Archive for 2020

OnDeck Originated $148M in Loans in Q3, is Moving Full Speed Ahead Under Enova

October 27, 2020
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OnDeck NYSEOnDeck more than doubled its Q2 loan volume, according to statements made on Enova’s latest quarterly earnings call. OnDeck originated $148M in Q3 versus the $66M in originated in Q2.

For frame of reference, this is still down significantly from the $618M that the company originated in Q4 2019, well before covid became a factor.

But expect the numbers to ramp up.

“We have basically all of our marketing channels turned on across consumer and small business [lending],” said David Fisher, Enova’s CEO.

“OnDeck is probably a little bit ahead of where we are on the Enova side. We were a little bit more cautious in our re-acceleration of our lending kind of going into the 3rd quarter but we are totally comfortable with that decision. If the biggest mistake we make during all of covid is waiting an extra 60 days to re-accelerate lending, we think that’s a great position to be in. We think that extra conservatism makes sense and with the rate that we’re re-accelerating lending, it won’t hurt that much in the long run.”

And apparently demand and credit quality are looking quite normal, despite covid, according to Fisher.

“On the small business side, the makeup of the demand is surprisingly similar to a year ago. You would expect so many differences given what the economy has been through but there’s actually very very few. It’s pretty broad based. Credit quality look really really strong. If anything it’s stronger- I think it’s the stronger businesses that are trying to borrow at this point that are trying to lean into covid, not the ones that are just trying to survive so if anything on the demand there is a slight improvement on credit quality in small business.”

OnDeck’s annualized quarterly net charge-off rate for the third quarter was 23% and its 15 day+ delinquency rate decreased from 40% at June 30th to 27% at September 30th.

Enova reported monster quarterly earnings of $94M. CEO David Fisher and CFO Steve Cunningham said it was a record-breaking quarter for profitability.

Enova Posts $94M Profit for Q3

October 27, 2020
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Enova, the international lending conglomerate that recently acquired OnDeck, reported a Q3 profit of $93.67M, bringing the company to over $147M in profit for the year so far.

“We are pleased to report strong earnings as the credit quality of the portfolio continued to improve during the third quarter,” said David Fisher, Enova’s CEO in an official announcement. “Encouraged by the better than expected portfolio performance and the stable and predictable credit risk seen in our testing, we thoughtfully began reaccelerating lending in the third quarter.”

Speaking about OnDeck, Fisher said that “OnDeck experienced growth in originations, improving credit quality and solid profitability. Our integration plans and recognition of the expected synergies and financial benefits of the transaction remain on track. With the combination of Enova’s and OnDeck’s complementary, market-leading businesses and our extensive experience navigating changes in the operating environment, we believe we are well positioned to grow profitably and drive long-term shareholder value.”

Lufax, a Chinese Online Lending Marketplace, to IPO on NYSE Next Month

October 27, 2020
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Yuan / dollarLufax, an online lending marketplace and one of China’s largest fintech companies, plans on going public by the end of the month on the New York Stock Exchange. Lufax is one of the multiple Chinese fintech companies grappling for a public offering amidst increasing tension between U.S. and Chinese markets.

Offering an online shopping mall for financial products, Lufax connects borrowers to various lending products supplied by traditional and alternative investors alike. Lufax was one of the largest, if not the largest P2P lender in China just two years ago before a major crackdown on the P2P industry forced the company to revamp completely.

Lufax plans to issue 175 million shares that will be priced from $11.5 to $13.5 each, according to a prospectus with the U.S. Securities and Exchange Commission last week. This would net the company around $2.36 billion. 

The IPO would give the company around a $30 billion in valuation, lower than the $39.4 billion valuation it received in 2019 from a major backer Ping An Insurance Group.

Lufax reported more than $1 billion of profit in the six months up to June 30th, according to the filing. Last year, the firm’s assets dropped by 6.1% after a 30% reduction in transaction volumes. This was a cut of nearly all P2P transactions, in compliance with regulation from the Chinese government.

After the P2P industry grew unchecked for a decade, fraud concerns bloomed into outrage as hundreds of platforms covering hundreds of billions of dollars defaulted. According to Mckinsey, from 2013 to 2015, fintech firms offering P2P products exploded from 800 to more than 2,500 companies. More than 1,000 of these firms began to default on their debt, ballooning to an outstanding loan value of $218 billion in 2018.

In response to protests, outrage, and stadiums of helpless borrowers trying to gain their funds back from Ponzi schemes, the Chinese government cracked down hard on fraudulent firms. According to Reuters, regulators placed every P2P firm on death row, stating in 2019 that the industry had two years to switch to “small loans.” The shutdowns have cost Chinese investors $115 billion, according to Guo Shuquing, China Banking Regulatory Commission.

Pivoting away from these shutdowns, Lufax and many firms like Alibaba funded Ant Group are switching to lending marketplaces. Lufax works with 50 lending providers that hold $53 billion in assets as of June. Lufax believes that there are trillions of dollars in the untapped alternative finance market in China.

Franklin Capital Group Has Been Acquired

October 23, 2020
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wing lake capitalThis month, Franklin Capital Group was acquired by Wing Lake Capital Partners with the help of Rocky Mountain Bank. Franklin Capital will change its name and add funding capability- but the entire team will stay on. CEO Shaya Baum was happy to announce the deal, explaining that the firm would use acquisition funds to create more deals and continue to grow.

“It gives us the ability to fund many deals that are outside of our box previously,” Baum said. “We’re going to be launching a couple of sister funds alongside what we currently have and scale the business.”

Franklin Capital was founded in 2012 as an equity fund for companies in financial trouble during, before, or post-bankruptcy. The firm discovered a market for refinancing MCA advances, finding companies that should have never obtained cash advances in the first place. Franklin Capital began offering a tailored debt product to refinance cash advances and offer a pathway to larger, more traditional bank loans.

“We buy out the cash advance deals,” Baum said. “In fact, most if not all of our deals come from brokers in the cash advance industry saying ‘Hey can you get us out of these deals?'”

The firm services a capital class all its own: from $500k to $10 million. Baum noted that most alternative lenders focus on smaller amounts or $25 million+ traditional amounts, and his firm offers a middle ground.

“There is no one in between to provide a more traditional type loan to a borrower that should not be in a cash advance or is in default on their cash advances,” Baum said. “We’re really the outlet for them from the cash advance world into traditional financing.”

Baum further said that his firm had seen a continually growing demand for capital this year.

“I know the cash advance companies have gotten killed, but we’ve actually had the opposite problem,” Baum said. “We don’t do one-off restaurant [advances.] We’re dealing with companies that are larger, more established: they’ve all pivoted into industries that have grown during this period of time.”

Lendified Survives, Under New Management

October 23, 2020
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LendifiedToronto-based Lendified has returned from the brink. The Canadian alternative small business lender has a new CEO and has resumed the origination of new loans.

In June, deBanked published a story that described the company’s impending doom after it was placed in default with its credit facilities, could no longer originate new loans, and had virtually no capital to continue its operations.

The company was since able to partially recapitalize and John Gillberry has come on as the new CEO. Gillberry is described as a “seasoned senior executive with nearly three decades of experience in areas of managing the finance and operations of special situations and venture capital backed enterprises.”

In an announcement, Gillberry expressed optimism for Lendified’s future. “I am excited about the opportunity that Lendified presents and it is uniquely positioned to take advantage of a very large and underserved market,” he said. “The credit underwriting foundation that we are starting from is distinct from any other in this market and we are pleased to be once again originating new loans to independent business owners.”

The company’s primary senior lenders have resumed financing new loans.

deBanked Visits Local Commercial Finance Brokerage – Horizon Funding Group

October 22, 2020
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deBanked reporter Johny Fernandez visited the storefront office of Horizon Funding Group, a commercial finance brokerage located in Brooklyn. The company is owned by brothers James and John Celifarco.

Greenbox Capital on Official Panel to Aid Section 1071’s Rollout

October 21, 2020
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Greenbox Capital WebsiteThis week, Greenbox Capital, the Miami-based alternative finance company known for its MCA and SMB financing, announced they are serving as a Small Entity Representative (SER) to the Consumer Financial Protection Bureau (CFPB) as the organization proceeds with the rollout of Section 1071 of the Dodd-Frank Act.

“I am representing, and Greenbox Capital is essentially representing, the industry,” CEO Jordan Fein said. “There are some banks, there’s Funding Circle, but other than that, it’s Greenbox Capital serving in the industry.”

Fein, who founded Greenbox in 2012 and has since facilitated MCAs and business loans across America, Puerto Rico, and Canada, wrote in a press release that it was an honor to be selected to provide feedback on Section 1071.

“Over 2 million businesses across the U.S. are either women or minority-owned,” Fein wrote. “It is vital they can secure funding as easily as non-minority-owned businesses.”

Jordan Fein Greenbox Capital
Jordan Fein, CEO, Greenbox Capital

Congress passed the Dodd-Frank Act in 2010 in response to the Great Recession. To further protect consumers, the CFPB was born. Section 1071, an amendment to the 1974 Equal Credit Opportunity Act, mandates financial institutions report demographic information to the CFPB. But much was left undefined about how to go about doing that and who would technically be subject to it.

Ultimately, the intent behind the law was to measure potential disparities among factors like the race and gender of applicants. Ten years later, the rollout is finally moving along.

As part of this, the CFPB created a board of firms representing the affected industry, on which Greenbox sits, to ensure the law works with the industry, not against it. The first panel was on October 15, in compliance with the 1996 Small Business Regulatory Enforcement Fairness Act (SBREFA.)

“They’re going through the SBREFA process, which is a structured process where they have a panel of industry representatives, and they share what they’re planning to do,” Fein said. “They run it by companies like us and we give our opinion and talk about how we think companies will be impacted.”

According to an invitation letter the firms received, they will have until November 9 to respond.

Fein said Greenbox would ensure any suggestions it made would positively impact the industry. Especially during a pandemic, Fein said it is essential to create regulation with firms in mind.

Drama, Health Challenges Revealed in CircleUp’s CEO Switch-Up

October 19, 2020
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CircleUp LogoCircleUp, a fintech company that’s raised more than $250M between debt and equity, saw a change in leadership last week, with more than a fair share of transition drama. Co-founder and CEO Ryan Caldbeck stepped down, giving way to President Nick Talwar. 

After stepping down, Caldback took to Twitter and Medium, opening up in a 41 tweet story about why he chose to leave. A scathing private letter from Caldbeck to an unknown investor and chair of the board at CircleUp also circulated social media.

“I made many mistakes during this time, thinking I could just grit it out alone,” Caldbeck wrote. “I thought keeping everything to myself would allow me to handle the professional challenges more effectively. My approach was wrong.”

CircleUp is a tech-driven entrepreneurial investment company, known for supplying funding to consumer firms like Halo Top Ice cream. Caldbeck founded the firm in 2012 with Roy Eakin, as a platform to connect entrepreneurs to investors.

On Twitter, Caldbeck shared his internal hardships during the C Series pivot. Facing immense stress at work while his company pivoted, fertility troubles at home, and cancer diagnoses beginning around 2017 and continuing into the present, Caldbeck went from burnout to drawn-out depression.

“There’s no doubt my mental health was suffering during that period,” Caldbeck wrote. “Some think they have no choice but to ‘tough it out’ in front of the teams, customers or investors, despite what’s going on inside their heads because doubt isn’t respected in venture.”

Caldbeck said that the “normal level” of CEO exhaustion was something he thrived on, including catching sleep in the restroom in the spare minutes he had before board meetings. But when his fertility testing found cancer, and his stress brought headaches that were feared to be brain cancer, Caldbeck said even a papercut would set him off. 

Simultaneously, a board member at CircleUp was acting so disruptive that Caldbeck later complained that he was throwing the entire team off. Just this past week, Caldbeck sent an email that got shared all over the internet to that board member as advice, and in part retribution for how the investor acted.

According to Caldbeck’s letter, the disrupter invested their way onto the team and treated the rest of the board with disrespect. They talked down clients, disrupted meetings, projected insecurity and paranoia, and forced the sales team to market their stake when they wanted out.

“The data suggests that venting doesn’t actually help mental health- it hurts,” Caldbeck said. “I’m not writing this to vent, I am writing this because I am hopeful it will help future entrepreneurs you invest in.”  

While Caldbeck was facing cancer, the board member was reportedly putting down the entire company. Caldbeck said he should have seen a red flag that he didn’t even meet the investor before they were sitting on the board and that many other executives share his negative opinion. 

“Your involvement was incredibly difficult for all of CircleUp and our board,” Caldbeck said. “My hope is that over time you can process some of this information below and make the necessary changes if you decide to stay in venture.”

Luckily, his brain scans came back negative, and his cancer was removed by operation, and Caldbeck and his wife had a secound child. However, the 12 to 18 month period of exhaustion had taken its toll. Caldbeck had reached the end of his rope, signified when his five-year-old daughter said, “Daddy, you always look sad.”

In 2019, Caldbeck sent a letter to his board explaining his intent to step down, after serving as CEO since founding in 2012.

After a long transitionary period waiting for a replacement, Caldbeck finally shared his story, hoping to inspire other leaders to be open about their struggles and feel less alone. Nick Talwar, a 20-year industry vet, was hired as president of CircleUp in July. Caldbeck wrote that he is excited for the CircleUp team despite his time of struggle as he becomes the Executive Chairman.

“I feel immensely proud of what we have built at CircleUp,” Caldbeck wrote. “The team is truly extraordinary, and I think the technology (Helio) will transform consumer and private investing. We’ve helped hundreds of entrepreneurs to thrive, and we will help thousands more.”

Steve Denis Talks About SBFA Study: APR is a Bad Metric For SMB Loan Transparency

October 19, 2020
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SBFA GuideIn response to regulatory bills in California and New York that will enforce APR disclosures on small business capital providers, the Small Business Finance Association (SBFA) funded a study by Kingsley-Kleimann to find out if APR is a good metric to use for business loans.

Steve Denis, the Executive director of the SBFA, said his group supported the study because the states should test concepts with actual small business owners before passing regulation. In the NY disclosure bill awaiting signature, Denis said there was no concept testing. Some of the companies that support the bill might not have even read what it stipulates.

“You have a group of companies that are pushing these types of disclosures, for no reason other than their own self-interest,” Denis said. “We’re fine with disclosure, we are all for transparency, but it needs to be done in a way that we believe is meaningful to small business owners.”

In qualitative testing of 24 small business owners and executives who have experience taking commercial loans, the study concluded participants did not understand what APR was. The study found that the total cost of financing model was a better way to understand and compare options for their use.

“As one participant, when asked to define APR, answered: ‘I feel like you are asking a kid, why is the sky blue?’ (Participant 3, NY).” The study concluded, “In other words, [APR] is ever-present yet also inscrutable.”

Kingsley-Kleimann is a research-based organization that studies communication and disclosure for government agencies like the FTC and private or public business. Participants were selected from Califonia and NY. 

Denis said that the findings show what SMB lending companies have already known- Anual Percentage Rate is not a useful metric for short term loans. Many do not know that APR represents the annualized cost of funds for the loan term, with the fees and additional costs included.

“People don’t know what APR is; it confuses them,” Denis said. “They know it’s a metric they should use, but they don’t know why. The APR is such a marketing tool now, it’s not a valuable tool.”

The study showed most respondents thought APR was the same as an interest rate. It’s not.

merchant cash advance APRDenis said using an annualized rate for shorter-term loans or SMB loans that have no ending date worsens the problems. In those cases, firms estimate an APR, and it is inaccurate.

“When you have a merchant cash advance, there’s no term,” Denis said. “So you have to estimate a term, and I mean that is just a recipe for fraud.”

Denis said that the firms supporting California SB1235 and the New York S 5470/A 10118-A disclosure bill and taking credit for writing the laws are the same companies that will suffer under the strict tolerance of an APR rule.

“The companies pushing this, the trade associations pushing it, they like to take credit for writing the bill in California and writing the bill in New York: I don’t even think they’ve read it,” Denis said. “It’s going to subject their own members to potentially millions if not hundreds of millions of dollars in potential liability [fines.]”

The SBFA is not against disclosure by any means, Denis said, but supported other avenues. The trade group believes knowing the total cost of a loan and the cost and timeline of payments will help protect and inform borrowers better than APR. Firms that support the disclosure bill are banking off the positive press, hoping to be seen as pro-consumer protections but forcing APR will make it harder to compare the actual value of loans, Denis said. 

Denis is still optimistic that regulators will work with businesses affected by the incoming legislation. He said the NY legislature and governor’s office, as well as the California Department of Business Oversight, understand the problems of using APR.

“They’re receptive to these arguments, and they know what they’re doing,” Denis said. “The last thing they want to do is pass a bill that’s going to further confuse businesses, especially during a pandemic when businesses are relying on this capital to stay afloat.”

Greenbox Capital® Advocates For Fair Lending to Women- and Minority-owned Businesses in CFPB Panel

October 19, 2020
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Greenbox Capital participates in small business lending data collection rulemaking for section 1071 of the Dodd-Frank Act protecting women-owned and minority-owned businesses

Miami, FL: Greenbox Capital® announced it is serving as a Small Entity Representative (SER) to the Consumer Financial Protection Bureau (CFPB) that is responsible for amending the Equal Credit Opportunity Act (ECOA) protecting women-owned, minority-owned, and small businesses looking for financial assistance. Section 1071 of the Dodd-Frank Act amends the ECOA by requiring certain data be collected and submitted to the Bureau to protect these types of businesses.

“It’s an honor to be selected to the industry panel providing feedback on section 1071 of the Dodd-Frank Act ensuring fair lending laws to women- and minority-owned businesses”, said Greenbox Capital CEO Jordan Fein. “Over 2 million businesses across the U.S. are either women or minority owned and it’s vital they can secure funding as easily as non-minority owned businesses.”

Greenbox Capital, an alternative lender, serves small businesses in all industries across the United States, Puerto Rico, and Canada with the working capital needed to grow. Greenbox Capital is committed to supporting clear, secure, and fair financing solutions and is an active member of the Small Business Financial Association (SBFA).

For more information visit, www.greenboxcapital.com.

deBanked Meets The Kosher Guru

October 19, 2020
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In a crossover episode, deBanked president and chief editor Sean Murray had lunch with Kosher Guru at Reserve Cut in lower Manhattan. In it, they talked Kosher food, business funding, and more!

Keeping Up With Kabbage

October 17, 2020
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Kabbage BannerOn Friday, American Express announced that it had completed its acquisition of Kabbage.

“Kabbage, An American Express Company will continue to provide quick and easy cash flow management solutions for small businesses, now backed by the trust, service, and security of a American Express,” American Express wrote on social media. “We’re excited to welcome Kabbage’s talented colleagues to American Express. Together we will combine our over 60 years of experience backing small businesses with Kabbage’s innovative technology to support our customers through this challenging time, and help them get back on their feet and thrive.”

Meanwhile, below is a copy of a Q&A deBanked had with Kabbage co-founder Kathryn Petralia that appeared in our magazine’s July/August issue.

Q: How specifically do you think the pandemic will change the way SMEs bank?

Kathryn Petralia KabbageA: The pandemic will first change with whom they bank, and that choice will change the way they bank. For perspective, one hundred percent of Kabbage customers have a bank account, but very few of them can get a loan from their bank. We launched Kabbage Checking earlier this year to serve the smallest of businesses without sacrificing the features they expect and offering other products banks don’t. We’re focused on making cash flow tools accessible to the businesses traditionally underserved and overlooked, and the pandemic has been a catalyst for businesses to find new solutions.

Q: How might the dynamic of banking change after the crisis?

A: It was well-reported that businesses without an existing credit relationship with their bank were turned away from applying for PPP loans. We’ve heard directly from many of our PPP customers that this will compel them to change banks, and the demand for Kabbage Checking has reflected that sentiment since its launch. In the short term, businesses of all sizes and ages will seek out and sign up for new, tech-forward banking partners. In the long term, that shift will change customers’ expectations of what banks should offer. For example, prior to the PPP, Kabbage had issued well over a billion dollars to customers during non-banking hours. On-demand, 24/7 access to funding and cash flow insights, or faster settlements and money transfers will soon become commonplace, and large retail banks will need to adapt if they want to capture or reclaim these customers.

Q: How are these changes likely to impact alternative lenders and funders?

A: For starters, single-product lending companies will realize they must diversify their offerings in order to compete in the new financial-services marketplace. I would expect to see lenders launch new products to more resemble a bank. Conversely, traditional banks will need to begin adopting automated ways to serve customers with a tech-forward experience. Especially in the new normal where customers may be apprehensive about in-person banking meetings, they must adapt online to acquire and serve customers.

Q: What’s still needed to help Main Street recover?

A: The PPP was only the first phase; we’re not out of the woods yet. Businesses now need to restart and eventually grow. The crisis made business owners realize they need tighter controls over their cash flow, as many found themselves on the back foot and ill-equipped to withstand a long-term crisis such as the one through which we are all muddling.

They’ll need cash-flow tools to be more prudent and appropriately plan for similar events. Having said that, it’s not only on the shoulders of small businesses or tech solutions. They need customer demand, and local economies need to begin to reopen safely so consumers feel comfortable returning to normal commerce. That will take the support of cities and states encouraging consumers to shop local so small businesses have greater incentive to recall their employees and get back to work.

Q: How can alternative lenders and funders best play a role in this recovery?

A: Much of what we’re already doing is exactly what our economy needs. For the most part, fintech companies serve the customers banks won’t or can’t. That reality is unfortunately unchanged today. That’s why during the pandemic Kabbage made every effort possible to provide products that helped SMBs through this crisis. With respect to PPP, we helped nearly 300,000 small businesses access over $7 billion, helping preserve an estimated 945,000 jobs. Our payments product saw a near 4X spike in adoption as businesses sought contactless payment options. We built www.helpsmallbsuiness.com in three days to allow any small business to generate needed revenue by selling online gift certificates. We also launched Kabbage Checking, giving small businesses a new banking option, and Kabbage Insights remains available and free to access for any small business.

Q: What changes do you expect to see in the alternative lending and funding industry as a result of the pandemic?

A: Everyone will expand their services. Whether it’s larger companies expanding their solutions through acquisitions, or start-ups investing beyond their primary product, everyone will aim to enhance their offerings to give customers more data-driven products that help them rebuild.

Q: Kabbage just agreed to be purchased by American Express. Should we expect to see more consolidation in the alternative lending/funding space? If so, over what time frame and why do you expect this to happen?

A: I would not be surprised if we saw more deals announced before the end of the year.

Q: Tell us a little about why Kabbage decided to sell and why the timing was right?

A: For us, it has always been about finding the right company with the right mission and intentions. We just happened to be in the middle of a crisis when the conversations started, despite having the financial capacity to support operations for multiple years. American Express shares our vision to be an essential partner to small businesses, and we couldn’t be more excited at the opportunity to continue the important work of providing solutions and innovative capabilities that address a range of small business cash flow needs alongside AmEx.

SBA Simple $50k Forgiveness- Due Next Year

October 15, 2020
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SBA LoansOn Oct 2nd, the SBA finally released a simple forgiveness process for PPP loans under $50,000. Though many borrowers wanted forgiveness for all loans below $150,000, the under $50k bracket can fill out a one-page, front and back form.

The SBA recently clarified in a FAQ section that borrowers do not need to submit the forms before the “expiration date” of 10/31/2020 that appears at the upper right corner.

According to the SBA, that expiration date was merely put there to comply with the 1980 Paperwork Reduction Act, which was intended to limit the amount of paperwork that government agencies can send to the public, and that as such it has no actual bearing on anything related to loan forgiveness.

To clarify, the SBA stated that borrowers can submit a forgiveness form at any time before the maturation of the loan, which is anywhere from two to five years from origination. But, loan payments will begin ten months after the borrowers “loan forgiveness covered period.”

DailyFunder Still #1 Small Business Finance Community

October 14, 2020
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Daily FunderDailyFunder, the small business finance forum founded by Sean Murray in 2012, continues to be the leading online community for the industry, according to a recent announcement. The forum recently surpassed 10,000 registered members, in addition to logging more than 2 million page views just in 2020 so far.

“The forum has attracted well over a million visitors since inception and users have historically spent longer than 10 minutes on the site in any given session on average,” Murray said.

deBanked’s parent company fully acquired DailyFunder earlier this year. The announcement was featured prominently in deBanked’s January/February 2020 magazine issue. In it, Murray renewed the website’s objective:

“The mission will be to create a great forum for those involved in day-to-day dealmaking,” he said in a Q&A. “How can we provide a platform that enables those in the industry to make more money? That’s the way I look at it. I think if we can provide that type of value, success will follow.”

Loans Canada Survey Shows Areas to Improve Online Lending

October 14, 2020
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As part of the mission to find the best loan options, Loans Canada, a loan matching service, surveyed 1,477 people who have borrowed from online payday lenders. The goal was to look at the average person’s experience that gets an online or payday loan, and the respondents reported problems with the unregulated nature of payday lending.

The sample was composed of “credit-constrained” individuals, with 76.2% reporting they had been rejected for a loan in the past year, and 61.5% reporting that they had a low credit score. The data shows that borrowers with poor credit will have to rely on alternative lenders, the survey outlined.

Of those surveyed, more than a fourth reported unfair, problematic lending and debt collecting practices. 33% of respondents said they accepted unfair loan terms because the lender used confusing language and 27% said they took a loan product or service they did not need, convinced by aggressive sales tactics.

Loans Canada

Undisclosed and hidden fees were also reported as a problem. 22.4% of respondents said they were charged undisclosed fees while 32.8% were charged fees that “were hidden in the fine print.” 28% of respondents said they were charged without consent at all.

Borrowers faced issues with pre-authorized debits, an agreement where the borrower gives their bank permission to send money to the lender. 33.6% of respondents complained their lender debited their bank when asked not to do so, while 32.5% of respondents had to place a “stop payment” order on the lender.

When it came to paying on time, only 21.9% of borrowers did not miss any payments. Of those who did, over a fourth experienced aggressive behavior from a lender.

Finally, 32.9% of people who took out an online or payday loan had their debt sold to a collection agency. The paper argues that Canada’s debt collection businesses have to follow different regulations in different provinces. Sometimes, debt collectors can rely on Canadians not knowing their local rights by using unethical intimidation techniques.

Of those that had their debt sent to agencies, 62.1% reported the agency misrepresented themselves when they contacted the borrower, sometimes as law enforcement or as a law office. 52.7% of respondents sent to collections received calls from an agency masked to hide their true identity.

Among lenders themselves, threats to garnish wages, seizing assets, and arrest were in the toolbox for collecting delinquent payments

Loans Canada hopes the information shows problems with online payday lending but highlights credit lines are a two-way street. As lenders need to be held to standards that aim to fix unfair practices, borrowers need to uphold their side of the agreement. Overborrowing is a one-way street to missing payments, leaving lenders little choice.

The Roosevelt Hotel is Closing Permanently Due to Pandemic Losses

October 13, 2020
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Roosevelt HotelAfter nearly a century of quintessential Manhatten hospitality, the Roosevelt Hotel is closing by the end of the month, sources say. A relic of classic New York that survived the Great Depression, WWII, and Broker Fair 2019, the hotel is officially shutting down for good after suffering pandemic related losses, a spokesperson said.

“Due to the current, unprecedented environment and the continued uncertain impact from COVID-19, the owners of The Roosevelt Hotel have made the difficult decision to close the hotel, and the associates were notified this week,” the Spokesperson told CNN reporters Friday. “The iconic hotel, along with most of New York City, has experienced very low demand, and as a result, the hotel will cease operations before the end of the year. There are currently no plans for the building beyond the scheduled closing.”

The hotel will be added to the growing list of staple New York City businesses that have closed as a result of COVID. The Roosevelt was named and built to honor the United States’ 26th president and it opened its doors on September 22, 1924. Constructed during Prohibition, the building began the modern trend of featuring designer store windows on the street front. 

The Roosevelt Hotel New York City - Broker Fair 2019Appearing as a backdrop for dozens of Hollywood blockbusters like Boiler Room, Malcolm X, and The Irishman, the hotel was iconic. The New Year’s Eve tradition of singing “Auld Lang Syne” was born at the Roosevelt in 1929 when Guy Lombardo and his orchestra broadcast the song live over the radio.

The building was purchased by the limited investment branch of Pakistan International Airlines (PIA) in 1999.

In July, government officials and PIA executives debated the hotel’s future, some hoping rumors that President Trump would purchase the property were true. The initial plan was to sell or renovate the city block to create office space, thought to be far more lucrative than the hotel business in 2019. Work-from-home orders threw a wrench into the cogs, and the hotel kept losing money: no one wanted the traditional New York experience during a pandemic. 

The Roosevelt Hotel - roomPosting a loss during this year has become expected of the hospitality industry. According to the Bureau of Labor Statistics, hospitality lost 7.5 million jobs due to shutdowns and travel restrictions in April. CNN reported that only half as many jobs had been added back. In September, NYC hotels were below 40% occupancy. 

The decision to ultimately close The Roosevelt might also come from trouble in PIA’s airline business. After the crash of PIA flight 8303 that killed 97 people in Havelian, Pakistan, European and US regulators banned flights from PIA for six months. After the crash, nearly one-third of airplane licenses in Pakistan were found to be fraudulent or forged, further straining the organization’s ability to recover. 

Though this may have contributed to The Roosevelt’s closure, the pandemic sealed the deal. According to a study by the American Hotel & Lodging Association, New York has 2,336 hotels statewide that have lost 43,014 jobs this year. 

Sean Murray speaking in the Gekko Ballroom at The Roosevelt HotelWithout further congressional aid, 1,565 hotels might close: the AHLA found that 74% of overall US hotels say more layoffs are coming if the industry doesn’t get additional federal assistance. But successful talks for more aid in the House and Senate are increasingly unlikely due to this election year’s heightened partisanship.

NYC is losing yet another historical business, as the way of life and all things we have come to expect from the big apple struggle to survive. As a destination venue, The Roosevelt was also dear to deBanked. It was the home of Broker Fair 2019, where Sean Murray spoke in the same ballroom that Michel Douglas (as Gorden Gekko) made the famous “Greed is Good” speech as part of the 1987 film Wall Street. Murray made a similar speech but rewrote it to fit the industry that had gathered. “Funding small business, for lack of a better phrase, is good,” he said on stage to an audience of 700 people.

Unfortunately, it was The Roosevelt that ultimately needed funding and didn’t get it.

Avant CEO: Colorado Decision Framework for Bank Fintech Partnerships

October 13, 2020
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ColoradoAfter three years of litigation, in August, the Colorado “true lender” case settled with an agreement between the fintech lenders, bank partners, and the state regulators. Along with lending restrictions above a 36% APR, the fintech lenders will have to maintain a state lending license and comply with other regulatory practices.

The decision has been called unfair regulation and a bad precedent for other similar regulatory disputes across the country.

But James Paris, the CEO of Avant, sees the decision as a victory for fintech lenders. Paris said the decision was an excellent framework for fintech/bank partnerships across the nation and a sign that regulators are finally taking the benefits of alternative finance seriously.

“For us, the case also involved being able to continue to provide these good credit products to deserving customers who maybe weren’t being served as well through some of the legacy providers,” Paris said.

Paris called back to the Madden vs. Midland Funding case in the US Court of Appeals Second Circuit decided in 2015. That case called into question if loans made in fintech bank partnerships in the state of New York were valid at the time of origination. Regulators charged that though national banks can create loans higher than state regulations allow, fintech partners buying those loans to take advantage of higher rates were skirting state regulations.

“The ruling was essentially that the loan would not continue to be valid,” Paris said. “Because the individual state in question, which was New York’s local usury law, would apply because it was no longer a national bank that held that loan after it had been sold.”

The decision called into question loans made in the fintech space. Paris said that the Colorado true lender Case was not about whether the banks were even making loans. Instead, fintech lenders were called the true originators and therefore didn’t have a license that allowed them to make loans at higher rates than the state allowed.

Paris said the decision showed confidence that fintech bank partnerships were not exporting rates, and that by limiting lending to under 36%, regulators were protecting bank fintech partnerships and consumers.

“All of the lending Avant does is under 36%, and that’s been the case for years,” Paris said. “In the space where we do play, from 9% to just under 35%, through our partnership with WebBank, we are confident in running a portfolio extremely focused on regulatory compliance.”

Colorado went from not allowing partnerships at all, to working with fintech companies to developing a set of terms that allowed partnerships to function, Paris said. He added that Avant’s products have always been to customers below nonprime credit, from 550 to 680 Fico scores, serviced by up to 36% APRs.

Paris said he does not know about customers outside of this range, or how they are affected by limiting APR to 36%, but he cited a study done by economist Dr. Michael Turner. Turner is the CEO and founder of the Policy and Economic Research Council (PERC), a non-profit research center.

The study compared lending after the Madden case in New York with how customers can be served after the Colorado true lender case. In the credit market Avant serves, Turner found that customers are better off with access to regulated fintech loans, as opposed to not having access at all.

The study looked at the average borrower credit score, APR, and loan size of Avant and WebBank borrowers, and found that if WebBank loans through Avant were prohibited, borrowers would be forced to access other means of credit, through much higher rates.

“Should WebBank loans be prohibited in Colorado, then we can reasonably expect that some non-trivial portion of the WebBank loan borrower population, as well as prospective future borrowers, will be forced to meet their credit needs with higher cost products,” Turner wrote. “This outcome is financially detrimental for this borrower population, most of whom have no access to more affordable mainstream alternatives.”

Given this data, Paris is happy to comply with the regulation. Without the framework Colorado has provided, Paris said borrowers would be worse off. Paris hopes that this decision will precede other state frameworks because what fintech bank partnerships need the most are consistent regulatory practices.

“I’m hopeful that to the extent there are ongoing concerns around bank models across other states, that this type of safe harbor model that Colorado helped develop is something that others could look to as a precedent or a model. Because I think the more that we can have consistency across the relevant jurisdictions, the better.”

DailyPay Allows Early Paychecks, Sees Adoption Rise in Pandemic Era

October 9, 2020
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DailyPayAmericans are worried about paying their bills. DailyPay, a payment flexibility platform, gives businesses the ability to let workers access their paycheck early. For customers using the platform— no more waiting for payday.

DailyPay has offered flexible payment since being founded in 2015. Recently, Fortune 500 companies have begun to slowly offer services like it. Last month, Square allowed a select few businesses to let employees cash out using their payment platform, but Vice President of Public Policy Matt Kopko said DailyPay stands apart, offering a payday loan-and-overdraft-killer for just $2-$3.

“We’ve created this industry that’s called the on-demand pay industry,” Kopko said, “which is essentially a technology that allows workers to get paid whenever they want without having to disrupt the employer’s payroll schedule.”

The system works as an employer-sponsored benefit; with business permission, the service collects time clock data, payroll data, and accounting data. DailyPay uses that data to estimate how much money a worker can collect after every shift, or in some cases, every hour worked Kopko said. If a worker is getting paid $2,000 a week, but after withholding gets a $1,300 direct deposit, DailyPay will be able to calculate it.

“So our technology essentially integrates all those systems, allows you to monitor your balance on a constant basis,” Kopko said. “To say: ‘Well, my work yesterday actually accumulated net of all my tax withholdings $123’ and then it’s essentially an ATM for your paycheck.”

Kopko said the product is geared toward the two out of three people in America that are only paid once or twice a month. If the first of the month comes around, but it’s a week to payday, that’s when an employee needs DailyPay- to pay rent when they have no other option.

With pandemic unemployment and state closures, the team at DailyPay has seen an increased interest in the platform. At the beginning of the shutdowns in March, DailyPay saw a 400% increase in users in just three days.

Without using a service like DailyPay, the way these consumers make payments is through overdraft on bank accounts or payday lending, Kopko said. Surveys of DailyPay customers show one in four overdraft two to four times a month. After using the service, that number went down from 25% to 5%. Kopko shared that after using DailyPay, the number of customers relying on overdraft went down 40%.

“We’ve estimated that [customer] financial savings are approximately $1,200 a year,” Kopko said. “It’s not just about a tool for convenience; it’s about putting hundreds of dollars back into people’s pockets, the most vulnerable among them.”

Overdrafts have long been used as evidence toward claims that traditional banking harbors abusive, predatory practices toward the lowest-income working families. In 2017, the CFPB found that nearly 80% of overdrafts originated from the lowest 8% of account holders. That year Americans paid $34 billion in overdraft fees, according to MarketWatch.

Kopko said the platform is not just good for consumers, but businesses as well. He said DailyPay stats show an average of 40% increase in employee retention.

“For employees, we’re seeing tons of financial benefits, and for the employers, we’re seeing financial benefits,” Kopko said. “And it’s all because essentially we created the ability to have new control over your pay.”

The FTC’s Power to “Wipe Out” is Under Siege

October 9, 2020
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ftc office washington dcAs the FTC contemplates how to “wipe out” entire industries, federal courts around the country have recently ruled that the regulator can’t accomplish such a goal under Section 13(b) of the FTC act. That’s the statute the FTC relied on to bring its most recent actions against merchant cash advance companies. It might not have bite.

Under 13(b), the FTC is empowered to bring a lawsuit to obtain an injunction against unlawful activity that is currently occurring or is about to occur. It’s powerful, but very limited. However, for the last several decades, the FTC, with the help of federal courts, has interpreted the statute to mean that it can also force the defendants to “disgorge” with illegally obtained funds.

That’s how the FTC wiped out Scott Tucker and his payday lending empire. In a lawsuit the FTC brought against his companies under 13(b) in 2012, the Court entered a judgment of $1.3 billion against him.

Not so fast, modern legal analysis says. Tucker’s case is being brought before the Supreme Court of the United States to settle once and for all what 13(b) allows for and what it doesn’t.

The momentum does not weigh in the FTC’s favor.

On September 30, the Third Circuit ruled in FTC v AbbVie that the FTC is not entitled to seek disgorgement under 13(b). The Seventh Circuit arrived at a similar conclusion last year in FTC v Credit Bureau Center.

In an interview with NBC, FTC Commissioner Rohit Chopra said in August “We’ve started suing some [merchant cash advance companies] and I’m looking for a systemic solution that makes sure they can all be wiped out before they do more damage.”

As the FTC attempts to be more proactive in the area of small business finance, it will be important to monitor what the Supreme Court ultimately decides it can actually accomplish.

Important News for MCA Collection Actions in New York – Governor Cuomo Lifts New York Civil Litigation Tolling Deadlines After November 3, 2020

October 9, 2020

Albany, NY - Capitol BuildingOn March 7, 2020, Governor Andrew M. Cuomo issued Executive Order No. 202 Declaring a Disaster Emergency in the State of New York due to the COVID-19 pandemic. Executive Order 202 was followed by Executive Order No. 202.8 on March 20, 2020, which tolled (i.e., suspended) “any specific time limit for the commencement, filing, or service of any legal action, notice, motion, or other process or proceeding, as prescribed by the procedural laws of the state . . . until April 19, 2020.

In lay terms, Governor Cuomo’s Order suspended any statute of limitations deadline for the filing of a lawsuit, and perhaps more important for debt collection activities in the Merchant Cash Advance industry, suspended the deadline for obtaining default judgments in the State of New York. In other words, even after New York State Courts reopened in May, New York Courts could not issue default judgments against defendants who failed to appear in response to a summons and complaint in any civil action, including collection actions, if the date of default for non-appearance occurred after March 20, 2020.

The Governor’s suspension of court deadlines continued well past the initial April 19, 2020 deadline, being extended by numerous executive orders throughout the summer and early fall. The most recent executive order, Executive Order No. 202.67 issued on October 5, 2020, extended the tolling deadline again until November 3, 2020.

But there is hope in sight. In addition to extending the suspension of court deadlines, Executive Order 202.67 states, “for any civil case, such suspension is only effective until November 3, 2020, and after such date any such time limit will no longer be tolled.”

The good news here for debt collection professionals is that deadlines in civil cases in New York State will begin to accrue again as of November 4, 2020. What this means is that any civil action properly served on a defendant that was suspended as of March 20, 2020, will begin to accrue again on November 4, 2020.

In summary, for the debt collection professionals in New York State, this means a return to business as usual on November 4, 2020.

Austin LLP is a law firm that supports the Merchant Cash Advance industry. As such this article is attorney advertisement. The opinions reflected in this article are those of the author and should not be construed as legal advice.