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.