 767 00:44:14.850 --> 00:44:18.750 your average interest rate? I mean, you talk about risky, and 768 00:44:18.750 --> 00:44:20.730 I know that there's some underwriting that goes into 769 00:44:20.730 --> 00:44:23.910 this, but, you know, new businesses, everybody fancies 770 00:44:23.910 --> 00:44:27.180 themselves a business owner until it's time to really do it, 771 00:44:27.180 --> 00:44:33.660 it's tough. Recourse as far as regaining funds lent. 772 00:44:33.930 --> 00:44:36.390 Chris Grimm: So so the legal recourse is breach of contract, 773 00:44:36.420 --> 00:44:39.780 right, a sales based financing is a contract. The small 774 00:44:39.780 --> 00:44:43.920 businesses agreeing for to pay a percentage of their daily or 775 00:44:43.920 --> 00:44:48.300 weekly sales to the provider. If they are no longer providing 776 00:44:48.300 --> 00:44:50.970 those daily or weekly sales, they are in breach of contract. 777 00:44:51.510 --> 00:44:54.990 So it is not a traditional loan. 778 00:44:54.990 --> 00:44:57.090 Speaker 1: How many loans how many loans do you have that 779 00:44:57.090 --> 00:44:57.570 fail? 780 00:44:59.040 --> 00:45:03.150 Chris Grimm: So across our entire across our entire 781 00:45:03.180 --> 00:45:08.160 membership, I believe the number is is 4 to 6%. I don't remember 782 00:45:08.160 --> 00:45:11.310 off the top of my head. But I can I can find that out and get 783 00:45:11.310 --> 00:45:12.870 that to you as well. 784 00:45:13.200 --> 00:45:15.060 Delegate Howard: Yeah, I'd like to see that because I'm just 785 00:45:15.060 --> 00:45:17.490 trying to get a sense of what the business model is. I mean, 786 00:45:17.850 --> 00:45:20.520 there's no legal recourse, we can't go in and get the money. 787 00:45:21.420 --> 00:45:26.340 But we loan all this money out. I mean, I just I can't see. 788 00:45:26.850 --> 00:45:29.640 Chris Grimm: It's so the business model is actually more 789 00:45:29.640 --> 00:45:33.630 akin to taking on an investor. Right? So I'm a small business 790 00:45:33.630 --> 00:45:34.170 my dad was, 791 00:45:34.170 --> 00:45:36.460 Delegate Howard: That's what you are. But that's what gets to a 792 00:45:36.460 --> 00:45:40.000 little bit more to the secondary part. Part of my argument, which 793 00:45:40.000 --> 00:45:43.630 is, with any investment comes risk, and the financing is based 794 00:45:43.630 --> 00:45:46.480 on that risk. And the higher the risk, the higher the financing, 795 00:45:47.230 --> 00:45:49.240 what we're trying to get to the meat of here. 796 00:45:49.870 --> 00:45:52.330 Chris Grimm: Correct, correct. But But what I mean is, it's 797 00:45:52.330 --> 00:45:56.680 more like taking on an investor, if I own a small business, and I 798 00:45:56.710 --> 00:46:00.280 take out a sales based financing product. In exchange for that 799 00:46:00.280 --> 00:46:04.000 funding, I am promising to pay a portion of my revenue to the 800 00:46:04.030 --> 00:46:06.970 provider just as I can fund an investor, but instead of that 801 00:46:06.970 --> 00:46:10.090 investor, you know, having a portion of my revenue for the 802 00:46:10.090 --> 00:46:13.510 life of my business, it is just until I reach a set amount of 803 00:46:13.510 --> 00:46:15.130 money going back to them. 804 00:46:17.020 --> 00:46:19.960 Delegate Howard: Okay, so I need more clarification on what you 805 00:46:19.960 --> 00:46:22.630 do when that set amount of money is not reached, because I can't 806 00:46:22.630 --> 00:46:27.820 imagine that $9 billion, which was quoted earlier. Just sort of 807 00:46:27.820 --> 00:46:29.290 like if if people default on that this sort of we shrug our 808 00:46:29.290 --> 00:46:32.890 shoulders and I just I can't I can't imagine that that's the 809 00:46:33.070 --> 00:46:39.970 case. So I don't want to take up the committee any more the 810 00:46:39.970 --> 00:46:42.520 committee's time. I think that's another testimony to get to 811 00:46:42.520 --> 00:46:44.680 mountain vice chair. So, thank you. 812 00:46:45.760 --> 00:46:49.570 Madam Chair: Oh man, I see no other questions for Mr. Grimm. 813 00:46:49.660 --> 00:46:55.600 Catherine Fisher. Is miss Fisher still here? 814 00:46:56.260 --> 00:46:57.010 Katherine Fisher: I'm here. 815 00:46:57.280 --> 00:46:57.730 Madam Chair: Okay. 816 00:46:57.910 --> 00:47:03.670 Katherine Fisher: Thank you very much. My name is Kate Fisher, 817 00:47:03.700 --> 00:47:06.490 and I'm a partner with the Maryland based law firm Hudson 818 00:47:06.490 --> 00:47:10.840 Cook. I'm also a residents of district resident district 42 B. 819 00:47:12.700 --> 00:47:15.310 And I'm here today representing the commercial finance 820 00:47:15.310 --> 00:47:18.640 Coalition, a group of responsible finance companies 821 00:47:18.640 --> 00:47:21.580 that provide capital to small and medium sized businesses 822 00:47:21.580 --> 00:47:25.540 through innovative method. The commercial finance coalition 823 00:47:25.540 --> 00:47:28.720 supports disclosures and licensing and the ban on 824 00:47:28.720 --> 00:47:32.860 confessions of judgment. The commercial finance coalition 825 00:47:32.890 --> 00:47:38.470 does not support and opposes an APR disclosure, and an APR cap. 826 00:47:39.100 --> 00:47:41.140 There are four points I would like to make and then I'd like 827 00:47:41.140 --> 00:47:44.410 to briefly address two of the comments that have been made so 828 00:47:44.410 --> 00:47:49.150 far. First, a sales based financing transaction is not a 829 00:47:49.150 --> 00:47:53.290 loan. It is a form of factoring, which is a sale transaction that 830 00:47:53.290 --> 00:47:58.630 is regulated under the Uniform Commercial Code. Second, because 831 00:47:58.660 --> 00:48:01.600 a sales based financing transaction is not a loan, the 832 00:48:01.600 --> 00:48:05.410 requirement to disclose an estimated APR will result in a 833 00:48:05.410 --> 00:48:10.480 misleading disclosure because it will be wrong. APR is short for 834 00:48:10.480 --> 00:48:13.570 annual percentage rate and is a requirement of the federal Truth 835 00:48:13.570 --> 00:48:17.080 in Lending Act for consumer credit transactions. We're all 836 00:48:17.080 --> 00:48:20.320 familiar with the term APR because we see it and see it 837 00:48:20.320 --> 00:48:23.470 disclosed anytime we finance the purchase of a car or look at our 838 00:48:23.470 --> 00:48:27.640 credit card statements. But an APR calculation is highly 839 00:48:27.640 --> 00:48:34.690 technical and complicated. I want to share my is it possible 840 00:48:34.690 --> 00:48:37.120 for me to share my screen I was going to show the. 841 00:48:38.500 --> 00:48:40.450 Madam Chair: I don't think we have that capability. 842 00:48:41.020 --> 00:48:43.720 Katherine Fisher: Okay. Well, let me hold it up. But it won't 843 00:48:43.720 --> 00:48:48.310 be as, if you can see this, is the formula. 844 00:48:48.640 --> 00:48:51.580 Madam Chair: You don't have anything in the window. Oh, 845 00:48:51.580 --> 00:48:54.790 really? Yeah. Alright. Now you do but. Okay. Initially, all we 846 00:48:54.790 --> 00:48:58.510 saw was blank paper. Okay, can you see this? This is we can see 847 00:48:58.510 --> 00:49:00.100 how complicated that looks. Yes. 848 00:49:00.240 --> 00:49:02.130 Katherine Fisher: Thank you, I'd hope to show you that the 849 00:49:02.130 --> 00:49:06.810 complicated math formula. And this APR calculation takes 850 00:49:06.810 --> 00:49:09.990 information such as interest rate, the required payment 851 00:49:09.990 --> 00:49:14.340 schedule and the loan term and creates the APR disclosure in a 852 00:49:14.340 --> 00:49:16.950 sales based financing transaction there is no interest 853 00:49:16.950 --> 00:49:20.130 rate, there is no required payment schedule or loan term. 854 00:49:20.760 --> 00:49:24.360 As a result, the APR disclosure will be made up of guesses that 855 00:49:24.360 --> 00:49:27.150 will be run through that equation I showed you. This will 856 00:49:27.150 --> 00:49:30.090 not result in a helpful disclosure for business owners. 857 00:49:30.660 --> 00:49:33.570 Third, requiring financing providers to give a disclosure 858 00:49:33.570 --> 00:49:37.230 that they know will be wrong create significant litigation 859 00:49:37.230 --> 00:49:40.920 risks. The result will be that many providers of financing for 860 00:49:40.920 --> 00:49:44.520 small businesses will stop doing business in Maryland, and an APR 861 00:49:44.520 --> 00:49:49.470 cap will have the same result. Finally, small business finance 862 00:49:49.470 --> 00:49:53.040 is complicated. Last call the Office of the Commissioner of 863 00:49:53.040 --> 00:49:56.730 financial financial regulation formed a workgroup to gather 864 00:49:56.730 --> 00:50:00.390 information and address this issue. Unfortunately, the 865 00:50:00.390 --> 00:50:03.810 workgroup was disbanded after only one meeting and little 866 00:50:03.810 --> 00:50:08.670 input opportunity was available to industry. Rather than pushed 867 00:50:08.670 --> 00:50:11.430 to implement legislation on a complicated issue that will 868 00:50:11.430 --> 00:50:14.130 result in limiting access to capital for Maryland small 869 00:50:14.130 --> 00:50:16.950 businesses. We ask that the commissioner of financial 870 00:50:16.950 --> 00:50:20.100 regulation be authorized to reform the workgroup and conduct 871 00:50:20.100 --> 00:50:24.390 a study to provide guidance on meaningful legislation. Then, 872 00:50:24.420 --> 00:50:27.390 just quickly, two points, I'd like to briefly address. 873 00:50:27.420 --> 00:50:29.160 Madam Chair: You are overtime, so very quickly. 874 00:50:29.520 --> 00:50:32.460 Katherine Fisher: Thank you. The Federal Reserve study mentioned 875 00:50:32.460 --> 00:50:35.910 by a couple of folks this study is called browsing to borrow. 876 00:50:36.210 --> 00:50:41.340 And it looks at the need for disclosure and Small Business 877 00:50:41.340 --> 00:50:45.810 Finance, which we agree with. It did not say that APR is the most 878 00:50:45.810 --> 00:50:49.260 important disclosure rather, it said broadly that disclosures 879 00:50:49.260 --> 00:50:53.040 are needed. In addition, question about New York and 880 00:50:53.040 --> 00:50:57.690 California. No state has yet figured out how to apply an APR 881 00:50:57.690 --> 00:51:00.810 to a sales based financing product. California's 882 00:51:00.810 --> 00:51:05.400 legislation requires an annual rate but not APR. The regulator 883 00:51:05.400 --> 00:51:07.680 has spent several years working through how that might be 884 00:51:07.680 --> 00:51:12.030 disclosed. The New York legislation does require an APR. 885 00:51:12.030 --> 00:51:15.870 But we have not seen how the regulator will implement this. 886 00:51:15.870 --> 00:51:20.070 So as of yet, no state has done this. And thank you so much for 887 00:51:20.130 --> 00:51:20.550 the time. 888 00:51:21.090 --> 00:51:23.850 Madam Chair: Okay. Any questions for Miss Fisher? Delegate 889 00:51:23.850 --> 00:51:24.210 Howard. 890 00:51:25.650 --> 00:51:27.570 Delegate Howard: It's just a suggestion. I mean, he said that 891 00:51:27.570 --> 00:51:30.240 they can't do an APR. We've already heard testimony from a 892 00:51:30.240 --> 00:51:33.360 couple of businesses here today that they are even in their 893 00:51:33.360 --> 00:51:37.710 underwriting formula, I would I would call them and get with 894 00:51:37.710 --> 00:51:40.620 them on that, because it seems like some members of the 895 00:51:40.620 --> 00:51:43.050 community are already doing. 896 00:51:43.050 --> 00:51:44.170 Katherine Fisher: Well, I just I disagree, respectfully delegate 897 00:51:44.170 --> 00:51:47.023 Delegate Howard: What we're talking about. We're talking 898 00:51:47.023 --> 00:51:51.399 Howard, because they are disclosing at an estimated 899 00:51:51.485 --> 00:51:54.060 calculation. However, that is. 900 00:51:55.630 --> 00:51:56.530 about an estimate. 901 00:51:56.680 --> 00:51:59.290 Katherine Fisher: That's right. But it will be wrong when it is 902 00:51:59.290 --> 00:52:03.700 disclosed to a small business owner, the calculation will not 903 00:52:03.700 --> 00:52:07.630 be a true reflection of the cost of capital. That was my point. 904 00:52:08.950 --> 00:52:10.690 Delegate Howard: Well, they're already doing it, though. So 905 00:52:10.690 --> 00:52:16.150 they're already disclosing wrong rates. Is that your testimony? 906 00:52:16.180 --> 00:52:20.140 So the people that have talked about already doing this, or 907 00:52:20.470 --> 00:52:22.900 better yet, take it one step further, the people that are 908 00:52:22.900 --> 00:52:25.750 doing this as far as underwriting concern are wrong? 909 00:52:25.750 --> 00:52:28.300 Katherine Fisher: I don't believe that they're calculating 910 00:52:28.300 --> 00:52:32.560 an APR during underwriting, they're calculating some of the 911 00:52:32.560 --> 00:52:37.330 other metrics. As far as disclosing an APR. It is a very 912 00:52:37.330 --> 00:52:40.990 technical calculation and the it's a little bit garbage in 913 00:52:40.990 --> 00:52:47.440 garbage out, when you are making guesses about what the payments 914 00:52:47.440 --> 00:52:51.460 will be what the loan term will be. transaction without these 915 00:52:51.460 --> 00:52:54.070 types of requirements. You're not going to get a good 916 00:52:54.070 --> 00:52:56.320 disclosure. There are other better, more helpful 917 00:52:56.320 --> 00:52:57.310 disclosures. 918 00:52:58.900 --> 00:52:59.680 Delegate Howard: Okay, thank you. 919 00:53:01.330 --> 00:53:03.760 Madam Chair: See, Delegate Rogers, you had your hand up? 920 00:53:07.630 --> 00:53:11.200 Delegate Rogers: Yes, Madam Chair, but I think delegate 921 00:53:11.200 --> 00:53:15.010 Howard got my quote that day. I just got them all. 922 00:53:15.040 --> 00:53:18.220 Madam Chair: Alright. Thank you. I see no further questions for 923 00:53:18.220 --> 00:53:25.810 Miss Fisher. And we'll move to Stephen Dennis. Stephen Dennis 924 00:53:25.810 --> 00:53:26.440 still here? 925 00:53:26.440 --> 00:53:28.747 Steve Denis: Yeah, I'm here. Sorry. My name is Steve Dennis. 926 00:53:28.805 --> 00:53:32.079 I'm the executive director of the Small Business Finance 927 00:53:32.137 --> 00:53:33.980 Association. First, I want to thank this committee for your 928 00:53:33.980 --> 00:56:35.645 Thank you for your testimony questions for Mr. Dennis? Seeing 929 00:53:35.645 --> 00:53:39.269 leadership in response to this pandemic. Your work is critical 930 00:53:39.327 --> 00:53:42.776 to ensuring small businesses have equal access to all types 931 00:53:42.835 --> 00:53:45.933 of financing and, and all support as they continue to 932 00:53:45.991 --> 00:53:49.674 recover. It is this reason among many others, we are opposed to 933 00:53:49.732 --> 00:53:53.006 this bill. As you know from testimony this bill narrowly 934 00:53:53.064 --> 00:53:56.396 targets one particular product of many with new rules and 935 00:53:56.455 --> 00:53:59.728 regulations that would make it impossible to continue to 936 00:53:59.786 --> 00:54:03.060 provide this as an option and create a mess of different 937 00:54:03.118 --> 00:54:06.275 disclosures and rules for the many products offered in 938 00:54:06.333 --> 00:54:09.899 Maryland. One example of this confusion was evident last year 939 00:54:09.958 --> 00:54:13.582 before this committee last year, a small business testified in 940 00:54:13.640 --> 00:54:16.797 support of a ban on sales based financing products. In 941 00:54:16.855 --> 00:54:20.187 actuality, this business received a traditional loan from 942 00:54:20.246 --> 00:54:23.870 a supporter of this legislation that would be that wouldn't be 943 00:54:23.928 --> 00:54:27.436 subject to this bill. These loans are made through federally 944 00:54:27.494 --> 00:54:31.177 chartered banks based in Utah or other places designed to avoid 945 00:54:31.235 --> 00:54:34.801 state laws. This is the same loophole that payday lenders use 946 00:54:34.859 --> 00:54:38.191 to continue lending in Maryland despite the band and this 947 00:54:38.250 --> 00:54:41.582 legislation wouldn't impact these transactions. You know, 948 00:54:41.640 --> 00:54:44.797 the pandemic has hit both businesses and people really 949 00:54:44.855 --> 00:54:48.479 hard. Credit scores have dropped and many in Maryland struggle 950 00:54:48.538 --> 00:54:51.811 simply to put food on the table, let alone finance their 951 00:54:51.870 --> 00:54:55.377 businesses. Traditional loans require personal credit checks 952 00:54:55.436 --> 00:54:58.826 collateral, and for some that isn't an option. Sales based 953 00:54:58.884 --> 00:55:02.158 financing is focused on the success of your business and 954 00:55:02.216 --> 00:55:05.665 less about previous financial mistakes, we've all had them. 955 00:55:05.724 --> 00:55:09.231 This is why the approval rate for these types of products is 956 00:55:09.289 --> 00:55:12.914 84% over the last year in the during the pandemic, compared to 957 00:55:12.972 --> 00:55:16.538 just over 50% for traditional loans. Lastly, I want to go off 958 00:55:16.596 --> 00:55:20.045 the cuff here a little and address some something mentioned 959 00:55:20.104 --> 00:55:23.611 by delegate Howard. You know, these products are designed to 960 00:55:23.669 --> 00:55:27.118 be flexible, the terms change and to accurately reflect the 961 00:55:27.177 --> 00:55:30.392 cost APR can be misleading because it isn't an interest 962 00:55:30.450 --> 00:55:34.250 rate, it's a measure of the time value of money term is extremely 963 00:55:34.308 --> 00:55:37.698 important. You know, Delegate our for as an example, if we 964 00:55:37.757 --> 00:55:40.972 were to go to lunch, which I hope to do some day, and I 965 00:55:41.030 --> 00:55:44.772 bought you lunch for for $9 and a month later I saw you you gave 966 00:55:44.830 --> 00:55:48.454 me $10 To repay simple enough you pay me back one extra dollar 967 00:55:48.513 --> 00:55:51.786 that's roughly 10%. After a month on the loan on on that 968 00:55:51.845 --> 00:55:55.293 loan, that would be almost a 250% APR. If you didn't see me 969 00:55:55.352 --> 00:55:59.093 for about a year. You know, next year when we're at this hearing 970 00:55:59.151 --> 00:56:02.893 again, and you gave me $10 back for that lunch I bought you that 971 00:56:02.951 --> 00:56:05.932 APR would be only 21%. With respect to our industry 972 00:56:05.991 --> 00:56:09.264 opponents on this bill. We firmly support disclosure. We 973 00:56:09.323 --> 00:56:13.005 wrote the bill to ban COJ's in New York. We worked with Senator 974 00:56:13.064 --> 00:56:16.396 Glaser in California to help draft a majority of the bill 975 00:56:16.454 --> 00:56:19.377 that passed. We support meaningful disclosure that 976 00:56:19.435 --> 00:56:23.060 applies to all products equally. Thank you for your time. Yes. 977 00:56:28.670 --> 00:56:31.910 none, we will go to our last witness Alexis Shapiro. 978 00:56:34.030 --> 00:56:36.250 Alexis Shapiro: Yes, good afternoon. My name is Alexis 979 00:56:36.250 --> 00:56:40.750 Shapiro and I'm the General Counsel at Ford Financing. We 980 00:56:40.750 --> 00:56:44.290 are also a member of the SP FA. We're a fintech company that has 981 00:56:44.290 --> 00:56:48.550 provided nearly $1 billion in working capital to 26,000 small 982 00:56:48.550 --> 00:56:51.760 businesses across the country. In Maryland, we've funded over 983 00:56:51.760 --> 00:56:55.750 450 small businesses totaling more than $21 million in 984 00:56:55.750 --> 00:57:01.000 financing. We provide our small business customers with what 664 985 00:57:01.000 --> 00:57:04.090 refers to a sales based financing. Our product is one 986 00:57:04.090 --> 00:57:07.060 through which customers receive quick upfront capital and an 987 00:57:07.060 --> 00:57:10.450 exchange they pay us a percentage, typically 10% of 988 00:57:10.450 --> 00:57:14.050 their gross receipts over time until the amount purchased is 989 00:57:14.050 --> 00:57:17.920 remitted and fall because we are only entitled to 10% of daily 990 00:57:17.920 --> 00:57:21.340 revenues if our customers revenues decrease, so to do that 991 00:57:21.340 --> 00:57:25.030 are required daily or weekly payments to us. Unlike with a 992 00:57:25.030 --> 00:57:28.870 loan there are no fixed payments. The unique structure 993 00:57:28.870 --> 00:57:31.750 of sales based financing has proven critical to a large 994 00:57:31.750 --> 00:57:34.210 percentage of our customers throughout the COVID 19 995 00:57:34.210 --> 00:57:39.520 pandemic. For example, in March 2020, Ford financing funded and 996 00:57:39.520 --> 00:57:44.320 Annapolis based Home Remodeling Company RAM construction. Just 997 00:57:44.320 --> 00:57:47.650 days after this funding, the country shut down due to COVID 998 00:57:47.650 --> 00:57:50.650 and RAM was no longer able to get into people's homes to work 999 00:57:50.650 --> 00:57:53.830 on their projects. Pursuant to our funding contract Ford 1000 00:57:53.830 --> 00:57:57.550 financing paused all payments due from RAM and kept that pause 1001 00:57:57.550 --> 00:58:01.330 in place until May 2020, When RAM was finally able to restart 1002 00:58:01.330 --> 00:58:04.930 work on some of their projects. Because RAM's ramp up was slow. 1003 00:58:04.930 --> 00:58:07.840 However, Ford Financing worked with them to arrange payment 1004 00:58:07.840 --> 00:58:12.250 terms consistent with their now decreased revenue flow. Sam 1005 00:58:12.280 --> 00:58:16.870 Allura, the owner of RAM stated, and this is on our website. If 1006 00:58:16.870 --> 00:58:19.750 you are a business owner, you cannot go through hurdles and 1007 00:58:19.750 --> 00:58:22.990 wait weeks to get capital, we needed money for materials and 1008 00:58:22.990 --> 00:58:26.440 payroll. And since we have to hit certain benchmarks of a 1009 00:58:26.440 --> 00:58:30.040 project before we get paid, we needed money to bridge the gap. 1010 00:58:30.220 --> 00:58:33.490 He described COVID as a scary time and said he was grateful 1011 00:58:33.490 --> 00:58:36.340 for the flexible financing product because that allowed his 1012 00:58:36.340 --> 00:58:39.250 company to break and payments when they needed it. Mr. Allura 1013 00:58:39.280 --> 00:58:44.230 has renewed with us four times. In conclusion, foreign financing 1014 00:58:44.230 --> 00:58:48.250 opposes HB 664 is written the complexity of the bill, 1015 00:58:48.250 --> 00:58:51.280 including its rate cap and other provisions will simply make it 1016 00:58:51.280 --> 00:58:54.970 impossible for us to comply and less thus force us to tell 1017 00:58:54.970 --> 00:58:58.030 customers like RAM construction that we can no longer help them. 1018 00:58:58.240 --> 00:59:01.540 That said we do support efforts to improve transparency and 1019 00:59:01.540 --> 00:59:04.300 promote good behavior in the alternative financing industry. 1020 00:59:04.450 --> 00:59:07.330 And we look forward to working with the committee to that end. 1021 00:59:08.350 --> 00:59:08.950 Thank you. 1022 00:59:09.250 --> 00:59:10.750 Madam Chair: Thank you, Delegate Howard. 1023 00:59:11.100 --> 00:59:13.500 Speaker 1: Thank you, Madam Vice Chair, how will it be impossible 1024 00:59:13.500 --> 00:59:16.740 to comply in other states? You said you're doing a billion 1025 00:59:16.740 --> 00:59:21.150 dollars throughout the country. I got to think as just you know, 1026 00:59:21.270 --> 00:59:26.520 having served my college term and Marine Corps that nobody's 1027 00:59:26.520 --> 00:59:30.720 just going to walk away from a billion dollars, not including 1028 00:59:30.720 --> 00:59:33.120 interest, they're gonna find a way to make it work. And 1029 00:59:33.120 --> 00:59:37.740 evidently, California and New York are doing just that. So I 1030 00:59:37.740 --> 00:59:41.070 mean, you say you oppose the bill, but largely what we're 1031 00:59:41.070 --> 00:59:44.190 trying to establish is a regulatory structure. So you're 1032 00:59:44.190 --> 00:59:48.060 outright opposing your regulatory structure and 1033 00:59:48.090 --> 00:59:51.300 disclosures. I mean, that's what I'm that's what I'm hearing. So 1034 00:59:51.330 --> 00:59:54.600 I mean, what that's what you said we oppose the bill. A lot 1035 00:59:54.600 --> 00:59:57.570 of people here have talked about, you know, caps and these 1036 00:59:57.570 --> 01:00:00.000 types of things and how some of those things would net 1037 01:00:00.000 --> 01:00:03.900 negatively affect them. And that's a discussion that's going 1038 01:00:03.900 --> 01:00:09.210 to be had, I would imagine for all sides moving forward. But, 1039 01:00:10.170 --> 01:00:14.400 you know, I guess I just don't understand some of that we just, 1040 01:00:14.400 --> 01:00:16.620 it's going to be impossible for us to continue, it's going to be 1041 01:00:16.620 --> 01:00:18.810 impossible. They're already doing it in a couple of states. 1042 01:00:19.140 --> 01:00:22.440 And you just talked about yourself about a billion dollars 1043 01:00:22.440 --> 01:00:27.660 loaned out. And, you know, I didn't go to Berkeley or I 1044 01:00:27.660 --> 01:00:30.750 didn't, but I just can't imagine businesses throughout the United 1045 01:00:30.750 --> 01:00:34.020 States, loaning this type of capital with this type of fast 1046 01:00:34.020 --> 01:00:37.230 return. And this type of flexibility and providing this 1047 01:00:37.230 --> 01:00:40.290 great service that you're talking about walking away from 1048 01:00:40.290 --> 01:00:44.340 that, because simply, a handful of states so far have put in a 1049 01:00:44.340 --> 01:00:46.170 regulatory and licensing scheme. 1050 01:00:47.950 --> 01:00:51.280 Madam Chair: Yes, if I, if I could respond. The APR 1051 01:00:51.280 --> 01:00:53.980 disclosure schemes in California in New York haven't been spelled 1052 01:00:53.980 --> 01:00:56.770 out specifically yet, as I believe Miss Fisher was 1053 01:00:56.770 --> 01:01:02.950 discussing earlier. What we're saying is, if you fought for in 1054 01:01:02.950 --> 01:01:06.040 the example, I used the RAM construction example, if we were 1055 01:01:06.040 --> 01:01:09.370 forced to disclose an APR for them on day one, the day they 1056 01:01:09.370 --> 01:01:12.190 took out their financing, we would have had to assume they'd 1057 01:01:12.190 --> 01:01:15.760 pay us back in some finite period, say six months, which 1058 01:01:15.760 --> 01:01:18.640 would lead to an APR disclosure that sounded higher than it 1059 01:01:18.640 --> 01:01:23.710 turned out to be. As it turns out, in that, in that scenario, 1060 01:01:23.710 --> 01:01:28.330 rather, pay us back because COVID hit them badly. So we gave 1061 01:01:28.330 --> 01:01:31.420 them the time a more traditional lender might not have but 1062 01:01:31.420 --> 01:01:34.540 because we gave them more time, their APR turned out to be way 1063 01:01:34.540 --> 01:01:39.730 different than we could possibly have calculated on day one. That 1064 01:01:39.730 --> 01:01:43.000 harm supposed to the customer and depending on what the 1065 01:01:43.630 --> 01:01:47.770 liability scheme or otherwise is laid out in a particular state, 1066 01:01:47.770 --> 01:01:51.370 it might make it so that if we won't be willing to take the 1067 01:01:51.370 --> 01:01:55.120 risk, if we're going to be found liable for miscalculating an 1068 01:01:55.120 --> 01:01:58.180 APR, that's impossible to calculate to begin with, how 1069 01:01:58.180 --> 01:02:02.800 could we possibly continue doing business in that state, we do 1070 01:02:02.800 --> 01:02:06.790 support them, we absolutely think it should say on the front 1071 01:02:06.820 --> 01:02:10.060 arm, the front page of our contracts say this is how much 1072 01:02:10.060 --> 01:02:12.550 money you're receiving. This is how much money you're going to 1073 01:02:12.550 --> 01:02:16.450 pay us back. And this is the fee we charge. So that is front and 1074 01:02:16.450 --> 01:02:18.910 center on the front of every one of our contracts. So there's no 1075 01:02:18.910 --> 01:02:21.910 hiding what the customer is going to be paying us back. 1076 01:02:25.170 --> 01:02:28.680 Delegate Howard: So looks like the other example that was used 1077 01:02:28.680 --> 01:02:31.980 about going to lunch and $1 being 250% within the first 1078 01:02:31.980 --> 01:02:36.870 month. So this now we're at the heart of the matter. So the 1079 01:02:36.870 --> 01:02:40.650 longer these things are carried out, the less the APR. And we're 1080 01:02:40.650 --> 01:02:43.110 I think I've gotten to it so we're a little worried that with 1081 01:02:43.110 --> 01:02:48.000 six months of financing, you're looking at a 200% AC a APR, 1082 01:02:48.120 --> 01:02:52.080 okay. And in the RAM. And that's what's going on. So it's six 1083 01:02:52.080 --> 01:02:57.330 months at a high interest rate. And on a high volatility loan, 1084 01:02:57.360 --> 01:03:01.560 essentially, potentially high high volatile. So that's what 1085 01:03:01.560 --> 01:03:05.820 we're, okay. Thank you. Very enlightening. Thank you. 1086 01:03:06.060 --> 01:03:10.350 Madam Chair: Okay. Alright. Seeing no further questions. 1087 01:03:11.730 --> 01:03:15.000 Thank you all very much. That concludes the bill hearings for 1088 01:03:15.000 --> 01:03:19.920 today. And we will see everyone back at hopefully 130 tomorrow 1089 01:03:19.950 --> 01:03:24.510 depending upon how the fork goes. Anyway, thank you all very 1090 01:03:24.510 --> 01:03:28.560 much. Thanks for hanging out till 513 and we will see you 1091 01:03:28.560 --> 01:03:28.830 tomorrow.