Articles by deBanked Staff
When California passed its landmark commercial financing disclosure law in 2018, some theorized that it was all just a five-year experiment. That’s because legislators wrote into the statute that the APR component of disclosures would only be required until January 1, 2024 and would then automatically be repealed. Then something unexpected happened, it took four years just to put the law into effect. And so with the clock ticking down toward repeal, California’s legislature passed a law last week that removes that line from the statute entirely. Now there is no sunset date. It’s permanent.
Although deBanked has learned that many providers are complying with the disclosure law, not everyone believes that doing so helps business owners or that its requirements are constitutional.
Meanwhile, California also passed ANOTHER commercial financing bill last week, Senate Bill 666, which you can read about here.
Four Democratic US Senators want to establish a national usury rate for credit transactions. S. 2730, dubbed the “Protecting Consumers from Unreasonable Credit Rates Act of 2023” says that “attempts have been made to prohibit usurious interest rates since colonial times” but that high interest rates have prevailed because of loopholes, safe harbor laws, and the “exportation of unregulated interest rates permitted by preemption.”
The solution to all this, it says, is a nationwide 36 percent rate cap that no one can ever circumvent and for which no exemptions would be allowed. The bill repeatedly references “consumers” and makes no mention of commercial or business credit. The bill would technically amend the Truth in Lending Act, however, so TILA covered parties are the likely covered parties for this bill as well.
The sponsors are Sen. Durbin, Sen. Blumenthal, Sen. Merkley, and Sen. Whitehouse.
This bill is new. Whether it progresses remains to be seen.
Complying with the recent California commercial financing disclosure law? Great! Get ready for another one. Senate Bill 666 (unfortunate number choice) has been making its way through the state legislature since February and is approaching a final vote.
The bill would prohibit covered entities from charging:
(a) A fee for accepting or processing a payment required by the terms of the commercial financing contract as an automated clearinghouse transfer debit, except for a fee imposed for a payment by an automated clearinghouse transfer that fails because of insufficient funds in the transferor’s account.
(b) A fee for providing a small business with documentation prepared by the covered entity that contains a statement of the amount due to satisfy the remaining amount owed, including, but not limited to, interest accrued to the date the statement is prepared and a means of calculating per diem interest accruing thereafter.
(c) A fee in addition to an origination fee that does not have a clear corresponding service provided for the fee, including, but not limited to, a risk assessment, due diligence, or platform fee.
(d) A fee for monitoring the small business’s collateral, unless the underlying commercial financing transaction is delinquent for more than 60 days.
(e) A fee for filing or terminating a lien filed in accordance with the provisions of the Uniform Commercial Code against the business’s assets that exceeds 150 percent of the cost of the filing or termination.
Overall, the bill is not that extreme. The bill can be viewed and tracked here.
Funding Circle’s US arm originated $259M worth of business loans in the first half of 2023, up from $214M in the previous half. Those loans are funded “through forward flow agreements with institutional investors.”
The company’s recently filed financial statements say that US loans are “showing good growth.” And it’s with top tier borrowers to boot. It referred to 32% of its first half loans as being “super prime.”
AEBITDA was negative but that’s due to its planned investment to scale the business, the company said.
Yields on their US Loans averaged 5.8%, up from 4.4% over the same period last year.
The company’s newer product “Flexipay” was highly touted in its first half financials. Flexipay works like a line of credit. Once approved for a line, you provide invoice details to Funding Circle and they’ll make a secure payment in your name.
“We’ve seen good growth in US Loans and FlexiPay is showing great momentum as we expand our offering to access a larger market and serve more of our customers’ needs,” said company CEO Lisa Jacobs.
Although Connecticut Governor Ned Lamont signed SB1032 into law this summer, covered parties have until July 1, 2024 to start complying. On its face it was a disclosure bill, but as previously mentioned there was a twist, it amends chapter 903a of the general statutes, the code governing prejudgment remedies.
Specifically it says:
No commercial financing contract entered into on or after July 1, 2024, shall contain any provision waiving a recipient’s right to notice, judicial hearing or prior court order under chapter 903a of the general statutes in connection with the provider obtaining any prejudgment remedy, including, but not limited to, attachment, execution, garnishment or replevin, upon commencing any litigation against the recipient. Any such provision in a commercial financing contract entered into on or after July 1, 2024, shall be unenforceable.
Similar to Virginia, brokers will be required to register in order to broker deals to any Connecticut merchant.
Prosper Marketplace’s Q2 loan originations of $595.6M was down 33% from the same period last year and down more than 5% from Q1 2023. The company attributed the decline to “reduced investor demand given the current uncertain economic environment.”
Investor demand is a major driver for Prosper which sells whole loans to institutional investors and notes to retail investors. The 33% YoY decrease is even more significant considering that it actually represents a 50% drop in the raw number of loans made.
Prosper generated a $52.7M net loss in Q2 on just $31.5M in net revenue.$32M worth of expenses, however, were attributed to “Change in Fair Value of Convertible Preferred Stock Warrants.”
“There was also a $8.1 million decrease in Total Net Revenues from Change in Fair Value of Financial Instruments, Net, due primarily to higher delinquencies and charge-offs for loans held in consolidated warehouse trusts and the Credit Card portfolio underlying the Credit Card Derivative, both of which have increased in size from the prior year,” the company wrote. “Additionally, higher interest rates have led to negative fair value adjustments on Loans Held for Sale.”