Articles by deBanked Staff
NY Appellate Division Rules One Funder’s Contract Crossed Loan Threshold
October 12, 2023While New York’s Appellate Division has previously decided what’s not usury when it comes to MCA transactions, the Second Department has now ruled what is.
On Wednesday, the Court issued its decision in Crystal Springs Capital, Inc v. Big Thicket Coin, LLC et al, a case that had otherwise started out as a routine breach of contract action related to the purchase of future receivables in the New York Supreme Court back in September of 2020. When defendants never appeared, the plaintiff obtained a default judgment eleven months later. That sparked a response from the defendants who then sought to vacate it on several grounds, including by arguing that the underlying agreement was really a criminally usurious loan. The Court rejected the argument for several reasons, citing that the “reconciliation language in the Agreement is nonillusory” and stating plainly that “a merchant cash advance agreement is not a loan and therefore its terms are not usurious.” Vacatur denied. Defendants appealed.
Given the history in New York (1st Dept, 4th Dept, etc.), the case was hardly news, until now.
In the new Decision & Order, the Court said that “the defendants established that the agreement constituted a criminally usurious loan.” In support of that outcome, the Court said that the plaintiff was “under no obligation” to reconcile the payments and that the full uncollected purchased amount plus all fees were due in default even if the business declared bankruptcy. (View contract at issue here)
“Together, these terms established that the agreement was a loan, pursuant to which repayment was absolute, rather than a purchase of future receipts under which repayment was contingent upon the Big Thicket defendants’ actual sales,” the Court said. “The plaintiff does not dispute that the agreement effected an annual interest rate exceeding the criminally usurious threshold of 25%.”
Meta’s Invoice Factoring Business Paused Indefinitely
October 11, 2023
Meta has apparently exited the small business financing space in the US after a short stint. Meta’s original invoice factoring business, which debuted in 2021 as Facebook Invoice Fast Track, updated its landing page to say that the program has been “paused indefinitely.” Meta offered a pretty sweet deal, only a fee of 1% of the A/R. The condition was that it was only open to minorities, females, veterans, LGBTQ+ or someone with a certified disability. Meta sunset the program in March 2023 but did not elaborate as to why.
Facebook’s Small Business Loan Resource center has also been removed. At the time of its launch in 2021, it had partnered up with Connect2Capital.
The abandoned efforts were not exactly unchartered territory for Meta. In India, the company brokers business loans that carry interest rates from 16%-23%. When it launched this in 2021, it was suggested that this would expand to more countries when it said “India was the first country in which we launched this initiative.”
Are Google’s Search Results Getting Worse? Maybe
October 3, 2023
Ever find yourself perplexed by a string of bad Google search results? It might be by design. As a federal antitrust lawsuit against Google heads to trial, prosecutors have filed dozens of exhibits that include eyebrow-raising internal communications about how Search works. Apparently, it’s not all algorithms and data science running the show, but a team of salespeople trying to hit their numbers.
For example, in late 2018 Google rolled out an update that allegedly improved the user search experience while at the same time inadvertently decreasing the number of search queries and ad revenue. What to do? An Ads team exec floated the possibility of rolling back the update and a discussion was had to make Search worse for users just to boost queries and ad clicks.
“The question we are all faced with is how badly do we want to hit our numbers this quarter?” the ad exec said. “We need to make this choice ASAP. I care more about revenue than the average person but think we can all agree that for all of our teams trying to live in high cost areas another $_redacted_ in stock price loss will not be great for morale, not to mention the huge impact on our sales team.”
Though these communications do not conclusively establish anything in terms of how Google ran its business, it’s impossible to avoid wondering if a string of bad results might have less to do with whether or not Google’s algorithm is working and more to do with whether or not a Google sales guy is trying to hit a search query quota so that he can pay his mortgage this month.
On the flip side, bad results might have nothing to do with ad sales at all, but are rather a consequence of the proliferation of bad websites with misaligned incentives. Google’s 20th employee, Marissa Mayer, who also served as CEO of Yahoo for five years, explained in a podcast last year, for example, that websites themselves are what’s getting worse.
“I think because there’s a lot of economic incentive for misinformation, for clicks, for purchases,” she said. “There’s a lot more fraud on the web today than there was 20 years ago.”
Still, in the Google communications referenced above, it was obvious that Google was faced with balancing user experience with revenue expectations.
“All these little things ultimately add up to retaining Chrome users – if we lose them, we will see far greater [Sales Quantity Variance] loss, and I won’t have any way to get them back,” wrote a Google manager to the Ad team exec.
One’s search experience will surely be impacted even more now as Google is forced to contend with AI personal assistants, a Q&A experience unlike anything that’s ever been seen on the web before. All of which means Google might have to get better at answering your questions if it wants to stay competitive, but not be so good that it hurts morale for the sales team.
California Eliminates The Disclosure Law’s Sunset Date
September 25, 2023When 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.
deBanked CONNECT San Diego 2023 Photos
September 24, 2023We’ve got the deBanked CONNECT San Diego photos HERE!!!
And while you’re at it, now’s your chance to take advantage of early bird pricing to deBanked CONNECT MIAMI 2024 as it returns to Miami Beach this January! It’s baccckkkkk.
deBanked CONNECT San Diego is Today
September 21, 2023
deBanked CONNECT is today on September 21, 2023.
If you are attending today, check-in starts at 1 pm.
The agenda can be viewed here.
The speaking sessions begin at 2:30pm. The event goes until 8pm.
US Senators Introduce National Interest Rate Cap Bill
September 12, 2023
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.
California On Verge of Passing Another Commercial Financing Bill
September 12, 2023
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.
