David J. Austin, Esq. (email@example.com) is the Managing Partner of Austin LLP. Learn more at www.austinllp.com
Articles by David J. Austin, Esq., Austin LLP
It has been just over two months since the California financing disclosure law was enacted. With New York on the heels of California, getting APR disclosure correct is a legal requirement, let alone a competitive one.
At Austin LLP, we developed a simple and versatile APR calculator as part of our California disclosure law guide. However, while training and using this calculator with our clients, we learned just how tricky an APR calculation could be. Having an accurate APR calculation method or software tool is just the beginning. Below we discuss one pitfall we have observed when calculating an APR for an MCA funding deal. In future articles, we will highlight other scenarios where calculations may not be as straightforward as one may think.
MCA Funding APRs Change Depending on the Day of Disbursement
When disclosing a daily (Monday-Friday) MCA financing offer in California or New York, it is essential to understand that the “APR,” which funders are required to disclose, will change depending on the day of the week the funding is disbursed. For example, the APR you calculate with a Monday disbursement will have a different APR if that same deal is funded on a Tuesday. This difference in APR is because MCA funders take payments only Monday through Friday, resulting in a different payment schedule as the week progresses, because later disbursement equals fewer payments before the weekend.
We’ve seen APRs for the exact same financing deal change as much as 8-10%, based solely on the day of the week the funding is disbursed. Therefore, funders, underwriters, and brokers must be aware of how an APR calculation changes based on the day of the week.
APRs Decrease as the Week Progresses
Using our MCA-APR calculator, we found that as the week progressed, the APR of the deal decreases. For example, the APR calculated using a Monday disbursement and a Tuesday first payment will be higher than the same deal disbursed on a Tuesday with a first payment on a Wednesday. This trend continues for the entire week, with a Friday disbursement and a Monday first payment having the lowest APR.
California and New York disclosure laws allow for the disclosure of a higher APR. Therefore, as long as the funds are disbursed in the same week as the disclosure, the actual APR will be lower than the APR that was disclosed to the merchant. However, a disclosure made on a Thursday or Friday of one week that does not disburse until the following week will have a higher actual APR than was disclosed.
Should it always be Monday?
For these reasons, no matter which APR calculator you use, ensure you input the expected disbursement day and first payment day. And for any disclosure offer made that is not disbursed by Friday, remember to re-calculate the APR and re-disclose on the following Monday.
Some of our clients are adopting an “every day is Monday” approach to avoid an accidental under-disclosure of an APR. The APR disclosure regulations are tricky and have many pitfalls. With a regulatory tolerance of less than one eighth of one percent, accuracy matters, specifically when considering the potential for regulatory oversight and downstream litigation.
This article has been provided as general guidance and should not be considered legal advice. Feel free to reach out to us at firstname.lastname@example.org for any specific questions you may have. We are happy to be of service.
Important News for MCA Collection Actions in New York – Governor Cuomo Lifts New York Civil Litigation Tolling Deadlines After November 3, 2020October 9, 2020
On 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.