1 00:00:00,000 --> 00:00:03,090 Senator Kramer: eGood afternoon, Madam Chair, Mr. Vice Chair, 2 00:00:03,090 --> 00:00:07,830 members of Finance Committee, Kramer to introduce Senate Bill 3 00:00:07,860 --> 00:00:16,110 532, which deals with regulating and licensing, sales based 4 00:00:16,140 --> 00:00:23,370 financing products. These transactions are not currently 5 00:00:23,370 --> 00:00:28,050 regulated by Maryland law. And colleagues, hopefully this 6 00:00:28,050 --> 00:00:33,300 legislation will sound somewhat familiar to you. As I introduced 7 00:00:33,300 --> 00:00:40,050 legislation last year on the same subject. I have had some 8 00:00:40,050 --> 00:00:44,430 conversations with representatives of the industry. 9 00:00:44,850 --> 00:00:49,170 And there has been some limited meeting of the minds 10 00:00:49,170 --> 00:00:57,060 predominantly around the idea of regulating the industry rather 11 00:00:57,060 --> 00:01:03,540 than prohibiting the industry. But the regulating part is where 12 00:01:03,540 --> 00:01:08,940 we are going to have to agree to disagree. Last year's 13 00:01:08,940 --> 00:01:12,120 legislation that I brought to the committee would have 14 00:01:12,120 --> 00:01:18,480 prohibited prohibited merchant cash advances in Maryland. 15 00:01:20,370 --> 00:01:25,920 Merchant cash advances are just one type of sales based 16 00:01:25,920 --> 00:01:32,910 financing. The industry made their case that they believe 17 00:01:32,910 --> 00:01:39,180 there is a market for this kind of financing and Maryland and 18 00:01:39,210 --> 00:01:44,550 those folks who have are concerned about the predatory 19 00:01:44,550 --> 00:01:50,910 nature of this industry, and I accepted the notion that all 20 00:01:50,910 --> 00:01:56,550 right, maybe there is a place for it, if it is properly 21 00:01:56,970 --> 00:02:02,460 licensed and regulated. So the legislation before you this 22 00:02:02,460 --> 00:02:07,770 year, does not prohibit the practice, it regulates in 23 00:02:07,770 --> 00:02:12,810 licenses generate not just merchant cash advances, but all 24 00:02:12,810 --> 00:02:19,620 forms of sales based cash advances, and other similar 25 00:02:20,220 --> 00:02:25,620 pardoning online financing, which is also referred to as 26 00:02:25,650 --> 00:02:32,490 FinTech lending. The bill is limited in its scope, to 27 00:02:32,490 --> 00:02:39,300 financing and amounts of $500,000 or less. The reason for 28 00:02:39,300 --> 00:02:45,420 that is that we are looking to protect small businesses in the 29 00:02:45,420 --> 00:02:51,210 state, mom and pop businesses in the state. This is not about 30 00:02:51,300 --> 00:02:58,200 Martin Marietta, or Lockheed Martin, or Marriott. This is 31 00:02:58,200 --> 00:03:04,680 about our small mom and pop businesses. And currently, there 32 00:03:04,680 --> 00:03:09,210 is no regulation of this industry, and it is the Wild 33 00:03:09,210 --> 00:03:17,580 West. So the way these deals work, is that in exchange for an 34 00:03:17,580 --> 00:03:26,430 amount of money, let's say it's $100,000. The online lender 35 00:03:27,270 --> 00:03:35,790 agrees to sell that small business $100,000 And a small 36 00:03:35,790 --> 00:03:43,020 business obligates itself to pay back that 100,000 And another 37 00:03:43,170 --> 00:03:53,700 $100,000 on top. And what the lender does, is they have access 38 00:03:54,150 --> 00:04:00,750 to the business's credit card and bank accounts, and they suck 39 00:04:00,750 --> 00:04:06,270 their money every day at the close of business right off the 40 00:04:06,270 --> 00:04:12,990 top until their $100,000 is paid back over whatever period of 41 00:04:12,990 --> 00:04:20,010 time they've agreed to do it. And the $100,000 interest that 42 00:04:20,010 --> 00:04:27,240 they've charged is also paid back. So they consider this a 43 00:04:27,270 --> 00:04:34,440 sale. So it is not in their definition a loan and therefore 44 00:04:34,440 --> 00:04:39,960 is not governed by federal and state regulations. The way banks 45 00:04:39,960 --> 00:04:42,360 and credit unions are right now. 46 00:04:43,740 --> 00:04:47,310 As the industry grows and flourishes and it has 47 00:04:47,340 --> 00:04:52,530 dramatically based on its ability to charge Unlimited, 48 00:04:52,830 --> 00:04:57,060 unlimited interest rates and frequently mislead and 49 00:04:57,060 --> 00:05:02,370 fraudulently Miss characterize their Financing products. The 50 00:05:02,370 --> 00:05:07,440 stories of businesses ruined as a consequence are springing up 51 00:05:07,590 --> 00:05:14,400 like mushrooms after a summer storm. Stories of 400% interest 52 00:05:14,400 --> 00:05:19,050 rates are more common than not stories of aggressive 53 00:05:19,050 --> 00:05:24,600 confessions of judgment. Were part of the documents that the 54 00:05:24,600 --> 00:05:29,730 small business sign allows the lender to go into court and just 55 00:05:29,730 --> 00:05:33,660 present the document and claim that the small business has 56 00:05:33,660 --> 00:05:39,690 failed to make a payment allows them to seize the assets of the 57 00:05:39,690 --> 00:05:43,800 business without the business having any opportunity to go 58 00:05:43,800 --> 00:05:47,490 into court or get a lawyer to come in and say no, wait a 59 00:05:47,490 --> 00:05:51,540 minute, this is not accurate. I'm current on my payments. 60 00:05:51,540 --> 00:05:52,650 Speaker 2: I'm ready to testify. 61 00:05:53,370 --> 00:05:57,720 Senator Kramer: Cold calls. aggressive sales tactics with 62 00:05:57,720 --> 00:06:01,260 misleading information are hallmarks of the industry and 63 00:06:01,260 --> 00:06:05,760 harassing follow up calls, pushing small business owners to 64 00:06:05,760 --> 00:06:10,800 take deals that are too good to be true because they are too 65 00:06:10,800 --> 00:06:15,330 good to be true. Our standard operating procedures of this 66 00:06:15,330 --> 00:06:22,470 industry, the industry as a whole is to the mom and pop 67 00:06:22,470 --> 00:06:27,480 businesses and merchants what payday loans were to consumers. 68 00:06:28,020 --> 00:06:33,210 That is why we banned them in Maryland. But this business, I 69 00:06:33,210 --> 00:06:39,720 mean, this bill doesn't ban it, license and regulate. Businesses 70 00:06:39,720 --> 00:06:43,740 begin a death spiral as their profits are sucked off the top 71 00:06:43,740 --> 00:06:48,720 by the FinTech lenders that are connected connected directly to 72 00:06:48,720 --> 00:06:53,610 their bank accounts. The Federal Reserve conducted a study which 73 00:06:53,610 --> 00:06:58,800 has raised significant red flags and alarms about this industry, 74 00:06:58,980 --> 00:07:03,360 and its frightening and dangerous practices. Bloomberg 75 00:07:03,510 --> 00:07:08,520 has had a months and months long, ongoing investigation 76 00:07:08,850 --> 00:07:12,750 about vulnerable and unsuspecting businesses being 77 00:07:12,750 --> 00:07:17,190 destroyed due to the predatory practices of these lenders. And 78 00:07:17,190 --> 00:07:21,870 in their most recent chapter, Bloomberg offered the following 79 00:07:21,870 --> 00:07:26,040 about one of the small businesses that they 80 00:07:26,040 --> 00:07:31,200 interviewed. And they say, the company advanced the business a 81 00:07:31,200 --> 00:07:41,160 total of $250,000, the business paid back more than $600,000. 82 00:07:41,370 --> 00:07:47,070 And the company still still seize their assets and put them 83 00:07:47,070 --> 00:07:51,480 out of business. It is imperative that we act this 84 00:07:51,480 --> 00:07:55,950 session to implement the protections in this bill, with 85 00:07:55,950 --> 00:08:00,870 the exception of the rate cap, which I will discuss in greater 86 00:08:00,870 --> 00:08:07,170 detail as we go along. The bill before you right now matches 87 00:08:07,170 --> 00:08:11,730 what has been done in California, the fourth largest 88 00:08:11,730 --> 00:08:18,240 economy on planet Earth. And in New York, California and New 89 00:08:18,240 --> 00:08:22,290 York have adopted these regulations. Much of the 90 00:08:22,290 --> 00:08:26,910 language of this bill has been lifted verbatim from the New 91 00:08:26,910 --> 00:08:33,570 York law, including annual percentage rate requirements 92 00:08:33,600 --> 00:08:37,830 estimates of an annual percentage rate, the industry 93 00:08:37,830 --> 00:08:44,640 will be whining to you all about how it is not possible to do an 94 00:08:44,640 --> 00:08:50,340 estimated APR. Well, it is possible. And if the industry 95 00:08:50,340 --> 00:08:55,680 wants to sell its products in California and New York, they 96 00:08:55,680 --> 00:09:00,660 will be providing an estimated APR to the businesses that they 97 00:09:00,660 --> 00:09:04,860 are profiting from. And the reason New York and California 98 00:09:04,860 --> 00:09:10,410 are requiring this is so that the small business owners will 99 00:09:10,410 --> 00:09:15,870 have a better idea of what it is that they are signing and what 100 00:09:15,870 --> 00:09:20,790 they're going to be paying and obligating themselves to. So 101 00:09:20,790 --> 00:09:26,370 what's in the bill. It's not a whole lot. The first 20 pages 102 00:09:27,330 --> 00:09:33,360 deal with number one, the licensing regime. And that will 103 00:09:33,360 --> 00:09:36,150 come under the Office of the Commissioner of financial 104 00:09:36,150 --> 00:09:40,350 regulation, when that office is intimately familiar with the 105 00:09:40,350 --> 00:09:45,270 language of this bill. They have been very involved during the 106 00:09:45,270 --> 00:09:53,460 interim in working through this language. Number two in the bill 107 00:09:53,820 --> 00:09:59,460 is the required estimated APR that I just Made mentioned to, 108 00:09:59,970 --> 00:10:05,700 and it comes straight out of what New York has already passed 109 00:10:05,700 --> 00:10:12,210 into law. So when they tell you it can't be done, it can be 110 00:10:12,210 --> 00:10:12,750 done. 111 00:10:16,050 --> 00:10:22,890 Number three disclosures, what kind of disclosures? It's pretty 112 00:10:22,890 --> 00:10:27,870 simple stuff. The total amount of the funds provided the 113 00:10:27,870 --> 00:10:34,530 estimated annual percentage rate, the term of the loan, the 114 00:10:34,530 --> 00:10:39,540 method, frequency and amount of payments, fees that will be 115 00:10:39,540 --> 00:10:45,930 charged that may not be currently disclosed a copy of 116 00:10:45,930 --> 00:10:50,580 the transaction documents to the small business owner and a 117 00:10:50,580 --> 00:11:00,570 description of collateral requirements. Number four, the 118 00:11:00,570 --> 00:11:05,010 bill would prohibit the use of confessions of judgment and 119 00:11:05,010 --> 00:11:07,890 you're going to have some of these folks in the industry 120 00:11:07,890 --> 00:11:11,820 today say no, we don't use these. And that's great if it's 121 00:11:11,820 --> 00:11:15,420 part of their business model not to use confessed judgment. 122 00:11:16,200 --> 00:11:21,120 That's great. But there are too many in the industry as a whole 123 00:11:21,420 --> 00:11:28,440 that do use confessions of judgment. Finally, that and this 124 00:11:28,440 --> 00:11:31,890 is different. I'm going to be 100% upfront with the committee 125 00:11:31,890 --> 00:11:40,260 about this. The bill establishes a great cap. In the bill, 126 00:11:40,260 --> 00:11:44,520 currently it says 24% There is an amendment and I will discuss 127 00:11:44,520 --> 00:11:51,840 that a little bit further, that will allow up to 36% interest. 128 00:11:52,140 --> 00:11:56,160 And this is going to be a policy decision community. At what 129 00:11:56,160 --> 00:12:05,400 point is it too much is 100%. Too much is 300%. Too much is 130 00:12:05,400 --> 00:12:10,920 400%. Too much interest. That's going to be a policy committee. 131 00:12:11,130 --> 00:12:18,270 Currently, no state has a cap in this bill. It as well. If 132 00:12:18,270 --> 00:12:23,670 adopted with the amendment, the cap will be 36% interest. And I 133 00:12:23,670 --> 00:12:27,210 welcome the opportunity, madam chair when the committee takes 134 00:12:27,210 --> 00:12:31,710 the bill up for a vote to discuss the rate cap, and if we 135 00:12:31,710 --> 00:12:37,500 think it is, in fact appropriate to put a cap on the users 136 00:12:37,500 --> 00:12:43,110 interests, that is currently being charged right now. So I 137 00:12:43,110 --> 00:12:49,230 mentioned there are going to be amendments. In fact, there are 138 00:12:49,230 --> 00:12:52,920 two one of which the committee has already received. It 139 00:12:52,920 --> 00:12:57,930 clarifies a bill drafting error that the bill applies to 140 00:12:57,930 --> 00:13:04,740 commercial lending. And number two, the amendment that will be 141 00:13:04,740 --> 00:13:11,070 coming as a consequence of the bill hearing on the House side 142 00:13:11,520 --> 00:13:18,690 will adopt in full the New York regulations governing all of 143 00:13:18,690 --> 00:13:28,170 this online lending. And and it also there is a the Attorney 144 00:13:28,170 --> 00:13:32,250 General's Office indicating that they felt they should not have a 145 00:13:32,250 --> 00:13:38,040 role to play in this legislation. So in the second 146 00:13:38,040 --> 00:13:41,490 amendment that I mentioned, the Attorney General's office will 147 00:13:41,490 --> 00:13:47,280 be taken out of the legislation and all of it will rest entirely 148 00:13:47,790 --> 00:13:51,510 within the commissioner of financial regulations office. 149 00:13:51,780 --> 00:13:57,660 With that, Madam Chair, I thank you all very much. We have the 150 00:13:57,660 --> 00:14:03,120 leadoff witness, Mr. Cat, its Peck is someone who is 151 00:14:03,150 --> 00:14:08,340 intimately familiar with this industry, because he's been in 152 00:14:08,340 --> 00:14:13,710 it. And he knows how important it is to do exactly what is in 153 00:14:13,710 --> 00:14:18,390 the bill before you because he had to compete with the bad 154 00:14:18,390 --> 00:14:24,420 actors. And, and he knows how important it is to put these 155 00:14:24,420 --> 00:14:31,320 regulations into place. So that legitimate, honest fair of folks 156 00:14:31,320 --> 00:14:37,140 in this industry will be the ones competing, not the bad 157 00:14:37,140 --> 00:14:39,120 actors. So thank you, Madam Chair. 158 00:14:40,140 --> 00:14:47,700 Thank you. Are there questions of the sponsor? Okay, and we're 159 00:14:47,700 --> 00:14:55,200 going to your need witness? Who is the noise cat it's that you 160 00:14:55,200 --> 00:14:58,620 have witnesses, we'll have two and a half. 161 00:14:59,580 --> 00:15:02,580 Speaker 4: Thank you so much. Senator Kramer, thank you so 162 00:15:02,580 --> 00:15:05,310 much for that introduction and Senators. I'm happy to be here. 163 00:15:05,850 --> 00:15:08,130 My name is Louis Caditz-Peck. I'm the Director of Public 164 00:15:08,130 --> 00:15:12,360 Policy at Lending Club. Lending Club is a fintech company. And 165 00:15:12,360 --> 00:15:15,720 we're also a bank. Over the last decade, we've facilitated about 166 00:15:15,720 --> 00:15:18,870 one and a half billion dollars in loans to borrowers in 167 00:15:18,870 --> 00:15:22,050 Maryland. I launched lending clubs small business lending 168 00:15:22,050 --> 00:15:26,160 program in 2014, to offer lower cost transparent loans to 169 00:15:26,160 --> 00:15:30,060 businesses underserved by banks. And we soon saw that small 170 00:15:30,060 --> 00:15:33,270 businesses struggle to access capital has really changed. 171 00:15:34,350 --> 00:15:38,040 Small businesses are now inundated with offers of 172 00:15:38,040 --> 00:15:41,520 capital, often from high cost financing companies that don't 173 00:15:41,520 --> 00:15:44,400 transparently disclose the rates, they'll charge. 174 00:15:45,180 --> 00:15:47,430 Committee, I'm going to apologize my video doesn't seem 175 00:15:47,430 --> 00:15:53,040 to be working, but I've joined for video on my cell phone. I 176 00:15:53,040 --> 00:15:55,830 can switch the sound to that if that makes it easier to follow 177 00:15:57,120 --> 00:16:03,330 my videos elsewhere. So it's really easy actually to imagine 178 00:16:03,330 --> 00:16:05,520 yourself facing the kind of situation that is small 179 00:16:05,520 --> 00:16:08,280 businesses in that the senator described. If you needed 180 00:16:08,280 --> 00:16:12,000 capital, would you take financing from a company 181 00:16:12,000 --> 00:16:15,900 offering a 15% purchase percentage or a loan with a 20% 182 00:16:15,900 --> 00:16:21,840 APR? It might not be clear, but what it helps to know if if if 183 00:16:21,840 --> 00:16:24,870 you were told that the first option has an APR of 120%. 184 00:16:25,680 --> 00:16:28,380 Without this bill, you would likely never be told that 185 00:16:28,830 --> 00:16:31,470 predatory lending is taking down small businesses in your 186 00:16:31,470 --> 00:16:35,640 districts. I spoke yesterday to a woman and Kara DiPietro, CEO 187 00:16:35,640 --> 00:16:38,580 of a company and Senator Zonies district. I don't know if she's 188 00:16:38,580 --> 00:16:42,960 a relation to Chris on the call. They build commercial interiors, 189 00:16:42,960 --> 00:16:46,620 including for Johns Hopkins and for the US Capitol. She is a 190 00:16:46,620 --> 00:16:50,490 savvy businesswoman. Mr. piatra was named Maryland's small 191 00:16:50,490 --> 00:16:54,810 business owner of the Year by the SBA, and she told me that 192 00:16:54,810 --> 00:16:57,240 when she took a new round of financing the contracts 193 00:16:57,240 --> 00:16:59,370 initially they seemed clear, it seemed like they told her 194 00:16:59,370 --> 00:17:02,700 everything they were supposed to, but they turned into a whack 195 00:17:02,700 --> 00:17:06,420 a mole of lies. A series of interrelated financing companies 196 00:17:06,510 --> 00:17:09,210 hooked her first by sending less money than they told her they 197 00:17:09,210 --> 00:17:11,370 were going to send. And then as she tried to get the full 198 00:17:11,370 --> 00:17:14,640 amount, they pulled her through this goose chase of refinances 199 00:17:14,730 --> 00:17:18,270 adding fees each time. There are industry words for these kinds 200 00:17:18,270 --> 00:17:21,570 of practices. The contract focused on an initially on a 201 00:17:21,570 --> 00:17:25,890 price of 10%. That was not actually the APR. Her lawyers 202 00:17:25,890 --> 00:17:30,360 later figured out that the APR was 200% and included these 203 00:17:30,360 --> 00:17:33,660 confessions of judgment that the senator described. At the end of 204 00:17:33,660 --> 00:17:36,990 the day. This cost her hundreds of 1000s of dollars of business, 205 00:17:37,110 --> 00:17:40,320 and the company just spent three years in survival mode, just 206 00:17:40,320 --> 00:17:42,840 trying to stay afloat fighting off these predatory lenders, 207 00:17:43,020 --> 00:17:47,100 instead of growing and creating jobs in Maryland. As the senator 208 00:17:47,100 --> 00:17:50,040 described, I work with the legislators in California in New 209 00:17:50,040 --> 00:17:53,940 York to pass the Small Business truth and lending laws on which 210 00:17:54,000 --> 00:17:57,570 Senate Bill 532 is largely based. Those laws passed with 211 00:17:57,570 --> 00:18:00,720 overwhelming bipartisan support very broad support from the 212 00:18:00,720 --> 00:18:04,050 small business community nonprofit advocacy and industry. 213 00:18:04,350 --> 00:18:07,230 Everyone agreed that small businesses just deserve to be 214 00:18:07,230 --> 00:18:09,540 told the price they're going to pay in a transparent way. 215 00:18:10,440 --> 00:18:13,590 Federal Reserve research has found in at least four different 216 00:18:13,590 --> 00:18:16,200 research studies, that small businesses today are often 217 00:18:16,200 --> 00:18:19,950 misled towards higher cost financing. With pricing metrics 218 00:18:19,950 --> 00:18:22,410 used in the market today that are not transparent 219 00:18:22,470 --> 00:18:25,710 sufficiently. The Fed specifically describes merchant 220 00:18:25,710 --> 00:18:30,120 cash advance it with the words potentially higher cost less 221 00:18:30,120 --> 00:18:32,640 transparent credit product, those are the Federal Reserve 222 00:18:32,640 --> 00:18:35,910 researchers words not mine. They also found that black and 223 00:18:35,910 --> 00:18:38,760 Hispanic owned businesses are twice as affected by these 224 00:18:38,880 --> 00:18:43,830 higher cost less transparent credit products. So why does the 225 00:18:43,830 --> 00:18:47,250 Federal Reserve research and California and New York and now 226 00:18:47,250 --> 00:18:51,210 Maryland all agree that APR is the standard for transparent 227 00:18:51,210 --> 00:18:55,590 disclosure rather than some other metric? It's because APR 228 00:18:55,590 --> 00:18:59,640 is the only metric that enables apples to apples comparisons of 229 00:18:59,640 --> 00:19:02,700 products of different types, amounts and likes. It's the 230 00:19:02,700 --> 00:19:06,570 standard embedded over 50 years of the Truth in Lending Act. As 231 00:19:06,570 --> 00:19:09,660 the senator described, you might hear opposition, saying that 232 00:19:09,660 --> 00:19:14,550 they can't estimate an APR. In fact, providers of this kind of 233 00:19:14,550 --> 00:19:18,450 financing already do estimate and disclose APRs. To calculate 234 00:19:18,450 --> 00:19:22,260 APR, whatever the form of financing, companies can use the 235 00:19:22,260 --> 00:19:24,870 formula that's in the federal Truth in Lending Act, it's 236 00:19:24,870 --> 00:19:28,470 algebra, you plug in how much money you get, and how much 237 00:19:28,470 --> 00:19:32,880 money you pay back. And when and it's at an APR. For sales based 238 00:19:32,880 --> 00:19:36,360 financing, you'd have to plug in some estimates. And these 239 00:19:36,360 --> 00:19:39,210 companies have the estimates, financing companies don't give 240 00:19:39,210 --> 00:19:41,670 away money with no expectation of when that money is going to 241 00:19:41,670 --> 00:19:45,630 come back to them. SB 532 provides two methods to guide 242 00:19:45,630 --> 00:19:48,480 these estimations to make sure there's no funny business. But 243 00:19:48,480 --> 00:19:51,150 also it's flexible. This is the same approach that New York and 244 00:19:51,150 --> 00:19:55,560 California took. Some companies with high APRs may argue that 245 00:19:55,560 --> 00:19:59,580 APR is not a helpful disclosure, and that quoting cost and just 246 00:19:59,580 --> 00:20:03,210 dollar amount should be enough, like, why isn't enough to just 247 00:20:03,210 --> 00:20:06,270 to tell you that the fee is going to be $10,000? It's 248 00:20:06,270 --> 00:20:09,510 because that does not allow you to make a comparison between 249 00:20:09,510 --> 00:20:12,990 financing of different amounts and different lengths to just to 250 00:20:12,990 --> 00:20:15,780 quickly illustrate before I close, consider you're renting a 251 00:20:15,780 --> 00:20:20,910 house for $10,000. Is that a good deal? You need to know how 252 00:20:20,910 --> 00:20:25,590 long you get to use that house for $10,000. Paying $10,000 For 253 00:20:25,590 --> 00:20:29,490 six months of a house or financing is more expensive than 254 00:20:29,490 --> 00:20:33,750 paying $10,000 for five years, what's the all in cost per year? 255 00:20:34,020 --> 00:20:37,380 That's what the APR tells you. I urge you to advance Senate Bill 256 00:20:37,410 --> 00:20:40,680 532, with the amendments that the senator described. Small 257 00:20:40,680 --> 00:20:42,510 businesses are really depending on it. Thank you. 258 00:20:44,220 --> 00:20:47,430 Madam Chair: Thank you. Are there questions of this witness? 259 00:20:47,850 --> 00:20:49,260 Senator Feldman? 260 00:20:49,260 --> 00:20:52,270 Senator Feldman: It just I apologize because I don't have 261 00:20:52,270 --> 00:20:58,720 access right now. With testimony but so was just so unclear 262 00:20:58,720 --> 00:21:00,490 because I heard a couple of different things. And I just 263 00:21:00,490 --> 00:21:02,500 want to make sure I got the facts and probably could ask 264 00:21:02,560 --> 00:21:06,820 Kramer. But, okay. Disclosure, so just back on the New York 265 00:21:06,820 --> 00:21:11,200 California laws, which Senator Kramer mentioned this bill's 266 00:21:11,200 --> 00:21:14,740 model of so I understand about the disclosure, just so I'm 267 00:21:14,740 --> 00:21:18,820 clear. So do those, those particular states have caps, 268 00:21:19,480 --> 00:21:25,270 like this one on APR, this bill is 24%. Because I heard you talk 269 00:21:25,270 --> 00:21:29,380 a lot about disclosures and disclosing what the deal is. But 270 00:21:29,380 --> 00:21:36,310 you didn't mention those states having a specific APR cap? Maybe 271 00:21:36,310 --> 00:21:41,380 I missed it, and I don't have. So it's not a catch, should they 272 00:21:41,440 --> 00:21:44,050 catch a thing? I just want to make sure I understand New York 273 00:21:44,050 --> 00:21:46,750 and California relative to this bill. 274 00:21:47,010 --> 00:21:48,780 Speaker 4: Yeah, thank you for highlighting that those bills 275 00:21:48,780 --> 00:21:51,090 did not include a rate cap. And as the senator pointed out, 276 00:21:51,090 --> 00:21:54,090 that's a really important public policy decision and frankly, a 277 00:21:54,090 --> 00:21:55,830 complicated one to consider. 278 00:21:56,490 --> 00:21:59,250 Senator Feldman: Okay, that's really pretty specific. Thank 279 00:21:59,250 --> 00:21:59,880 you, Madam Chair. 280 00:21:59,910 --> 00:22:03,510 Madam Chair: And Senator Feldman, I did by when I 281 00:22:03,660 --> 00:22:08,880 introduced that we do not have this makes us unique if we were 282 00:22:08,880 --> 00:22:10,680 to adopt this. Okay. 283 00:22:10,920 --> 00:22:13,740 Senator Feldman: I just wanted to make sure I heard it 284 00:22:14,160 --> 00:22:15,630 accurately. Right. Thank you, thanks. 285 00:22:15,630 --> 00:22:17,460 Madam Chair: Okay. Senator Jennings. 286 00:22:17,980 --> 00:22:20,650 Senator Jennings: Thank you, Madam Chair. So, Louis, you're 287 00:22:20,650 --> 00:22:23,200 with Lending Club? 288 00:22:24,330 --> 00:22:24,930 Speaker 5: That's correct. 289 00:22:25,810 --> 00:22:28,990 Senator Jennings: So my question is, so you say you don't do 290 00:22:28,990 --> 00:22:31,090 these types of loans, but you do lend in Maryland? 291 00:22:32,730 --> 00:22:34,830 Speaker 5: That's when I say we don't do these types of loans, 292 00:22:34,830 --> 00:22:37,200 I'm referring to merchant cash advances, we offer other loan 293 00:22:37,200 --> 00:22:37,830 products. 294 00:22:38,470 --> 00:22:40,870 Senator Jennings: So what I see is most people that are going to 295 00:22:40,870 --> 00:22:44,440 use these are businesses that are truly suffering, and are 296 00:22:44,440 --> 00:22:47,950 probably on the teater of going out. And this is kind of a Hail 297 00:22:47,950 --> 00:22:50,710 Mary pass, that some of them are going to throw to try to save 298 00:22:50,710 --> 00:22:55,030 their business, which has a lot of risk to the lender. So my 299 00:22:55,030 --> 00:22:58,330 question to you is, do you have a product that you could offer 300 00:22:58,510 --> 00:23:03,250 one of these businesses that knowing that going into this, 301 00:23:03,460 --> 00:23:05,890 that your probability of getting paid back is going to be very 302 00:23:05,890 --> 00:23:09,220 limited? Because of you know, the business really isn't in 303 00:23:09,220 --> 00:23:12,040 good shape? I'm trying to figure out what what the industry would 304 00:23:12,040 --> 00:23:13,120 offer a customer. 305 00:23:13,120 --> 00:23:18,370 Speaker 5: Senator? Yes, we do. Yes, we do. The small business 306 00:23:18,370 --> 00:23:22,270 financing we offer is also focused on underserved small 307 00:23:22,270 --> 00:23:26,110 businesses, it sees five times the representation of minority 308 00:23:26,110 --> 00:23:28,960 owned small businesses as compared to traditional banking. 309 00:23:29,290 --> 00:23:32,380 There is a risk spectrum here. And so I don't want to, you 310 00:23:32,380 --> 00:23:35,230 know, delude you that there's a point where a business is 311 00:23:35,230 --> 00:23:40,030 really, really risky and hard to lend to. And much of this 312 00:23:40,030 --> 00:23:43,120 industry is focused on that segment of the market. And I 313 00:23:43,120 --> 00:23:45,970 think the question is, are they focused on that in a way with 314 00:23:46,150 --> 00:23:49,510 where a, the small business knows what they're getting into? 315 00:23:49,540 --> 00:23:52,180 They have transparency in the documents so that they are 316 00:23:52,180 --> 00:23:56,020 making an informed choice? That, yes, they're making a Hail Mary 317 00:23:56,020 --> 00:23:59,620 pass where they know they're going to pay a 400% APR to try 318 00:23:59,620 --> 00:24:03,070 to resurrect their business? And second, are the products being 319 00:24:03,070 --> 00:24:06,520 offered by this industry offered in a way where there's oversight 320 00:24:06,640 --> 00:24:09,490 by the regulator so that when they try to run a scam, like 321 00:24:09,490 --> 00:24:13,660 they did on Ms. DiPietro's business that there's someone 322 00:24:13,660 --> 00:24:18,220 who can help help hold that scam to account? And third, I think 323 00:24:18,220 --> 00:24:21,370 you'd consider are the products at a certain level actually 324 00:24:21,370 --> 00:24:24,190 structured in a way that can that can help a business. I 325 00:24:24,190 --> 00:24:28,360 think that with the way that the senators described, this bill 326 00:24:28,360 --> 00:24:29,380 would help on all accounts. 327 00:24:30,330 --> 00:24:33,090 Senator Jennings: And then my last question, doing research on 328 00:24:33,090 --> 00:24:37,830 this was dealt with accounts receivable factoring. Could you 329 00:24:37,830 --> 00:24:41,010 consider this factoring for receivables that you're getting 330 00:24:41,010 --> 00:24:44,910 paid in advance for future sales? I'm just trying to figure 331 00:24:44,910 --> 00:24:47,100 out what the difference between this and what factoring is 332 00:24:47,100 --> 00:24:49,800 because research I went down a whole different rabbit hole. 333 00:24:50,110 --> 00:24:56,800 Speaker 4: Sure. So legally, merchant cash advance products 334 00:24:57,130 --> 00:25:00,160 like to associate themselves with factoring from a legal 335 00:25:00,160 --> 00:25:02,920 perspective, from the perspective of the business, the 336 00:25:02,920 --> 00:25:06,580 products are really pretty different. If you're using 337 00:25:06,580 --> 00:25:11,560 factoring, you actually have an invoice that you're trying to 338 00:25:11,590 --> 00:25:15,100 get paid on. And when you get paid on it, that's the end of 339 00:25:15,100 --> 00:25:18,850 the transaction for you, you got paid, the factor collects on the 340 00:25:18,850 --> 00:25:23,080 invoice. And that's really short term financing. That's like 3060 341 00:25:23,110 --> 00:25:27,490 days, maybe 90 days, typically, in Merchant Cash events, you 342 00:25:27,490 --> 00:25:31,510 don't have an invoice and it's really much more like a loan, 343 00:25:31,540 --> 00:25:34,510 I'll be at the except that the payment is variable, you're 344 00:25:34,510 --> 00:25:36,850 getting money, and then you're repaying it in the future over 345 00:25:36,850 --> 00:25:41,140 time, it tends to be the terms on these tend to be six to 18 346 00:25:41,140 --> 00:25:46,570 months. And they tend to be used by different classes of business 347 00:25:46,570 --> 00:25:51,130 to some extent. So one thing that the bill does very well to 348 00:25:51,130 --> 00:25:55,630 your question, Senator, is that it kind of it just avoids a lot 349 00:25:55,630 --> 00:25:59,020 of the legal mucky muck of whether you call these things, 350 00:25:59,710 --> 00:26:02,110 whether you call them merchant cash advance a loan or not, 351 00:26:02,500 --> 00:26:05,200 that's a hot issue. It's a legal issue that's really important to 352 00:26:05,200 --> 00:26:08,260 companies that don't want to be covered by lending law. And your 353 00:26:08,260 --> 00:26:11,530 bill basically stays out of this bill stays out of that fight by 354 00:26:11,530 --> 00:26:15,130 using this term sales based financing. So it doesn't really 355 00:26:15,130 --> 00:26:18,940 apply on whether the stuff is a loan or not alone. It just says 356 00:26:19,030 --> 00:26:21,850 whatever it is, it's financing. And if it's financing, we think 357 00:26:21,850 --> 00:26:25,090 a small business should be able to go into it informed with 358 00:26:25,090 --> 00:26:27,580 their eyes wide open, able to make an apples to apples 359 00:26:27,580 --> 00:26:28,780 comparison of the cost. 360 00:26:29,320 --> 00:26:30,940 Speaker 1: Right, thank you, thank you, Madam Chair. 361 00:26:31,770 --> 00:26:34,560 Madam Chair: I'll tell you other questions for this witness. 362 00:26:35,880 --> 00:26:40,710 Alright, we're going next to Kaylee Lachlear. 363 00:26:40,710 --> 00:26:43,150 Kaylee Lachlear: Good afternoon, honorable members of the 364 00:26:43,213 --> 00:26:46,776 committee, Kaylee Locklear here on behalf of the Maryland 365 00:26:46,838 --> 00:26:50,589 Retailers Association. Last year, the legislation introduced 366 00:26:50,651 --> 00:26:54,277 as you've heard was an outright ban on these types of loan 367 00:26:54,340 --> 00:26:58,090 products. Very clearly, we heard from industry and even some 368 00:26:58,153 --> 00:27:01,966 concerns on this committee, that we should be regulating them 369 00:27:02,029 --> 00:27:05,529 instead, which is the bill we are hearing supportive and 370 00:27:05,592 --> 00:27:09,405 presenting to you today. I draw your attention to the massive 371 00:27:09,468 --> 00:27:13,031 reporting series Bloomberg's Businessweek has released in 372 00:27:13,093 --> 00:27:16,532 your written testimony with story after story about the 373 00:27:16,594 --> 00:27:20,032 problems with sales based financing companies and their 374 00:27:20,095 --> 00:27:24,033 very predatory nature. They are now one of the most visible and 375 00:27:24,095 --> 00:27:27,909 well marketed lending products and businesses are suckered in 376 00:27:27,971 --> 00:27:31,784 completely unclear about what they're getting themselves into 377 00:27:31,847 --> 00:27:35,535 with quick and easy cash. But the sick reality is that they 378 00:27:35,598 --> 00:27:39,286 can end up paying back and upwards of 450% in interest with 379 00:27:39,348 --> 00:27:43,037 massive upfront fees. You heard what the bill does from the 380 00:27:43,099 --> 00:27:47,100 sponsor, but I just want to hit on two important areas. A cap is 381 00:27:47,162 --> 00:27:50,913 incredibly important as the interest rates these unregulated 382 00:27:50,976 --> 00:27:54,789 companies are getting away with is flat out criminal. What it 383 00:27:54,851 --> 00:27:58,352 does, Senator Jennings your points earlier is it traps a 384 00:27:58,415 --> 00:28:02,165 small businesses in a cycle of debt, they will never escape, 385 00:28:02,228 --> 00:28:06,041 with many actually having to take out another advance just to 386 00:28:06,104 --> 00:28:09,542 try to cover that first. And then I'll point to banding 387 00:28:09,604 --> 00:28:13,105 confessions of judgment. And it's also highly important. 388 00:28:13,168 --> 00:28:16,793 Before borrowers get a loan, they have to sign a statement 389 00:28:16,856 --> 00:28:20,669 giving up their right to defend themselves. If a lender takes 390 00:28:20,732 --> 00:28:24,482 them to court. It's like an arbitration agreement except the 391 00:28:24,545 --> 00:28:28,233 borrower always loses. Armed with a confession a lender can 392 00:28:28,296 --> 00:28:32,296 without proof and you heard this earlier accuse borrowers of not 393 00:28:32,359 --> 00:28:36,297 paying and legally seize their assets before they've even known 394 00:28:36,360 --> 00:28:39,985 what happened. In dozens of interviews and court pleadings 395 00:28:40,048 --> 00:28:43,986 borrowers describe lenders who forged documents, lied about how 396 00:28:44,049 --> 00:28:47,487 much they were owed, or fabricated defaults out of thin 397 00:28:47,549 --> 00:28:50,487 air. Finally, many of these online lenders have 398 00:28:50,550 --> 00:28:54,238 intentionally done anything and everything they can to kill 399 00:28:54,301 --> 00:28:58,114 these bills, not the narrative that you're about to hear from 400 00:28:58,176 --> 00:29:01,927 many of them. Again, New York and California have moved very 401 00:29:01,990 --> 00:29:05,553 similar legislation with regulations that are rolling out 402 00:29:05,615 --> 00:29:09,116 shortly. And finally, even the FTC is stepping in at the 403 00:29:09,178 --> 00:29:13,054 federal level. We urge Maryland to do the same and I'm glad to 404 00:29:13,117 --> 00:29:14,430 answer any questions. 405 00:29:16,590 --> 00:29:22,530 Madam Chair: Questions for this witness? Okay, we're going next 406 00:29:22,530 --> 00:29:26,010 to Robert Anton, Maryland Bankers Association. 407 00:29:27,380 --> 00:29:29,540 Robert Anton: Thank you very much, Madam Chairman, members of 408 00:29:29,540 --> 00:29:32,900 the committee, Robert Anton on behalf of the Maryland Bankers 409 00:29:32,900 --> 00:29:37,160 Association, and on behalf of our banks all over the state of 410 00:29:37,160 --> 00:29:40,580 Maryland, we'd like to thank Senator Kramer for sponsoring. 411 00:29:40,730 --> 00:29:44,960 We think it's important legislation. The I'm not going 412 00:29:44,960 --> 00:29:47,720 to repeat what the other witnesses have said. I think 413 00:29:47,720 --> 00:29:51,530 what I'd like to do is to call the committee's attention. You 414 00:29:51,530 --> 00:29:55,430 can find it online and I'll be happy to send a link, in 415 00:29:55,430 --> 00:30:00,320 December of 2019 the United States Federal Reserve Bank did 416 00:30:00,320 --> 00:30:05,960 a study on online lending. It's a lengthy document. It's a 36 417 00:30:05,960 --> 00:30:11,600 page, single spaced document. But it has some important things 418 00:30:11,600 --> 00:30:14,420 in it. What they did is they convene two different study 419 00:30:14,420 --> 00:30:20,240 groups with 80 small businesses, in each study group. And they've 420 00:30:20,240 --> 00:30:25,610 met and they discussed this and they went through it. And what 421 00:30:25,610 --> 00:30:30,920 they determined and I'm going to quote from the, the study, the 422 00:30:31,220 --> 00:30:35,720 businesses said, quote, it is difficult to compare when they 423 00:30:35,720 --> 00:30:39,320 are using different models and different terminology, quote, 424 00:30:39,710 --> 00:30:42,710 they don't like to use the word interest, and they dress it up 425 00:30:42,710 --> 00:30:46,460 in other ways to conceal the real cost of the loan, unquote, 426 00:30:46,940 --> 00:30:51,080 quote, I don't know what a factor rate is, quote, full 427 00:30:51,080 --> 00:30:54,680 disclosure, like on credit cards or mortgages, it's what's 428 00:30:54,680 --> 00:31:02,180 necessary, they need to state the actual APR, unquote, when 429 00:31:02,180 --> 00:31:05,390 you go down and scroll down further in this study, they took 430 00:31:05,390 --> 00:31:09,950 an example says table three represents APR equivalents for a 431 00:31:09,950 --> 00:31:15,500 common scenario in which $50,000 is repaid in six months, 432 00:31:15,650 --> 00:31:20,030 according to the terms and rates promoted on the lender site. So 433 00:31:20,030 --> 00:31:24,680 one of them advertised on the site, a 1.15, factor rate, 434 00:31:24,680 --> 00:31:29,360 whatever that means. The estimated APR for that loan was 435 00:31:29,360 --> 00:31:35,210 approximately 70%. One of them quoted a 4% fee rate, whatever 436 00:31:35,210 --> 00:31:40,520 that means. That was approximately a 45% APR. Another 437 00:31:40,520 --> 00:31:46,070 one quoted 9% simple interest. But when you calculated the APR, 438 00:31:46,310 --> 00:31:52,340 it was 46%. They quote that many of these loans ends up depending 439 00:31:52,340 --> 00:31:56,330 on when you're repaid. In triple figures, if you put it into an 440 00:31:56,330 --> 00:32:02,390 APR, so we support the legislation, our members do not 441 00:32:02,390 --> 00:32:05,060 make these loans, I don't believe they will ever make 442 00:32:05,060 --> 00:32:08,780 these loans. They make traditional business loans, you 443 00:32:08,780 --> 00:32:12,710 get a note that has a rate of interest, there's an APR, you 444 00:32:12,710 --> 00:32:15,530 repay it over ever, how many months you're going to repay it. 445 00:32:15,830 --> 00:32:19,370 And you can say I went to this bank, and they gave quoted me 446 00:32:19,370 --> 00:32:22,220 this rate. And I went to this bank, and they quoted me that 447 00:32:22,220 --> 00:32:26,660 rate, and they can compare what the rates are. And as you often 448 00:32:26,660 --> 00:32:28,970 heard me saying, there's no industry, I don't believe 449 00:32:28,970 --> 00:32:31,370 anywhere in the state of Maryland, we're in the country 450 00:32:31,370 --> 00:32:34,280 that's suddenly regulated as the banking industry at the state 451 00:32:34,520 --> 00:32:37,760 and federal level. So thank you very much. We urge the committee 452 00:32:37,760 --> 00:32:39,470 to give the bill a favorable report. 453 00:32:39,510 --> 00:32:43,830 Madam Chair: Okay, Senator Battle has a question for you. 454 00:32:44,160 --> 00:32:46,740 Senator Battle: Thank you, Madam Chair. And thank you, Mr. Anton. 455 00:32:46,980 --> 00:32:51,900 So my question isn't that I oppose having a cap on the rate. 456 00:32:51,900 --> 00:32:55,500 But as you and I both know, a lot of banks will not loan to 457 00:32:55,500 --> 00:32:59,520 the small businesses that don't have the assets. And so this is 458 00:32:59,520 --> 00:33:02,580 an option for some of these businesses that really don't 459 00:33:02,580 --> 00:33:07,680 have another way to achieve loans. So I'm not sure if we, we 460 00:33:07,680 --> 00:33:10,080 need to find a middle ground somewhere. So these small 461 00:33:10,080 --> 00:33:13,890 businesses can continue to get the money they need, you know, 462 00:33:13,890 --> 00:33:14,580 when they need it. 463 00:33:15,449 --> 00:33:18,059 Robert Anton: Let me just say, certified, I'll be happy to sit 464 00:33:18,059 --> 00:33:21,239 down with you and show you the actual statistics. And the 465 00:33:21,239 --> 00:33:24,479 programs that Maryland banks are doing for small business 466 00:33:24,479 --> 00:33:28,559 lending. Once again, we're very heavily regulated. And we have 467 00:33:28,559 --> 00:33:33,629 to comply with myriad federal and state regulations. But we 468 00:33:33,629 --> 00:33:38,009 are supporting a number of bills this year, both in the Senate 469 00:33:38,009 --> 00:33:42,599 and in the house to facilitate small business lending and as a 470 00:33:42,869 --> 00:33:46,169 top priority for the banking industry. I think the real 471 00:33:46,169 --> 00:33:50,219 question here and the challenge is, you know, can you come up 472 00:33:50,219 --> 00:33:53,189 with something and other states have and the Federal Reserve 473 00:33:53,189 --> 00:33:57,719 seems to think you can to establish something that small 474 00:33:57,719 --> 00:34:02,489 businesses can use to compare this transaction to another 475 00:34:02,489 --> 00:34:05,219 transaction. And not all the small business lenders use the 476 00:34:05,219 --> 00:34:09,329 same one line lenders use the same terms. They use a whole 477 00:34:09,329 --> 00:34:13,199 variety of terms, we need a consistent term that people can 478 00:34:13,199 --> 00:34:16,139 compare. And then the question I guess you have to answer is what 479 00:34:16,139 --> 00:34:20,729 is an appropriate app for these transactions? So but I'd be 480 00:34:20,729 --> 00:34:26,279 happy to sit down and with our staff at the NBA and show you 481 00:34:26,279 --> 00:34:29,189 exactly and anybody else on the committee, what we're doing in 482 00:34:29,189 --> 00:34:31,199 the in the world of small business lending. 483 00:34:32,580 --> 00:34:36,750 Madam Chair: So these online lenders have the ethereal terms 484 00:34:36,750 --> 00:34:42,900 they just come down as to what the terms on an average person 485 00:34:43,080 --> 00:34:46,920 who's unsophisticated and trying to make the loan no matter how 486 00:34:46,920 --> 00:34:50,490 bad off they are, doesn't want to end up worse off and very 487 00:34:50,520 --> 00:34:59,310 often they are going to be under this scenario. Great. Are there 488 00:34:59,310 --> 00:35:02,910 other questions? Senator, Senator Reid? 489 00:35:02,910 --> 00:35:06,020 Senator Reid: Thank you, Madam Chair. And I think my question 490 00:35:06,020 --> 00:35:10,940 is maybe for Bob. I think so, in the bill, we it talks about a 491 00:35:10,940 --> 00:35:13,280 limit on you have to have a certain amount of money 492 00:35:13,280 --> 00:35:24,620 available as liquid capital. I, I guess. I'm curious. You can't 493 00:35:24,620 --> 00:35:28,520 get a loan from a bank without some level of capital, usually 494 00:35:28,550 --> 00:35:31,760 correct? I mean, not a commercial loan to help you 495 00:35:31,790 --> 00:35:35,990 correct? I mean, your your clients would not. That's my 496 00:35:35,990 --> 00:35:37,880 experience. I mean, am I correct in saying that? 497 00:35:38,470 --> 00:35:44,530 Robert Anton: I think you know, once again, we're required by 498 00:35:44,530 --> 00:35:49,300 both federal and state regulators, to make sure that we 499 00:35:49,300 --> 00:35:54,490 properly evaluate a borrower's ability to repay. And part of 500 00:35:54,490 --> 00:35:57,760 that ability to repay just like when you apply for a mortgage, 501 00:35:58,180 --> 00:36:00,430 they want to know, How much money do you have in the bank? 502 00:36:01,150 --> 00:36:05,230 What is your income? What assets do you have? Because they're 503 00:36:05,230 --> 00:36:10,900 lending out their depositors money. And they and then they 504 00:36:10,960 --> 00:36:17,740 are obligated to make sure that that depositor's money is repaid 505 00:36:17,800 --> 00:36:19,780 to the bank. So. 506 00:36:19,780 --> 00:36:22,900 Senator Reid: It isn't part of, but don't we, at times a 507 00:36:22,900 --> 00:36:26,830 business will go get a loan on the potential of what they're 508 00:36:26,830 --> 00:36:29,380 going to be able to do, correct. I mean, it can't just be 509 00:36:29,380 --> 00:36:33,880 potential, usually. But what was the difference? And I look, it's 510 00:36:33,880 --> 00:36:35,800 clear to me looking at some of the things you're obviously 511 00:36:35,800 --> 00:36:38,200 there's some issues with this. I'm not I'm not suggesting that 512 00:36:38,200 --> 00:36:42,850 anybody, everybody engaged in this practices is doing the 513 00:36:42,850 --> 00:36:49,180 right thing. You know, but aren't we at times? Or we? 514 00:36:49,360 --> 00:36:51,790 Wouldn't it be wrong to just try to get rid of this entirely? It 515 00:36:51,820 --> 00:36:54,400 sounds like we're trying to basically say you can't do it 516 00:36:54,400 --> 00:36:56,230 unless you have a certain amount of capital available? 517 00:36:56,990 --> 00:36:59,600 Robert Anton: No, I think what I think what what we're trying to 518 00:36:59,600 --> 00:37:02,360 say what Senator Kramer's trying to say, and what they've said in 519 00:37:02,360 --> 00:37:08,930 other states, is, we want some consistency, you know, in in the 520 00:37:08,930 --> 00:37:13,670 terms so that borrowers you know, can, you know, I don't 521 00:37:13,670 --> 00:37:17,360 know what a factor rate is, a fee rate is, to the borrowers 522 00:37:17,360 --> 00:37:21,680 can can look at it and, and comparison shop, and maybe they 523 00:37:21,680 --> 00:37:24,800 can get a better deal from this one line lender versus that one 524 00:37:24,800 --> 00:37:28,760 line lender, but it's not apples and oranges. It's all apples 525 00:37:28,760 --> 00:37:32,060 when they compare. I think it's in your industry and with banks 526 00:37:32,060 --> 00:37:36,290 as well, I think the other issue really is, you know, it's I 527 00:37:36,290 --> 00:37:39,650 think you have to decide, you know, you know, is should there 528 00:37:39,650 --> 00:37:45,470 be a cap whatever amount that is, and should they be 529 00:37:45,530 --> 00:37:49,670 regulated? I think that the opponents are whether signup 530 00:37:49,670 --> 00:37:52,250 tables amendments or not, I don't know, they're not 531 00:37:52,250 --> 00:37:56,480 necessarily objecting to being regulated. I don't know that 532 00:37:56,480 --> 00:38:03,020 they're necessarily objecting to having an APR. I know they 533 00:38:03,020 --> 00:38:08,060 object to having any capital. And I see Krista keto nodding 534 00:38:08,060 --> 00:38:14,840 his head. But, you know, I think that, you know, we need to have 535 00:38:14,840 --> 00:38:19,160 a discussion about, you know, how should this industry be, be 536 00:38:19,160 --> 00:38:19,910 regulated? 537 00:38:20,240 --> 00:38:22,370 Senator Reid: And well, I think that's fair, I just, I feel 538 00:38:22,370 --> 00:38:25,580 like, my my impression from the hearings is that we think they 539 00:38:25,580 --> 00:38:29,720 really are just, you know, bad and shouldn't exist. I mean, a 540 00:38:29,720 --> 00:38:33,890 glossary of terms makes sense to me, I don't, I just am concerned 541 00:38:33,890 --> 00:38:36,950 about, look, I don't think it's right, that people can go in and 542 00:38:36,950 --> 00:38:39,890 get a loan on their credit card at Walmart, you know, but and 543 00:38:39,890 --> 00:38:42,980 it's a terrible financial habit to get into, but we don't make 544 00:38:42,980 --> 00:38:47,180 it illegal. So. But there are terms I get to a point about 545 00:38:47,180 --> 00:38:49,130 terms, certainly, and being able to compare apples and apples, 546 00:38:49,130 --> 00:38:51,320 there's terms those people can find out what the term is, but 547 00:38:51,500 --> 00:38:51,890 thank you. 548 00:38:52,170 --> 00:38:55,650 Senator Kramer: Senator Reid, if I can clarify, I think what. 549 00:38:57,480 --> 00:39:01,560 Yeah, no, he asked this question about this need to have certain 550 00:39:01,590 --> 00:39:06,090 assets, this is not the business that has to have the assets, the 551 00:39:06,090 --> 00:39:09,540 business looking to get the loan, these elements of the 552 00:39:09,540 --> 00:39:14,370 financial institution taking the loan. So that madam chair that 553 00:39:14,370 --> 00:39:15,480 needs to be clarified. 554 00:39:15,600 --> 00:39:16,770 Senator Reid: I misread that. Thank you. 555 00:39:17,820 --> 00:39:23,970 Madam Chair: And Bob and and Mr. Sponsor, would you agree, some 556 00:39:23,970 --> 00:39:29,130 people are in such bad shape in a loan that they will get will 557 00:39:29,130 --> 00:39:32,640 put them in worse shape. There are times when you in extreme 558 00:39:32,640 --> 00:39:35,940 loans, then there are other people that could get a loan, 559 00:39:35,940 --> 00:39:39,630 but they need to really understand the terms and not 560 00:39:39,630 --> 00:39:43,350 only to understand them orally, it ought to be down in writing 561 00:39:43,440 --> 00:39:46,920 with the imprimature of the entity that is offering a loan 562 00:39:46,920 --> 00:39:50,130 so you can have something to hold on to. 563 00:39:50,190 --> 00:39:53,070 Senator Kramer: And you're absolutely correct. Yes, that is 564 00:39:53,070 --> 00:39:53,550 correct. 565 00:39:53,890 --> 00:39:56,680 Robert Anton: If I could, Madam Chair, just very quickly, just 566 00:39:56,710 --> 00:39:59,650 you know, I would really urge you to look at the Federal 567 00:39:59,650 --> 00:40:03,340 Reserve of study, because that's not one side or the other. 568 00:40:03,340 --> 00:40:06,790 That's the Federal Reserve. And the three examples that they 569 00:40:06,790 --> 00:40:12,550 give the APR one was 70%, the APR on the other was 45%, the 570 00:40:12,550 --> 00:40:20,080 APR and others 46%. No bank is charging for APR 46% or 70% that 571 00:40:20,080 --> 00:40:20,680 I can tell you. 572 00:40:20,680 --> 00:40:23,010 Madam Chair: Okay, and Bob, you're gonna get me to Federal 573 00:40:23,010 --> 00:40:23,310 Reserve. 574 00:40:24,090 --> 00:40:25,770 Robert Anton: Yes, ma'am. I'll send it to every member of the 575 00:40:25,770 --> 00:40:29,100 committee with the link. I see Senator Augustine smiling. You 576 00:40:29,100 --> 00:40:30,540 can't wait to read it. I know. 577 00:40:32,550 --> 00:40:39,330 Unknown: Okay, that's next to, wait a minute, yeah Robin 578 00:40:39,330 --> 00:40:39,840 McKinney. 579 00:40:41,880 --> 00:40:43,920 Robin McKinney: Madam Chair, Mr. Vice Chair, members of the 580 00:40:43,920 --> 00:40:46,620 committee. My name is Robin McKinney. I'm the co founder and 581 00:40:46,620 --> 00:40:49,500 CEO of the cash campaign of Maryland. Cash stands for 582 00:40:49,500 --> 00:40:51,720 creating assets, savings and hope. And we help low to 583 00:40:51,720 --> 00:40:55,140 moderate income individuals and families to be more financially 584 00:40:55,140 --> 00:40:59,880 secure here in strong support of Senate Bill 532. This committee 585 00:40:59,880 --> 00:41:02,790 well knows and has anyone who's been around for a while has seen 586 00:41:02,790 --> 00:41:06,720 me and this can be a lot talking about access to capital at what 587 00:41:06,720 --> 00:41:10,260 cost. And that's really what this bill comes down to for me 588 00:41:10,440 --> 00:41:13,530 is that at the end of the day, yes, people need access to 589 00:41:13,530 --> 00:41:16,710 money. But if that money puts them in a worse financial 590 00:41:16,710 --> 00:41:21,210 situation, then we need to put more guardrails around it. And 591 00:41:21,210 --> 00:41:25,290 that is really what Senate Bill 532 does is it puts guardrails 592 00:41:25,320 --> 00:41:28,470 around a current system that is unregulated, and as you've 593 00:41:28,470 --> 00:41:32,760 heard, has a very range of impacts. We've seen a lot of it, 594 00:41:32,760 --> 00:41:35,250 particularly on small businesses, I do want to mention 595 00:41:35,250 --> 00:41:38,820 that we are seeing from our partners, a targeting of black 596 00:41:38,820 --> 00:41:41,940 and Latino businesses in Prince George's and Montgomery County, 597 00:41:42,000 --> 00:41:46,890 people going door to door asking for, you know, people to take 598 00:41:46,890 --> 00:41:50,100 out these loans, folks that are getting in way over their head 599 00:41:50,100 --> 00:41:53,520 not understanding the set of terms or the terms actually 600 00:41:53,520 --> 00:41:57,750 changing. We have talked about online lending, which is a great 601 00:41:57,750 --> 00:42:01,050 opportunity for a lot of businesses and people to access 602 00:42:01,050 --> 00:42:04,200 capital. But if it's expensive, if it's having a disparate 603 00:42:04,200 --> 00:42:07,410 impact on black and Latino businesses, then we need to put 604 00:42:07,410 --> 00:42:10,650 against some guardrails. Personally, at the cash campaign 605 00:42:10,650 --> 00:42:13,080 of Maryland, we have on our website, a list of all of our 606 00:42:13,080 --> 00:42:16,590 partners, our free tax preparation locations across the 607 00:42:16,590 --> 00:42:21,150 state. Cash personally receives both marketing in the mail as 608 00:42:21,150 --> 00:42:25,320 well as electronically, like lead generation emails from a 609 00:42:25,320 --> 00:42:27,630 range of these different products, not because of 610 00:42:27,630 --> 00:42:30,450 anything that cash is doing. But on behalf of some of our 611 00:42:30,450 --> 00:42:33,240 businesses. And I will tell you, they are all either rural 612 00:42:33,240 --> 00:42:36,810 businesses, black owned or Latino owned businesses. So we 613 00:42:36,810 --> 00:42:39,900 at cash are being particularly targeted for us to take out 614 00:42:39,900 --> 00:42:42,510 these loans. For these businesses that aren't even our 615 00:42:42,510 --> 00:42:45,810 business, we just happen to offer a service there. So we are 616 00:42:45,810 --> 00:42:48,840 definitely seeing as a problem. The last thing I just want to 617 00:42:48,840 --> 00:42:52,020 mention is the importance of disclosure, putting out all of 618 00:42:52,020 --> 00:42:55,470 the terms is very important. But that timing of the disclosure is 619 00:42:55,470 --> 00:42:58,680 very key that it's before someone has signed on the dotted 620 00:42:58,680 --> 00:43:01,440 line that they really understand everything that they're getting 621 00:43:01,440 --> 00:43:04,590 into. And just to close with where I started with the cost of 622 00:43:04,590 --> 00:43:08,160 capital, this committee and the General Assembly has long stated 623 00:43:08,160 --> 00:43:12,630 on the personal lending side, that our usery cap of 33% is 624 00:43:12,630 --> 00:43:16,560 enough for these smaller dollar loans. And so as we think about 625 00:43:16,590 --> 00:43:21,030 a cap, and considering what a cost of capital can do for a 626 00:43:21,030 --> 00:43:24,090 small business, especially in these economic times, we ask 627 00:43:24,090 --> 00:43:27,180 that you remember that and urge a favorable report on Senate 628 00:43:27,180 --> 00:43:28,230 Bill 532. 629 00:43:30,960 --> 00:43:36,630 Madam Chair: Any questions for this witness? Okay, we're going 630 00:43:36,630 --> 00:43:38,220 next to Chris DiPietro. 631 00:43:39,860 --> 00:43:41,510 Chris DiPietro: Madam Chair, members of the committee, my 632 00:43:41,510 --> 00:43:45,890 name is Chris DiPietro. I'm here on behalf of Fiserv. Fiserv is a 633 00:43:45,890 --> 00:43:49,490 global financial services company, is probably one of the 634 00:43:49,490 --> 00:43:54,560 leading payment processors in the world. We are here favorable 635 00:43:54,560 --> 00:44:01,220 with amendment. I think 95% of what Senator Kramer described in 636 00:44:01,220 --> 00:44:05,180 his opening statement about the bill will be addressed with all 637 00:44:05,180 --> 00:44:09,140 the issues that we support about this bill. We have offered we're 638 00:44:09,170 --> 00:44:12,380 offering amendments, we will get them to committee counsel, I 639 00:44:12,380 --> 00:44:14,600 believe the proponents of the bill have a copy of our 640 00:44:14,600 --> 00:44:18,080 amendments already. But let me just talk about a few things we 641 00:44:18,080 --> 00:44:21,620 fully support licensing. I think that's the key. The commissioner 642 00:44:21,620 --> 00:44:25,310 of financial regulation has to know what the landscape is of 643 00:44:25,310 --> 00:44:27,980 the companies that are doing this type of product. That's 644 00:44:27,980 --> 00:44:31,970 number one. The estimated APR, there was a lot of talk about 645 00:44:31,970 --> 00:44:35,810 that, yes, New York and California require an estimated 646 00:44:35,810 --> 00:44:38,750 APR. We're doing business in those states. But let me be 647 00:44:38,750 --> 00:44:43,250 clear, the rules and regulations related to estimated APR have 648 00:44:43,250 --> 00:44:46,730 not been promulgated yet. Whatever they happen to be our 649 00:44:46,730 --> 00:44:50,060 company will will comply with that. And if that's the case in 650 00:44:50,060 --> 00:44:52,790 Maryland and you choose to go down this road, we will comply 651 00:44:52,790 --> 00:44:57,230 with those regulations as well. We fully agree that disclosure 652 00:44:57,260 --> 00:45:02,090 has to be a part of the issue and On the the confessions of 653 00:45:02,090 --> 00:45:05,180 judgments, we never did that anyway. So we are full support 654 00:45:05,180 --> 00:45:07,970 of that, where we draw the issue, and I'm going to focus 655 00:45:07,970 --> 00:45:12,920 most of my time on this is the is the cap on the APR. The other 656 00:45:12,920 --> 00:45:17,060 two states, as they everybody has said already do not have the 657 00:45:17,060 --> 00:45:22,700 cap. I argue this, if you include a cap, I think it's 658 00:45:22,700 --> 00:45:26,480 going to get rid of most of this this industry in this 659 00:45:26,480 --> 00:45:29,600 availability of this product in the state of Maryland. So it 660 00:45:29,600 --> 00:45:32,900 will basically have the effect of the bill that Senator Cramer 661 00:45:32,900 --> 00:45:37,670 introduced last year. So I think Senator Abidal was spot on a 662 00:45:37,670 --> 00:45:41,780 little bit earlier, when she says, If companies cannot get 663 00:45:41,810 --> 00:45:45,860 this type of availability of capital, they're going to be 664 00:45:45,860 --> 00:45:48,890 forced to go into the traditional lending commercial 665 00:45:48,890 --> 00:45:52,130 lending market. I know a little bit about this, because before I 666 00:45:52,130 --> 00:45:55,250 was a lobbyist in Annapolis, that was a commercial lender for 667 00:45:55,250 --> 00:45:58,850 a major financial institution for 10 years, they do not make 668 00:45:58,850 --> 00:46:03,410 loans unless there is collateral on that loan. And they do not 669 00:46:03,410 --> 00:46:07,970 make loans to businesses, unless there's a personal guarantee. 670 00:46:08,030 --> 00:46:10,910 And there's a net worth sufficient to cover the 671 00:46:10,910 --> 00:46:14,480 extension of the credit. If you fall into that bucket, which 672 00:46:14,480 --> 00:46:18,290 many small businesses do, you're not going to you're not going to 673 00:46:18,290 --> 00:46:21,650 get capital from a bank, like bobbins said, there's there's 674 00:46:21,830 --> 00:46:25,670 you're lending depositors money out there stronger regulations 675 00:46:25,670 --> 00:46:28,850 and rules that apply to that, and there should be. So I think 676 00:46:28,850 --> 00:46:31,490 you need to consider that. Senator Jennings talked a little 677 00:46:31,490 --> 00:46:34,340 bit earlier about these are people that are teetering on the 678 00:46:34,340 --> 00:46:36,290 edge, and that they're gonna, you know, they're on their way 679 00:46:36,290 --> 00:46:39,530 out, you know, might, their businesses might fail. Two 680 00:46:39,530 --> 00:46:43,700 things I want to understand. In our model, we only, you know, 681 00:46:43,700 --> 00:46:47,360 the clover system, you probably seen it in, in merchants that 682 00:46:47,360 --> 00:46:49,670 you frequent in your neighborhood, it's a very 683 00:46:49,670 --> 00:46:52,970 popular piece of hardware that merchants use to process 684 00:46:52,970 --> 00:46:56,600 payments, credit and debit payments through their their 685 00:46:56,600 --> 00:47:02,330 businesses, we only advanced this type of capital to people 686 00:47:02,330 --> 00:47:06,890 that we do business with, through the clover product. So 687 00:47:06,890 --> 00:47:09,770 we're not out there, like Miss McKinney said, knocking on 688 00:47:09,770 --> 00:47:13,130 doors, trying to sell these products to individuals that we 689 00:47:13,130 --> 00:47:18,140 don't have a relationship with. We do that also. Because we know 690 00:47:18,140 --> 00:47:21,020 how that the what the business flow is of that business, 691 00:47:21,020 --> 00:47:24,650 because we see their daily receipts. So we know what their 692 00:47:24,650 --> 00:47:28,310 highs and lows are, we have a good sense of how they're going 693 00:47:28,310 --> 00:47:32,360 to be able to repay that. And I think I think it's key A lot of 694 00:47:32,360 --> 00:47:35,960 people, a lot of small businesses use this to finance 695 00:47:35,960 --> 00:47:39,290 the ups and downs of their business cycle. If you are a 696 00:47:39,290 --> 00:47:43,940 heavily Christmas oriented company, and you're selling 697 00:47:43,940 --> 00:47:46,970 things at Christmas time, you might need one of these loans in 698 00:47:47,000 --> 00:47:50,180 August to buy your your inventory. But you'll know 699 00:47:50,180 --> 00:47:54,530 you'll be able to repay it back. The issue with the APR is that 700 00:47:54,530 --> 00:47:57,770 if you put a cap on it, even with all due respect to the 701 00:47:57,770 --> 00:48:02,210 sponsor, even at 36% will will basically eliminate this 702 00:48:02,210 --> 00:48:04,730 product, at least from our perspective from the Maryland 703 00:48:04,730 --> 00:48:08,480 market. So I really urge caution and not moving in that 704 00:48:08,480 --> 00:48:15,080 direction. I think we're 95% in alignment with the intent of the 705 00:48:15,080 --> 00:48:18,170 sponsor and the Maryland Retailers Association. We've met 706 00:48:18,170 --> 00:48:21,740 with him multiple times over the interim. I hope we can work this 707 00:48:21,740 --> 00:48:24,380 out. We've worked other issues out with him before, as this 708 00:48:24,380 --> 00:48:28,820 committee well knows. So we're here to do that. Kim Ford from 709 00:48:28,820 --> 00:48:31,910 Fiserv is going to follow behind me and she's going to talk a 710 00:48:31,910 --> 00:48:34,490 little bit more about the detail of actually how these 711 00:48:34,490 --> 00:48:38,450 transactions work to clear up I think some of the misconceptions 712 00:48:39,380 --> 00:48:42,980 or blanket statements about how all they all work. But I'm happy 713 00:48:42,980 --> 00:48:44,270 to answer any questions in the meantime. 714 00:48:44,270 --> 00:48:46,500 Madam Chair: Chris, would you say some of these businesses, 715 00:48:46,500 --> 00:48:51,840 though, are so fragile and had somebody taken out one of these 716 00:48:52,530 --> 00:48:56,580 just before the pandemic started last year, and they knew what 717 00:48:56,580 --> 00:49:00,000 they were getting it for the Thanksgiving or Christmas 718 00:49:00,000 --> 00:49:02,910 season. They're dead in the water. But. 719 00:49:02,940 --> 00:49:06,150 Chris DiPietro: That could be true, Senator, that could be 720 00:49:06,150 --> 00:49:09,810 true, Madam Chair. But But I think you might hear a story 721 00:49:09,810 --> 00:49:14,070 later that we heard in the House hearing of a company not ours. 722 00:49:14,220 --> 00:49:16,800 And I'll let them explain it because it's their story. But 723 00:49:17,280 --> 00:49:20,460 they they took on one of these advances right before the 724 00:49:20,460 --> 00:49:25,470 pandemic and they their business went to zero. And the company 725 00:49:25,470 --> 00:49:28,440 didn't say okay, you still owe us you still owe us for you 726 00:49:28,440 --> 00:49:33,540 know, pushing judgments on they the reputable companies will put 727 00:49:33,540 --> 00:49:38,520 this on hold. And I as far as I can explain this. We do not 728 00:49:38,520 --> 00:49:43,890 pursue these transactions in court for judgment if they are 729 00:49:43,890 --> 00:49:46,980 not able to repay. That's our policy for our company. 730 00:49:46,980 --> 00:49:47,940 Madam Chair: The thing though, Chris, is that when you're 731 00:49:47,940 --> 00:49:51,330 talking about online, you could be dealing with somebody in your 732 00:49:51,330 --> 00:49:52,980 locker. You don't know who it. 733 00:49:54,430 --> 00:49:56,740 Chris DiPietro: Well, that could be true. And I think that's 734 00:49:56,740 --> 00:49:58,840 where the regulation comes in. And that's where the 735 00:49:58,840 --> 00:50:02,140 commissioner comes in. That's not the case for us. You know, 736 00:50:02,140 --> 00:50:08,320 we're a US based company with worldwide reach. You know, we 737 00:50:08,320 --> 00:50:13,930 have over 2000 employees in the state of Maryland in Hagerstown. 738 00:50:14,950 --> 00:50:19,420 Our, Kim can talk more about this, our average loan amount or 739 00:50:19,480 --> 00:50:24,610 advance amount, I should say, is 18,800 in Maryland, that's our 740 00:50:24,610 --> 00:50:30,070 average, and the fee would never go over $5,200. And that's at 741 00:50:30,070 --> 00:50:32,650 the very high end, most are going to be much lower than 742 00:50:32,650 --> 00:50:37,270 that. So the problem with the estimated APR, I'm not saying 743 00:50:37,270 --> 00:50:43,270 we're opposed to estimating the APR, but it's a moving target. 744 00:50:43,480 --> 00:50:47,230 It depends on how well the business is doing. Because they 745 00:50:47,230 --> 00:50:51,100 decide upfront, well, I want to be aggressive and pay this back 746 00:50:51,130 --> 00:50:55,090 this back quickly. So I'm going to authorize you to take out 20% 747 00:50:55,090 --> 00:50:59,230 of my receipts every day, that which would be aggressive. Other 748 00:50:59,230 --> 00:51:03,940 businesses say I can't afford to do that, only take 5% out. And 749 00:51:03,970 --> 00:51:08,770 you know, we that that's just, you know, how the flexibility of 750 00:51:08,770 --> 00:51:11,020 the product for the customer. So. 751 00:51:11,760 --> 00:51:14,460 Madam Chair: When you are very, very needy. 752 00:51:14,460 --> 00:51:14,782 Chris DiPietro: Yes. 753 00:51:15,300 --> 00:51:18,480 Madam Chair: And not all that sophisticated, you're likely to 754 00:51:18,480 --> 00:51:22,920 be overly optimistic about what you can do and how you can. 755 00:51:24,580 --> 00:51:27,130 Chris DiPietro: And I'm sure there for lack of a better word 756 00:51:27,130 --> 00:51:32,020 is an underwriting process that Fizer undergoes to before they 757 00:51:32,020 --> 00:51:34,570 actually make a decision. I don't think we just give this to 758 00:51:34,570 --> 00:51:38,470 anybody. So I think Kim can talk a little bit about that and how 759 00:51:38,470 --> 00:51:38,980 it works. 760 00:51:39,060 --> 00:51:42,630 Madam Chair: We're going to Kim Ford right now. And you have to 761 00:51:42,630 --> 00:51:42,710 Chris DiPietro: Thank you Madam Chair. 762 00:51:43,190 --> 00:51:44,990 Kim Ford: Thank you, Madam Chair Kelly, Vice Chair Feldman, 763 00:51:44,990 --> 00:51:48,020 members of the committee, I am Kim Ford, SVP of Government 764 00:51:48,020 --> 00:51:51,200 Relations with Fiserv again, as Chris said, we're here as a 765 00:51:51,200 --> 00:51:54,470 favorable with amendment position, Chris covered a lot of 766 00:51:54,470 --> 00:51:57,740 the points, you know, but just to emphasize a few things. So 767 00:51:57,800 --> 00:52:00,080 again, we are not an online lender, we're a payment 768 00:52:00,080 --> 00:52:03,710 processing company, we set up the clover capital program, 769 00:52:03,710 --> 00:52:06,620 which is a merchant cash advance program just a couple of years 770 00:52:06,620 --> 00:52:10,340 ago, in direct response to requests that we were getting 771 00:52:10,340 --> 00:52:13,670 from our business clients. So our businesses, were saying 772 00:52:13,700 --> 00:52:16,550 there are times where we need money, we're not able to get a 773 00:52:16,550 --> 00:52:19,850 bank loan, for whatever reason. And you know, would this be 774 00:52:19,850 --> 00:52:22,340 something that you would be willing to set up. So the way 775 00:52:22,340 --> 00:52:26,090 that it works with our program, again, you have to be a clover 776 00:52:26,090 --> 00:52:31,220 customer, an existing customer of Fiserv and, you know, the 777 00:52:31,220 --> 00:52:34,370 business comes to us with they essentially apply for a funding 778 00:52:34,370 --> 00:52:37,910 amount. And then what we do is we look at their historical 779 00:52:37,910 --> 00:52:40,880 debit and credit card transactions. So if they've been 780 00:52:40,910 --> 00:52:44,450 a customer of ours for a year, we will look at that year, if 781 00:52:44,450 --> 00:52:47,060 they've been in business with us less than a year, we'll look 782 00:52:47,060 --> 00:52:49,700 less than a year. So we look at those credit and debit card 783 00:52:49,700 --> 00:52:53,270 transactions. And we come up with an amount that we think is 784 00:52:53,270 --> 00:52:56,240 appropriate based on the volume of transactions that they're 785 00:52:56,240 --> 00:53:00,950 getting on a daily base basis. So we come up with a percentage 786 00:53:01,100 --> 00:53:05,930 that that business will pay us back every day based on those 787 00:53:05,930 --> 00:53:09,230 debit and credit transactions. So again, that's going to 788 00:53:09,230 --> 00:53:12,950 fluctuate based on how well they're doing. If they are not 789 00:53:12,950 --> 00:53:17,150 bringing in money, we do not get that merchant cash advance paid. 790 00:53:17,150 --> 00:53:21,620 So they pay us when they get paid. And it's a percentage of 791 00:53:21,620 --> 00:53:24,440 their daily transactions, it's never going to be 100%, they're 792 00:53:24,440 --> 00:53:27,170 never going to not be able to put money in the bank because 793 00:53:27,170 --> 00:53:30,530 they were paying their merchant cash advance back. And as Chris 794 00:53:30,530 --> 00:53:35,150 said, you know, we do not do confessions of judgment. This is 795 00:53:35,150 --> 00:53:38,240 actually fi serves money that we're sending out. It's not it's 796 00:53:38,240 --> 00:53:41,930 not a bank that we're borrowing from to pay our business. And so 797 00:53:41,960 --> 00:53:45,680 if that business were to go out of business, we take that 798 00:53:45,680 --> 00:53:49,340 merchant cash advance as a loss, that's just money that comes out 799 00:53:49,370 --> 00:53:53,750 of our pocket. You know, when we have a statement, the agreement 800 00:53:53,750 --> 00:53:58,190 that the business signs, we say very clearly on that front of 801 00:53:58,190 --> 00:54:01,520 the agreement, what the purchase price is, how much the business 802 00:54:01,520 --> 00:54:04,400 will receive, how much the agreement will actually cost 803 00:54:04,400 --> 00:54:08,960 them, and then the total repayment amount. Again, we are 804 00:54:08,960 --> 00:54:12,770 very comfortable with the disclosures, especially if we 805 00:54:12,770 --> 00:54:15,230 can conform those to New York, we're comfortable with the 806 00:54:15,230 --> 00:54:18,230 licensing, it's really the cap that we struggle with. And 807 00:54:18,230 --> 00:54:21,140 again, I think part of that challenge is when you look at an 808 00:54:21,140 --> 00:54:25,820 APR, that's a generally a 12 month, you know, monthly type of 809 00:54:25,820 --> 00:54:29,030 payment over the course of a year. Whereas these products are 810 00:54:29,030 --> 00:54:33,020 generally paid back in six months or less. And so, you 811 00:54:33,020 --> 00:54:36,770 know, when you when you apply to a cap to that type of product, 812 00:54:36,770 --> 00:54:39,680 it's kind of apples and oranges, it skews the economics quite a 813 00:54:39,680 --> 00:54:42,110 bit. And I think the other piece that I'll just say before I 814 00:54:42,110 --> 00:54:45,980 close about having a cap is again, if the business is doing 815 00:54:45,980 --> 00:54:49,340 well, they may elect to pay more on that merchant cash advance so 816 00:54:49,340 --> 00:54:52,340 that they can just be done with it. And a cap would actually 817 00:54:52,340 --> 00:54:56,330 prevent that from happening. Because again, if they bring in 818 00:54:56,360 --> 00:54:59,840 you know, 10% of maybe 100,000 in revenue is a different 819 00:54:59,840 --> 00:55:04,340 amount. And then 10% of $1,000 in revenue. And so you know, if 820 00:55:04,340 --> 00:55:07,460 you're subject to a cap and that business wants to actually do 821 00:55:08,030 --> 00:55:10,490 faster payment, it's going to be difficult. Thank you. 822 00:55:10,950 --> 00:55:14,100 Madam Chair: Let me just say this. As I listen, and I'm 823 00:55:14,160 --> 00:55:17,190 trying to be very open minded, I believe you're running a 824 00:55:17,190 --> 00:55:21,990 legitimate business that knows for years. But you have one 825 00:55:21,990 --> 00:55:26,370 business, and 99% of the Marylanders who find themselves 826 00:55:26,370 --> 00:55:33,300 needing to go to market to look for a cash infusion, necessarily 827 00:55:33,300 --> 00:55:39,810 find any one company we want, we need something that can be 828 00:55:39,810 --> 00:55:45,270 there, no matter where they go. And because you are also online, 829 00:55:45,600 --> 00:55:50,490 and you can lend to people in other states, there's nothing 830 00:55:50,490 --> 00:55:53,820 that will stop you under the terms of other states from doing 831 00:55:53,820 --> 00:55:59,520 what you do. We need to know that the 99% of small businesses 832 00:56:00,240 --> 00:56:06,030 get into trouble and who need transparency, they need 833 00:56:06,060 --> 00:56:15,360 regulations. They need to know upfront what they will own, and 834 00:56:15,360 --> 00:56:22,800 that it is solid, need to have the regulatory help. But the 835 00:56:22,800 --> 00:56:25,680 bill basically is laying out. I don't think. 836 00:56:25,720 --> 00:56:27,790 Chris DiPietro: We support that, Madam Chair, we support that. 837 00:56:28,320 --> 00:56:31,830 Madam Chair: Anything against what you're doing. But because 838 00:56:32,190 --> 00:56:37,140 not everybody's going to find your one company. A lot of them 839 00:56:37,140 --> 00:56:40,260 would still enough if we were to say but your company is the 840 00:56:40,260 --> 00:56:43,140 model and insufficient and we don't need to do these other 841 00:56:43,140 --> 00:56:47,250 things. We'd have a lot more people still in trouble. 842 00:56:47,640 --> 00:56:49,560 Chris DiPietro: So again, just to be clear, we support 843 00:56:49,560 --> 00:56:52,440 everything about the bill except up Cap. That's the only thing we 844 00:56:52,440 --> 00:56:53,130 don't support. 845 00:56:53,490 --> 00:56:54,060 Madam Chair: Okay. 846 00:56:54,150 --> 00:56:55,590 Chris DiPietro: So we agree with you, Madam Chair. 847 00:56:55,680 --> 00:56:59,970 Madam Chair: Okay. Alright. Senator Kramer? 848 00:57:00,840 --> 00:57:03,930 Senator Kramer: Yes, thank you, Madam Chair. And Kim and Chris, 849 00:57:04,290 --> 00:57:08,100 first of all, I want to say thank you, you both have been 850 00:57:08,130 --> 00:57:14,100 very upfront in trying to work through the regulations to get 851 00:57:14,100 --> 00:57:18,900 this bill in a posture where you would feel comfortable 852 00:57:18,900 --> 00:57:23,400 supporting it. And and I do acknowledge that look, your 853 00:57:23,400 --> 00:57:28,290 business model, I don't think there's a lot of concern with as 854 00:57:28,290 --> 00:57:33,720 the chair was pointing out, but we're dealing with everyone in 855 00:57:33,720 --> 00:57:38,730 this industry that doesn't necessarily share your business 856 00:57:38,730 --> 00:57:45,060 model. So I get it, you support the bill in its entirety with 857 00:57:45,060 --> 00:57:49,860 one piece. And that's the cap. So let me ask you this, because 858 00:57:49,860 --> 00:57:53,610 as I stated in my introduction of the bill, I think this is a 859 00:57:53,610 --> 00:57:57,060 policy decision that the committee will need to take up 860 00:57:57,060 --> 00:58:02,040 at a voting session. But is there any point where you 861 00:58:02,040 --> 00:58:10,890 believe it's not too much? In other words, is 100% interest? 862 00:58:11,160 --> 00:58:18,300 Okay, is to send 300 Is there a point where you would say, All 863 00:58:18,300 --> 00:58:21,630 right, look, we get it. It's too much. 864 00:58:21,750 --> 00:58:24,390 Chris DiPietro: Yeah. Senator, I wish I wish we could simply 865 00:58:24,390 --> 00:58:27,720 answer that question. I agree with you. 100. I wish we could 866 00:58:27,720 --> 00:58:31,020 answer that question. But the variables for this type of 867 00:58:31,020 --> 00:58:33,960 product, because what you're talking about is a fixed amount 868 00:58:33,960 --> 00:58:37,800 that we're that we're advancing to the merchant. And then 869 00:58:37,800 --> 00:58:43,560 there's a fixed amount for the fee for that advance. So the APR 870 00:58:43,680 --> 00:58:49,500 all depends on how quickly or how slowly they repay that loan. 871 00:58:49,710 --> 00:58:54,810 So they're gonna be all gotchas situation. If you put too low of 872 00:58:54,810 --> 00:58:58,560 a cap one there, we're going to be in a gotcha situation, and 873 00:58:58,560 --> 00:59:01,470 we're not going to be compliant with the law. If we can't be 874 00:59:01,470 --> 00:59:04,380 compliant with the law with the cap. We're not going to make 875 00:59:04,380 --> 00:59:07,200 these types of advances in Maryland. That's the bottom 876 00:59:07,200 --> 00:59:07,530 line. 877 00:59:08,200 --> 00:59:11,020 Madam Chair: We have several unfavorables. And we need to 878 00:59:11,020 --> 00:59:17,260 hear those witnesses also. Let's go to Chris Graham, Innovation 879 00:59:17,260 --> 00:59:19,330 Lending Platform Association. 880 00:59:20,680 --> 00:59:21,400 Chris Graham: Madam Chairman. 881 00:59:21,400 --> 00:59:22,570 Madam Chair: You have two and a half minutes. 882 00:59:23,230 --> 00:59:25,060 Chris Graham: Chris Graham with Innovative Lending Platform 883 00:59:25,060 --> 00:59:27,550 Association. Thank you for allowing me to testify. 884 00:59:27,640 --> 00:59:29,950 Madam Chair: Mr. Graham. Are you unmuted? 885 00:59:30,520 --> 00:59:31,150 Chris Graham: I am. 886 00:59:33,310 --> 00:59:37,420 Madam Chair: Mr. Graham, I see your mouth moving but we can't 887 00:59:37,420 --> 00:59:37,990 hear you. 888 00:59:39,880 --> 00:59:40,990 Chris Graham: How about now, does that work? 889 00:59:40,990 --> 00:59:41,470 Madam Chair: Yes. 890 00:59:41,470 --> 00:59:45,200 Chris Graham: Yes technology. Chris Graham, Innovative Lending 891 00:59:45,200 --> 00:59:49,130 Platform Association. Our position is very similar to 892 00:59:49,160 --> 00:59:54,230 Firserv's. We fully support disclosure. We were in the 893 00:59:54,230 --> 00:59:58,460 driver's seat for a long time in New York along with Louis and 894 00:59:58,460 --> 01:00:01,070 the responsible business lending coalition on the bill that 895 01:00:01,070 --> 01:00:05,360 passed there. We fully supported we worked very closely with 896 01:00:05,390 --> 01:00:09,500 business advocacy groups with the sponsors to craft what we 897 01:00:09,500 --> 01:00:15,320 feel is sort of the gold standard model legislation. For 898 01:00:15,350 --> 01:00:19,040 for small business finance regulation, like Pfizer, we do 899 01:00:19,040 --> 01:00:22,130 have to oppose this bill because of the cap. And I just want to 900 01:00:22,130 --> 01:00:26,510 make a few a few quick points. There is absolutely a place in 901 01:00:26,510 --> 01:00:29,390 the market for these products, as I think has been mentioned 902 01:00:29,390 --> 01:00:33,770 earlier, banks are not filling the credit need of Maryland 903 01:00:33,770 --> 01:00:38,540 small businesses. For businesses that are not as established, do 904 01:00:38,540 --> 01:00:42,620 not have collateral do not have large cast assets. This is a way 905 01:00:42,620 --> 01:00:46,340 for them to get financing in return for a payment of a 906 01:00:46,340 --> 01:00:49,610 percentage of their future sales. I always equate this more 907 01:00:49,610 --> 01:00:57,050 to taking on an investor, where they're giving you a providing 908 01:00:57,050 --> 01:00:59,300 you with cash in return, they're getting a piece of your 909 01:00:59,300 --> 01:01:03,920 business. But with these products, it is just for a set 910 01:01:03,950 --> 01:01:09,590 amount, instead of forever. The cap is tantamount to a band for 911 01:01:09,590 --> 01:01:13,130 two reasons. One, it ignores the economics that I just laid out 912 01:01:13,820 --> 01:01:17,480 of these products primarily being utilized by companies that 913 01:01:17,480 --> 01:01:20,750 either don't have the assets or the collateral or the credit for 914 01:01:20,750 --> 01:01:24,680 traditional bank loan, or banks can't serve them fast enough. My 915 01:01:24,680 --> 01:01:28,160 dad owns a pizza place of his pizza oven breaks, he can't wait 916 01:01:28,400 --> 01:01:32,990 248 weeks for funding, right? You need a quick infusion of 917 01:01:32,990 --> 01:01:36,770 cash to invest in your business to get back to your business. 918 01:01:37,160 --> 01:01:41,960 The other thing that it ignores is the time factor. The question 919 01:01:41,990 --> 01:01:46,550 of is 100% Enough is 200% Enough, if the financing is 920 01:01:46,550 --> 01:01:51,740 really short, that percentage goes up dramatically. My dad 921 01:01:51,740 --> 01:01:54,980 pizza oven, if he gets the financing to get a new pizza 922 01:01:54,980 --> 01:01:58,670 oven in and business is booming, and he pays that financing back 923 01:01:58,670 --> 01:02:05,120 in two weeks, that APR may very well be well over 100%. And for 924 01:02:05,120 --> 01:02:09,590 those two reasons that cap is tantamount to a ban. And if you 925 01:02:09,590 --> 01:02:13,190 ban this product, what's going to happen? Right the banks are 926 01:02:13,190 --> 01:02:16,820 not filling the credit needs of the small businesses. If you ban 927 01:02:16,820 --> 01:02:20,840 the people who are someone mentioned offshore actors. If 928 01:02:20,840 --> 01:02:24,770 our members and five serve and other quality businesses cannot 929 01:02:24,770 --> 01:02:28,430 do this, offshore companies will step in and it'll be much worse 930 01:02:28,430 --> 01:02:29,390 for small businesses. 931 01:02:30,590 --> 01:02:33,530 Madam Chair: Thank you very much. Are there questions for 932 01:02:33,530 --> 01:02:38,840 this witness? Okay, we're going next to Patrick Sigfried thread, 933 01:02:39,080 --> 01:02:41,660 Rapid Financial Services LLC. 934 01:02:43,280 --> 01:02:44,390 Patrick Sigfried: Thank you Madam Chair, members of this 935 01:02:44,390 --> 01:02:47,510 committee. My name is Patrick Sigfried. I'm here on behalf of 936 01:02:47,510 --> 01:02:51,950 Rapid Financial Services. Rapid was founded in 2006. And we've 937 01:02:51,950 --> 01:02:55,520 been headquartered in montgomery county, maryland ever since. To 938 01:02:55,520 --> 01:02:58,730 date, we've provided over $2 billion of working capital to 939 01:02:58,730 --> 01:03:01,730 small businesses throughout the United States. And we employ 940 01:03:01,730 --> 01:03:06,500 nearly 200 employees at our Bethesda office. Our financing 941 01:03:06,500 --> 01:03:09,110 products include sales based financing, which is the subject 942 01:03:09,110 --> 01:03:12,440 of 532. Again, this type of financing allows small 943 01:03:12,440 --> 01:03:15,260 businesses to sell a portion of their future revenue in exchange 944 01:03:15,260 --> 01:03:18,140 for immediate working capital, and a sales based financing 945 01:03:18,140 --> 01:03:20,960 transaction. And I think this is important to reiterate, there is 946 01:03:20,960 --> 01:03:24,800 no repayment term interest rate or set payment amounts. And most 947 01:03:24,800 --> 01:03:27,380 importantly, there is no personal guarantee required of 948 01:03:27,380 --> 01:03:30,380 the business owner. And again, this is a I want to highlight 949 01:03:30,380 --> 01:03:33,650 this because this is not what you see when you have a loan 950 01:03:33,650 --> 01:03:37,550 product or a line of credit product. With because there's no 951 01:03:37,550 --> 01:03:41,180 personal guarantee the risk is placed on the funder rapid takes 952 01:03:41,180 --> 01:03:44,090 the risk of the business slowing down or even failing. And again, 953 01:03:44,090 --> 01:03:46,790 I was here last year, and I testified to the benefits of 954 01:03:46,790 --> 01:03:49,340 sales based financing. And unfortunately, the COVID 955 01:03:49,610 --> 01:03:52,040 pandemic has proven how important it can be to small 956 01:03:52,040 --> 01:03:55,370 businesses, especially for the lack of a personal guarantee, as 957 01:03:55,370 --> 01:03:58,700 many businesses were shut down due to COVID. Those businesses 958 01:03:58,700 --> 01:04:01,340 with a sales based financing product were required to make 959 01:04:01,340 --> 01:04:04,400 any payments. Moreover, if those businesses have to shut their 960 01:04:04,400 --> 01:04:07,460 doors forever, the business owners will not be liable for 961 01:04:07,460 --> 01:04:10,010 the remaining balance because there's no personal guarantee. 962 01:04:10,130 --> 01:04:12,500 And again, this is different than with a loan or line of 963 01:04:12,500 --> 01:04:14,960 credit product. Because with those products, the business 964 01:04:14,960 --> 01:04:16,970 owner is still required to make payments under the terms of the 965 01:04:16,970 --> 01:04:20,570 transaction throughout COVID. And if the business ultimately 966 01:04:20,570 --> 01:04:23,660 failed, the business owners who guaranteed those transactions 967 01:04:23,660 --> 01:04:26,690 are still liable to the lender for the amounts that need to be 968 01:04:26,690 --> 01:04:29,330 repaid. Again, that's not true with a sales based financing 969 01:04:29,330 --> 01:04:34,970 transaction. Nationwide, rapid has provided or has to over 290 970 01:04:34,970 --> 01:04:37,640 customers with sales bait financing accounts that 971 01:04:37,640 --> 01:04:40,640 experience decreased revenue as a result of COVID. In the event 972 01:04:40,640 --> 01:04:43,460 that these businesses ultimately failed, rapid would take the 973 01:04:43,460 --> 01:04:47,480 loss a loss of over $9 million. However, the owners of the small 974 01:04:47,480 --> 01:04:51,140 businesses but not rapid anything. In Maryland, we've had 975 01:04:51,140 --> 01:04:54,650 over 10 customers who were severely impacted by COVID. And 976 01:04:54,650 --> 01:04:57,110 in the event these businesses unfortunately do not survive 977 01:04:57,290 --> 01:05:00,050 their business. Their business owners will walk away debt free 978 01:05:00,620 --> 01:05:03,770 We are unable to support 532 as it would have strict access to 979 01:05:03,770 --> 01:05:07,010 the support and type of working capital. Moreover, I would apply 980 01:05:07,010 --> 01:05:09,380 the truth at the federal Truth in Lending Act to a commercial 981 01:05:09,380 --> 01:05:12,770 finance product that the act was never meant to cover. Tila does 982 01:05:12,770 --> 01:05:15,380 not provide any guidance or language and applying APR to 983 01:05:15,380 --> 01:05:18,200 commercial financing, and more specifically sales based 984 01:05:18,200 --> 01:05:22,460 financing, such as a financing and issue in 532. And again, 985 01:05:22,730 --> 01:05:26,150 while I know California and New York has passed some laws 986 01:05:26,150 --> 01:05:28,790 related to these products, the regulations implementing those 987 01:05:28,790 --> 01:05:33,740 laws have not been finalized. And if ultimately, I shall we 988 01:05:33,740 --> 01:05:37,340 oppose 532. We will, we are committed to work with this 989 01:05:37,340 --> 01:05:40,160 committee and the sponsor to create a comprehensive 990 01:05:40,160 --> 01:05:42,410 legislation to regulate commercial financing. 991 01:05:43,610 --> 01:05:44,270 Madam Chair: Thank you. 992 01:05:45,110 --> 01:05:46,070 Senator Kramer: Madam Chair. 993 01:05:46,130 --> 01:05:51,350 Madam Chair: Yes. There's one thing left, can I tell you one 994 01:05:51,350 --> 01:05:54,800 thing, and I'm gonna call it I just happened to look at the 995 01:05:54,800 --> 01:05:56,750 letter from the Attorney General, which is an 996 01:05:56,750 --> 01:06:00,530 informational letter. They didn't take a thought. But lets 997 01:06:00,530 --> 01:06:04,850 everybody take a look at the last sentence in paragraph one. 998 01:06:05,150 --> 01:06:08,840 And the rest of this letter, it comes up with some things that I 999 01:06:08,840 --> 01:06:12,080 think might require some amendment. And they I think 1000 01:06:12,080 --> 01:06:15,170 there's some unintentional things that may happen in draft 1001 01:06:15,170 --> 01:06:21,410 and take a look, I won't go further. But I think the bill is 1002 01:06:21,410 --> 01:06:29,000 solid, innocent 10. And there is a need for regulation and just 1003 01:06:29,000 --> 01:06:30,350 take a look at this to see. 1004 01:06:30,350 --> 01:06:34,310 Senator Kramer: Madam Chair, if I may. In my introductory 1005 01:06:34,310 --> 01:06:38,930 remarks, I indicated that there's an amendment coming in 1006 01:06:38,930 --> 01:06:43,430 response to that letter from the Attorney General. He is off is 1007 01:06:43,430 --> 01:06:48,770 completely out of the bill, put everything into the commissioner 1008 01:06:48,770 --> 01:06:52,940 of financial rigging. Okay. All right. So that's gonna be coming 1009 01:06:52,940 --> 01:06:55,370 to the committee. Yes. Thank you. And I appreciate your 1010 01:06:55,370 --> 01:06:59,060 pointing that out. I do have a question for Mr. Sigfried, 1011 01:06:59,060 --> 01:06:59,420 Madam. 1012 01:06:59,420 --> 01:07:01,670 Madam Chair: And we got one more witness you want to hear it? 1013 01:07:01,670 --> 01:07:02,240 Okay. 1014 01:07:02,540 --> 01:07:05,570 Senator Kramer: And I suspect I'll have a question for Ms. 1015 01:07:05,570 --> 01:07:10,940 Fisher as well. But real fast, Mr. Sigfried. Obviously, you've 1016 01:07:10,940 --> 01:07:16,820 heard to this evening here, with everyone else who has testified 1017 01:07:16,820 --> 01:07:22,280 this evening with regard to the legislation in that they have 1018 01:07:22,280 --> 01:07:26,600 all agreed to all aspects of the bill with the exception of the 1019 01:07:26,600 --> 01:07:31,700 cap. But you made the point of indicating there is no personal 1020 01:07:31,730 --> 01:07:35,840 guarantee from the owner. So let me ask you this. What what 1021 01:07:35,840 --> 01:07:39,920 recourse does your company have if someone stops paying? 1022 01:07:41,400 --> 01:07:42,810 Patrick Sigfried: If they legitimately stopped paying 1023 01:07:42,810 --> 01:07:44,460 because of the business failure? None. 1024 01:07:44,490 --> 01:07:47,040 Senator Kramer: Yeah. If they stop paying you, what is the 1025 01:07:47,040 --> 01:07:47,700 recourse? 1026 01:07:47,790 --> 01:07:49,230 Patrick Sigfried: Well, again, Senator, I think you'd 1027 01:07:49,230 --> 01:07:52,080 misunderstand the product, they don't stop paying, they stopped 1028 01:07:52,080 --> 01:07:54,810 processing credit card transactions, and because 1029 01:07:54,810 --> 01:07:57,600 they're not credit processing credit card transactions, that 1030 01:07:57,630 --> 01:08:00,270 means unfortunately, the business is not doing well. And 1031 01:08:00,270 --> 01:08:03,450 what is your recourse? We do not have any recourse? 1032 01:08:04,860 --> 01:08:08,040 Senator Kramer: No. No interest, no recourse with regard to the 1033 01:08:08,040 --> 01:08:12,780 business assets to the business assets, correct? Yes. Okay. So 1034 01:08:12,780 --> 01:08:17,760 now we just hit on something very important that you have 1035 01:08:17,760 --> 01:08:20,850 failed to share with the committee in your testimony, 1036 01:08:21,030 --> 01:08:25,950 because you said sir, and I wrote down verbatim owners walk 1037 01:08:25,950 --> 01:08:30,210 away debt free, the risk is on the lender. These are direct 1038 01:08:30,210 --> 01:08:34,350 quotes from you, sir. But the fact of the matter is, you can 1039 01:08:34,350 --> 01:08:38,250 go in and seize the business bank accounts, sir, you can go 1040 01:08:38,250 --> 01:08:43,020 in and seize their assets, their inventory, their fixtures, their 1041 01:08:43,200 --> 01:08:47,460 equipment, you do in fact, have recourse sir. So when you 1042 01:08:47,460 --> 01:08:52,500 represent it to this committee, walk away dead free. That really 1043 01:08:52,500 --> 01:08:55,320 wasn't quite accurate statement wasn't sir. 1044 01:08:56,010 --> 01:08:58,890 Patrick Sigfried: So Senator, again, the customers are rapid 1045 01:08:58,890 --> 01:09:03,270 finances. excuse for sorry, the pun, but they don't have access 1046 01:09:03,270 --> 01:09:04,980 to banks. They don't they don't have. 1047 01:09:05,850 --> 01:09:10,320 Senator Kramer: My question for you. Is that you explained that 1048 01:09:10,320 --> 01:09:13,860 there is in fact, recourse and you can seize all the assets of 1049 01:09:13,860 --> 01:09:17,670 the business and in fact, sir, last year at the hearing on this 1050 01:09:17,670 --> 01:09:23,610 bill, we saw the 20 pages of lawsuits that you filed against 1051 01:09:23,610 --> 01:09:27,000 small business owners, because you go after their business 1052 01:09:27,000 --> 01:09:35,310 assets. you seize everything that they have. Again, Senator 1053 01:09:37,020 --> 01:09:38,280 so again, thank you. 1054 01:09:39,930 --> 01:09:43,230 Madam Chair: One other witness and we want to hear the last 1055 01:09:43,230 --> 01:09:47,400 witness. So if we could hear now from Katherine Fisher commercial 1056 01:09:47,400 --> 01:09:52,050 finance coalition. Miss Fisher. 1057 01:09:53,040 --> 01:09:54,930 Katherine Fisher: Thank you, Madam Chair and members of the 1058 01:09:54,930 --> 01:09:58,230 committee. This has been a long afternoon. So thanks for bearing 1059 01:09:58,230 --> 01:10:02,010 with me to hear my time. testimony. My name is Kate 1060 01:10:02,010 --> 01:10:05,820 Fisher. I'm a partner with a firm Hudson Cook, based in 1061 01:10:05,820 --> 01:10:09,570 Maryland and I represent the commercial finance Coalition, a 1062 01:10:09,570 --> 01:10:12,480 group of responsible finance companies that provide capital 1063 01:10:12,480 --> 01:10:17,250 to small and medium sized businesses. Proponents of this 1064 01:10:17,250 --> 01:10:20,910 legislation are describing it as allowing small businesses to 1065 01:10:20,910 --> 01:10:24,600 compare apples to apples so they can understand the cost of 1066 01:10:24,600 --> 01:10:28,650 financing across products. And the federal reserve study that 1067 01:10:28,650 --> 01:10:31,890 Mr. Hinton mentioned, and that that you will be receiving a 1068 01:10:31,890 --> 01:10:35,790 copy of apparently, is very good, and it says that small 1069 01:10:35,790 --> 01:10:40,230 businesses need help comparing costs across different types of 1070 01:10:40,230 --> 01:10:44,700 financing. Respectfully, this legislation does not address 1071 01:10:44,700 --> 01:10:49,980 that issue. This legislation singles out only one product 1072 01:10:50,040 --> 01:10:56,700 sales based financing, and this product is not alone. The 1073 01:10:56,700 --> 01:11:00,000 California and New York legislation that has been 1074 01:11:00,000 --> 01:11:03,900 referenced has some important differences that I'd like to 1075 01:11:03,900 --> 01:11:07,770 touch on but both of those states have addressed 1076 01:11:07,920 --> 01:11:12,780 disclosures across commercial financing as a whole. It applies 1077 01:11:12,780 --> 01:11:17,790 to loans lines of credit, invoice factoring, Merchant Cash 1078 01:11:17,790 --> 01:11:24,060 Advance sales based finance. This legislation before you only 1079 01:11:24,060 --> 01:11:27,690 applies to a very narrow slice of commercial finance and 1080 01:11:27,690 --> 01:11:32,880 commercial finance is complicated. As a result, this 1081 01:11:32,880 --> 01:11:37,050 does not provide an opportunity to comparison shop across 1082 01:11:37,050 --> 01:11:40,530 commercial finance. It would only provide it would only 1083 01:11:40,530 --> 01:11:45,930 require one small sliver of the commercial finance world to 1084 01:11:45,930 --> 01:11:51,840 provide these types of disclosures. California passed a 1085 01:11:51,840 --> 01:11:56,940 law that will require a rate disclosure. The law does not 1086 01:11:56,940 --> 01:12:02,520 require an APR disclosure in California. The regulator has 1087 01:12:02,520 --> 01:12:09,060 been working for two years to draft regulations that have 1088 01:12:09,060 --> 01:12:13,200 proposed an APR disclosure. But because this issue is so 1089 01:12:13,200 --> 01:12:18,930 complicated, particularly trying to apply an APR disclosure to 1090 01:12:18,930 --> 01:12:22,830 sales based finance, which is not alone does not have fixed 1091 01:12:22,830 --> 01:12:28,530 required payments or a fixed term. It has proved to be so 1092 01:12:28,530 --> 01:12:31,230 complex that so far the regulations have not been 1093 01:12:31,230 --> 01:12:38,460 finalized. New York has proposed an APR disclosure, again across 1094 01:12:38,850 --> 01:12:42,180 almost all segments of commercial finance, not just one 1095 01:12:42,180 --> 01:12:47,160 narrow product. Although that law has been passed, and it will 1096 01:12:47,160 --> 01:12:52,050 require an APR disclosure, the regulator will have to put out a 1097 01:12:52,050 --> 01:12:55,620 lot of complicated rules in order to require an APR 1098 01:12:55,620 --> 01:12:58,710 disclosure for this type of product. And I just want to show 1099 01:12:58,710 --> 01:13:02,250 you as an example of how complicated it is, this is an 1100 01:13:02,250 --> 01:13:07,860 example of the formula for calculating APR. It is it is 1101 01:13:07,890 --> 01:13:13,140 more complex than simply calculating the payment amount. 1102 01:13:20,280 --> 01:13:24,900 All right, well, one sorry. My apologies. One thing, one last 1103 01:13:24,900 --> 01:13:30,480 comment. Because of the complicated issue. We ask that 1104 01:13:30,510 --> 01:13:35,160 the commissioner of financial regulations working group that 1105 01:13:35,160 --> 01:13:40,470 was formed to discuss this legislation and this issue be 1106 01:13:40,500 --> 01:13:45,150 reauthorized and reformed this the commissioner put together a 1107 01:13:45,150 --> 01:13:49,110 working group as Senator Kramer participated industry was 1108 01:13:49,110 --> 01:13:50,430 invited, to. 1109 01:13:50,610 --> 01:13:53,880 Madam Chair: You're really are going beyond terms. 1110 01:13:53,970 --> 01:13:59,760 Katherine Fisher: Sorry, just my my point is that this is a very 1111 01:13:59,760 --> 01:14:03,570 complicated issue. The commercial finance coalition 1112 01:14:03,570 --> 01:14:07,770 supports disclosure supports licensing supports the ban on 1113 01:14:07,800 --> 01:14:12,270 confessions of judgment does not support the cap or an APR 1114 01:14:12,270 --> 01:14:16,740 disclosure. And And my point is that this is a complicated issue 1115 01:14:16,740 --> 01:14:18,960 that should be considered more. Thank you. 1116 01:14:18,960 --> 01:14:22,800 Madam Chair: Thank you. Are there questions for this one? 1117 01:14:24,810 --> 01:14:26,880 Senator Kramer and Senator Benson. 1118 01:14:27,300 --> 01:14:30,060 Senator Kramer: Thank you in my question, very quick and easy 1119 01:14:30,060 --> 01:14:36,120 Madam Chair. Miss Fisher, you said that the APR APR is highly 1120 01:14:36,120 --> 01:14:41,340 technical and complicated. And you are the committee to see 1121 01:14:41,880 --> 01:14:46,650 Einstein's formula of relativity. Let me ask you this. 1122 01:14:47,100 --> 01:14:55,860 Does your industry not utilize computers? Input Output? Does 1123 01:14:55,860 --> 01:14:59,520 your industry not utilize computers? Are you telling me 1124 01:14:59,520 --> 01:15:02,460 that the four formula that you held up before the committee, 1125 01:15:02,460 --> 01:15:06,750 please share with us is how your industry will have to calculate 1126 01:15:06,750 --> 01:15:11,370 the APR for everyone transactions because they don't 1127 01:15:11,370 --> 01:15:12,810 utilize computers. 1128 01:15:13,200 --> 01:15:15,030 Katherine Fisher: Thank you for asking that. And as you said, 1129 01:15:15,060 --> 01:15:18,510 input, output, I would characterize this as garbage in 1130 01:15:18,510 --> 01:15:23,040 garbage out, because there's no fixed term and no fixed payment 1131 01:15:23,040 --> 01:15:26,820 schedule. And so the information that will be run through that 1132 01:15:26,850 --> 01:15:30,450 calculation will result in a disclosure. That's wrong. 1133 01:15:30,780 --> 01:15:33,900 Senator Kramer: And I appreciate your commentary about garbage. 1134 01:15:33,900 --> 01:15:37,350 But I think what we've heard was garbage in and garbage out. But 1135 01:15:37,350 --> 01:15:39,000 thank you very much, Madam. 1136 01:15:40,770 --> 01:15:45,990 Madam Chair: Alright, I think we have reached that point. And 1137 01:15:45,990 --> 01:15:50,370 we've heard all of the bills for today, and thanks to everybody 1138 01:15:50,370 --> 01:16:00,300 who has participate. Oh, Senator Benson? Yeah. Well, you gotta 1139 01:16:00,300 --> 01:16:04,050 unmute. Unmute. 1140 01:16:06,100 --> 01:16:08,050 Senator Benson: Thank you very much. Miss Fisher, I just want 1141 01:16:08,050 --> 01:16:13,390 to ask a question that was asked before. What procedure? Do you 1142 01:16:13,450 --> 01:16:16,780 what happens with the people who are not able to pay or the 1143 01:16:16,780 --> 01:16:20,290 people who fail to pay? What process do you all follow? 1144 01:16:20,760 --> 01:16:23,340 Katherine Fisher: Yes, ma'am. Thank you for asking that. In a 1145 01:16:23,340 --> 01:16:29,250 space finance transaction, the promise to pay is only a promise 1146 01:16:29,250 --> 01:16:33,060 to pay a percentage of revenue to the extent that revenue is 1147 01:16:33,060 --> 01:16:37,920 created. For example, if I have a pizza restaurant, I am 1148 01:16:37,920 --> 01:16:42,480 promising to pay 10% of the revenue I get for each slice 1149 01:16:43,260 --> 01:16:47,760 that I sell. So if I have a great month, and I saw a lot of 1150 01:16:47,760 --> 01:16:52,320 pizza that I'm wondering, with the pandemic, when restaurants 1151 01:16:52,320 --> 01:16:56,640 had to close, though only to take out, have their capacity 1152 01:16:56,640 --> 01:17:02,340 reduced significantly, those restaurants have a revenue drop 1153 01:17:03,060 --> 01:17:10,050 the payments by contract, also with drop. If the business was 1154 01:17:10,080 --> 01:17:13,890 unable to pay, because revenue dropped, then there is no 1155 01:17:13,890 --> 01:17:20,340 obligation to pay. There is no now, and and I'm not trying to 1156 01:17:20,340 --> 01:17:23,670 be cute here, because the business does promise not to do 1157 01:17:23,670 --> 01:17:28,320 things such as hide money, your open additional bank accounts. 1158 01:17:28,440 --> 01:17:34,590 So there are are if the business takes intentional steps to 1159 01:17:34,620 --> 01:17:39,330 deprive or cheat on what they owe, then there is recourse but, 1160 01:17:39,660 --> 01:17:44,970 but failure to generate enough revenue, never be an event of 1161 01:17:44,970 --> 01:17:47,010 default under one of these contracts. 1162 01:17:48,560 --> 01:17:51,590 Senator Benson: So you all don't go so you all don't go in and 1163 01:17:51,890 --> 01:17:57,710 and retrieve their property and go through the don't go into 1164 01:17:57,710 --> 01:18:00,860 their bank accounts, and you don't do those kinds of things? 1165 01:18:01,890 --> 01:18:05,580 Katherine Fisher: Thank you for asking. If if the business 1166 01:18:05,580 --> 01:18:10,140 revenue drops, then none of those actions would be taken. If 1167 01:18:10,140 --> 01:18:14,820 the business has, let's say, opened up a second bank account, 1168 01:18:15,150 --> 01:18:18,480 and they're they're hiding their revenue into into that second 1169 01:18:18,480 --> 01:18:22,770 bank account so that they are essentially committing fraud, 1170 01:18:23,040 --> 01:18:28,350 then those types of actions such as Uniform Commercial Code 1171 01:18:28,350 --> 01:18:33,450 process to exercise a security interest on perhaps their 1172 01:18:33,480 --> 01:18:35,730 inventory and equipment, that would be an appropriate 1173 01:18:35,730 --> 01:18:36,510 response. 1174 01:18:38,880 --> 01:18:43,080 Madam Chair: Okay, I think that was the last question and we've 1175 01:18:43,080 --> 01:18:45,390 had a very interesting afternoon. We appreciate 1176 01:18:45,390 --> 01:18:48,900 everyone's testimony, and have a good evening.