Articles by deBanked Staff
New York Introduces Bill to Ban COJs in Financial Contracts
February 4, 2019
New York Assemblymembers Yuh-Line Niou and Crystal Peoples-Stokes have introduced a bill that would prohibit Confessions of Judgment (COJs) from being used in any contract or agreement for a financial product or service.
Peoples-Stokes’ district was one of the first districts to boycott COJs originated by merchant cash advance companies after Erie County Clerk Michael Kearns publicized that he would no longer approve them.
A03636 proposes the following:
§ 396-aaa. Confession of judgment requirement for certain contracts; prohibition.
1. No person shall require a confession of judgment in any contract or agreement for a financial product or service.
2. As used in this section the following terms shall have the following meanings:
(a) “Financial product or service” shall mean any financial product or financial service offered or provided by any person regulated or required to be regulated by the superintendent of financial services pursuant to the banking law or the insurance law or any financial product or service offered or sold to consumers except financial products or services: (i) regulated under the exclusive jurisdiction of a federal agency or authority, (ii) regulated for the purpose of consumer or investor protection by any other state agency, state department or state public authority, or (iii) where rules or regulations promulgated by the superintendent of financial services on such financial product or service would be preempted by federal law.
(b) “Financial product or service regulated for the purpose of consumer or investor protection”: (i) shall include (A) any product or service for which registration or licensing is required or for which the offeror or provider is required to be registered or licensed by state law, (B) any product or service as to which provisions for consumer or investor protection are specifically set forth for such product or service by state statute or regulation and (C) securities, commodities and real property subject to the provisions of article twenty-three-A of the general business law, and (ii) shall not include products or services solely subject to other general laws or regulations for the protection of consumers or investors.
PayPal Has a Lot of Merchants and Venmo Is Adding a Boost
February 1, 2019
More than 21 million merchants accept PayPal to take advantage of the 246 million consumers who use it. That’s a lot of merchants to offer value-added products like PayPal Working Capital and invoicing services. But then there’s Venmo, a fast growing digital wallet that PayPal also owns that processed $19 billion in payment volume last quarter and is projected to handle $100 billion worth across all of 2019.
Although Venmo itself is not a profitable business yet, it has gone from generating almost zero revenue to hitting a $200 million revenue run rate by the end of 2018. And it’s bringing in new users thanks to a network effect. When a network effect is present, the value of a product or service increases according to the number of others using it.
PayPal CEO Dan Schulman said on the company’s earnings call on Thursday that PayPal and Venmo will probably attract another 33 million new active users in 2019, thanks in part to the network effect and “the virality of Venmo.”
Meanwhile, PayPal COO Bill Ready said on the same call that merchants tend to come to them directly for services like working capital loans rather than to online marketplaces like Shopify or Wix because oftentimes merchants sell across multiple marketplaces. “PayPal becomes the aggregation point for them to connect to each of those platforms,” he said.
Top Accounting Officer at StreetShares Resigns
January 31, 2019Jesse Cushman, who served as StreetShares’ Chief Business Officer and Principal Financial & Accounting Officer, has resigned, according to a Form 1-U filed with the SEC this week. His exit was made effective as of January 1, 2019.
StreetShares president Michael Konson is currently filling the role in an interim capacity until a permanent successor can be named.
StreetShares’ financials have left something to be desired. The company recently reported a 12-month net loss of $6.5 million on only $3 million in revenue.
Parris Sanz Joins Petal as General Counsel
January 31, 2019Former CAN Capital CEO Parris Sanz is now the General Counsel for Petal, according to a company announcement. Petal is a US credit card aimed at the unbanked that recently closed a $30 million Series B round led by Peter Thiel’s Valar Ventures.
According to a story in TechCrunch, Petal had more than 100,000 potential applicants sign up during the company’s private beta phase. This latest capital raise will be used in part to expand the product to more customers.
deBanked CONNECT Miami 2019 Photos
January 28, 2019
BFS Capital Surpasses $2 Billion in Financing
January 22, 2019
BFS Capital announced this morning that it has exceeded $2 billion in financing to over 22,000 small businesses across the United States, Canada and the UK.
“This is a major originations milestone,” said Mark Ruddock, CEO of BFS Capital. “We’re incredibly proud to see these investments take root, as BFS Capital continues to solidify its position as a central source for financing small businesses and their everyday capital needs.”
BFS Capital provides business loans and MCA deals from $5,000 to $500,000 to a wide variety of merchants. In 2018, fourth quarter originations were the highest ever in the company’s 17-year history. And third quarter originations also represented the best third quarter in the company’s history.
“In 2018 we enhanced our sales and marketing programs and made significant advances in our underwriting models so that we could better serve small businesses,” Ruddock said.
Ruddock also said that they are constantly thinking of ways to be better partners to the ISOs. He said that they plan to speed up the process from lead to loan by 30% this year, so that, with continued improvements in technology, approvals can take a matter of minutes and eventually happen instantaneously. Currently, they make decisions within a matter of hours.
“We’re also trying to communicate more clearly with [our ISO partners] about what sorts of merchants we are more likely to fund than not, so that they can be more efficient themselves,” Ruddock said.
Apart from accelerating speed in approval time for certain financing, Ruddock said that BFS also excels in serving customers that he calls “diamonds in the rough,” or businesses that sometimes even other alternative lenders will reject because they don’t understand them.
“BFS will very often be in a position to look at a company that perhaps might look complicated to others, and be able to say ‘Yes, this is a deal that we will do,’” Ruddock said.
This process is a little less automated as it requires more creative thinking on the part of their underwriting team, Ruddock said. Founded in 2002 and headquartered in Coral Springs, FL, BFS also has offices in New York, California and the UK.
Confessions of Judgment in MCA Make the Evening News
January 21, 2019Erie County Clerk Michael Kearns is no longer processing Confessions of Judgment (COJs) in Erie County for merchant cash advance companies, according to a statement his office published this week. Prior to being elected Clerk, Kearns was an assemblyman in the New York State legislature.
On Monday night, Kearns appeared on Channel 4’s evening news in Buffalo to discuss why his office had made the decision. Both Kearns and the local newscaster cite a highly controversial story series published by Bloomberg.
A review by deBanked of the series, revealed that two Bloomberg reporters had performed little or no fact checking of their sources. In one instance, for example, Bloomberg featured a business that had allegedly been “wiped out” by a $40,000 predatory loan gone wrong. Public records confirmed however, that the business owners continued to pay themselves more than a $100,000 salary from that business and that they still had nearly a million dollars flowing through their bank accounts. Facebook painted a similar picture, as one of the owners openly bragged about owning a new Camaro Super Sport with racing stripes.
Neither reporter has offered any explanation for the inaccuracies in their reporting.
Despite this, lawmakers and the Governor alike have called for an end to COJs in business credit transactions. You can watch the evening news segment below:
Coming Soon: The End of Confession of Judgments (COJs) in New York State
January 16, 2019
New York State plans to outlaw the use of Confession of Judgments (COJs) in small business loan contracts this year, according to details revealed in Governor Andrew Cuomo’s newly published Justice Agenda.
The proposal, dubbed “Stopping Predatory Merchant Cash-Advance Loans,” is a 3-part plan to:
- Codify an FTC rule that prohibits COJs in consumer loans
- Prohibit the use of COJs in small business loans under $250,000
- Stop lenders from exploiting New York courts for nationwide collections by requiring that any permissible confession of judgment enforced in New York courts have a nexus to business activity in New York
Cuomo’s proposal echoes calls from the State legislature in response to a series published in Bloomberg Businessweek late last year that speculated COJs were vulnerable to abuse.
Both the Assembly and Senate maintain a Democrat majority, the same party as Cuomo, increasing the likelihood that such a bill could become law.
The proposal is separate from a bill that was recently introduced at the federal level. The Small Business Lending Fairness Act, a bipartisan bill co-sponsored by Senators Marco Rubio and Sherrod Brown, call for a nationwide ban on COJs. That bill has not progressed, perhaps due in part to the government shutdown. Like New York, that initiative was a response to the series published in Bloomberg.
A review of Bloomberg’s facts by deBanked revealed highly questionable reporting. In one example, it’s claimed that a business owner had been so victimized by predatory lending that he’d been forced to sell his furniture just to feed himself. deBanked later determined that the “victim” was actually a multimillionaire TV station owner whose account of any such engagement with merchant cash advance companies was incredibly unlikely. The reporters have not responded to deBanked’s findings.
Zeke Faux, who co-authored the series with Zachary Mider, deleted his entire tweet history around the same time that deBanked uncovered strange ties between his editor and the New York Attorney General’s office. The AG is reported to have sent subpoenas to several companies in response to the stories.
On Monday, Faux and Mider reported that clerks in three New York counties, whose job, among other roles, is to enter legally compliant COJs into the public record, were revolting by refusing to process COJs submitted by merchant cash advance companies. Though a clerk’s duties is largely an administrative one, two that spoke on the record with Bloomberg were former state legislators. Erie County Clerk Michael Kearns, for example, who told Bloomberg News that he felt that the use of COJs was criminal, had actually drafted a bill in 2017 when he was an assemblyman that sought to regulate cash advances of a different sort in the litigation financing industry. Although Kearns is a Democrat, he has historically enjoyed support from the Republican Party.
Orange County Clerk Annie Rabbitt and Richmond County Clerk Stephen Fiala, who are rebelling along with Kearns by refusing to enter COJs, are registered as Republicans, demonstrating that the movement is crossing party lines.
According to deBanked, less than half of 1% of all MCA transactions have resulted in the filing of a COJ, despite Bloomberg’s insinuation that the outcome is common or typical.
Among the most prolific filers of merchant cash advance COJs, deBanked found, is Itria Ventures, LLC, a company affiliated with Biz2Credit. Itria filed more than 50 in the last two months. Biz2Credit’s CEO, Rohit Arora, is a writer for both CNBC and Forbes.
