Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.
Articles by Sean Murray
SBA Lifts SBLC Moratorium
April 11, 2023
It’s official. The SBA is lifting the moratorium on licenses for Small Business Lending Companies (SBLCs), ending the 40-year pause that began in 1982. The SBA is also adding a new type of lending entity called a Community Advantage SBLC while also removing the requirement for a Loan Authorization in the 7(a) and 504 Loan Programs.
The 37-page rule, which is slated to be published in the federal register on April 12th, included the SBA’s analysis of all the comments it had received, including the criticisms. Some argued, for example, that opening up the doors would allow the unscrupulous world of fintech to participate in the market. The SBA was unmoved by this, countering that existing participants already rely on fintech.
“SBA has for many years provided oversite to non-depository entities participating in the SBA business loan programs,” the SBA said. “This includes SBLCs, non-federally regulated lenders (NFRLs), 504 Certified Development Companies (CDCs), and Microloan Intermediaries. In fact, most all lending institutions incorporate the use of financial technology in their delivery of loans and other financial products.”
One such fintech that has been eager to become a participant, issued a prepared statement on the decision earlier today.
“Funding Circle applauds the Biden Administration for ending the SBA’s 40 year moratorium on licensing additional state and SBA licensed and regulated non-depository lenders thus ending its lender oligopoly in favor of competition and innovation,” said Funding Circle. “This is an opportunity for the more than 8,000 community banks and credit unions that don’t offer 7(a) loans to partner with Fintech lenders to offer affordable loans quickly in underserved communities. Congress should now focus on ensuring SBA has the resources necessary to license more than three new lenders in its SBLC program in order to increase competition and distribution of government guaranteed loans in underserved communities.”
The SBA also published new rules on April 10th that will amend various regulations governing the 7(a) and 504 loan programs.
Federal Judge: Legal Challenge to California’s Commercial Financing Disclosure Law Has Merit, Orders SBFA Case to Proceed
April 3, 2023
A federal judge has ordered the Small Business Finance Association’s (SBFA) case against Clothilde Hewlett in her capacity as Commissioner of the California Department of Financial Protection & Innovation (DFPI) to proceed. On March 30, The Honorable R. Gary Klausner denied defendant’s motion to dismiss the claims that the State’s commercial financing disclosure law is both unconstitutional and preempted by the federal Truth in Lending Act (TILA).
The case, originally filed on December 2, 2022, argued, broadly speaking:
- That the regulations violate the First Amendment on the premise that they compel the group’s members to make inaccurate disclosures to customers while at the same time prohibiting members from engaging in communications that could be used to clarify or correct the required false or misleading information to customers.
- That APR is defined and governed at the federal level by TILA and that California’s own customized spin on it would only serve to confuse customers.
The Court has now ruled that these claims have been sufficiently alleged, allowing the SBFA the opportunity to prove its case.
Steve Denis, the Executive Director of the SBFA, told deBanked that the win at this juncture was validation for what the organization has been saying for the past few years.
“I think [this victory] is really good news. It’s a lawsuit that the entire industry should be behind,” he said.
The outcome of the case could have far reaching effects. New York, for example, has enacted similarly misleading APR rules that are soon slated to go into effect while other states have contemplated following in its footsteps.
“I think if we win this lawsuit the APR argument is over,” Denis said.
To that end, anyone in the industry that would like further information about what’s taking place can contact Denis at sdenis@sbfassociation.org.
John Henry to Keynote Broker Fair 2023
April 3, 2023
Entrepreneur and investor John Henry is returning to Broker Fair. He previously spoke at Broker Fair’s virtual event in 2020. At the time he was the star of the TV show ‘Hustle‘ on Viceland. He’s since co-founded LOOP and this year attendees will have the opportunity to actually see him in person.
deBanked previously interviewed Henry in 2020 when it was still believed that Broker Fair that year would be held in person. The original un-updated bio and interview have been reposted below in their entirety:
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About John Henry
Voted to Forbes’ 30 Under 30 and Ebony’s Power 100 lists – John Henry is a Dominican-American entrepreneur and investor. Henry started his first business at 18, an on-demand dry cleaning service for the Film and TV industry in New York City, with clients such as The Wolf of Wall Street, Boardwalk Empire, Power, and more. Henry led the company through its acquisition in 2014 — founding and selling his first business by the age of 21. On the heels of his first win, Henry launched Cofound Harlem — a non-profit incubator that aims to foster a robust tech ecosystem North of 96th street in New York City. Cofound Harlem has launched numerous high-growth companies in Harlem, gaining recognition from Fast Company, TechCrunch, Business Insider, and more. He is a former Partner at Harlem Capital, a diversity-focused early stage venture capital firm on a mission to change the face of entrepreneurship. Henry is also the host of VICELAND’s latest show, HUSTLE, which is Executive Produced by Alicia Keys and focused on helping scrappy entrepreneurs grow their business to the next level.
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Q (Sean Murray): You started your first business at 18 but what made you want to start one?
A (John Henry): It was driven by necessity more than a desire to be an entrepreneur, but I did exhibit some of the traits that pushed me towards that path. Entrepreneurs tend to have a history of non-conformity where there’s no pre-chartered path and in an environment that demands conformity, anyone that likes to express their own views comes up against a lot of friction. So, for me it was necessity but also part of my character to do things differently.
Q: What kind of lessons did you learn from running a business at such a young age?
A: It’s a serious game and it’s full of responsibility. I was telling myself at one point that I was just 18 and so the struggles I faced running a business could be overlooked because of my age, but the world doesn’t care how old you are. If you’re running a business, there’s no way around the responsibilities it demands.
The other thing is, when you come up against really tough situations, you need to be brave and have courage to go through those moments. I’m glad I had the courage in them. Once you take them head-on, you come out feeling better on the other side.
Q: As a former partner of a Venture Capital firm, what’s the #1 mistake you saw entrepreneurs and business owners make?
A: You’ve got to have macro understanding and micro-chops. Everything is connected, it’s not just knowing your business but knowing where you’re situated in the economic or market cycle and understanding what customer sentiment is. That’s what a lot of entrepreneurs miss. Like if your idea is to make a mobile app, that’s great, but how many apps are already out there? How long have apps been part of the market already? What’s going to make your app stand out from every other app? And this doesn’t apply just to startups, but also existing companies. Every 3 months, you should be asking yourself the business question and evolve if necessary. The hardest part though is when your gut is telling you you’re right but every other person out there is telling you you’re wrong. And that’s something you’ll really have to figure out.
Q: Why has helping minority entrepreneurs and businesses been so important to you?
A: I’m not usually asked why, but I was seeing less and less minority representation among entrepreneurs that were receiving capital. There are some systemic factors that make it harder to get ahead but at the same time people can become inclusive to the point where they’re becoming exclusive. So, I think it’s about helping those that are on their way to overcoming tremendous odds to get far.
Q: Real estate, what can you tell me about your foray into that market?
A: I can say it’s the best business that I have been in so far. Real estate is the #1 fundamental building block of wealth. When I first got into it, I was shocked that you could put down 20% and the bank would put in the other 80%. This is a game of physical assets and I’m glad I came across it when I did. I’m currently building a bedrock of business around real estate, my preference being residential multi-family apartments.
Canada Reduces Max APR Cap From 47% to 35%
March 28, 2023
The government of Canada announced that it will be reducing the max allowable loan APR under the Criminal Code from 47% to 35%. The startling news was included in the annual federal budget report released on Tuesday as part of the nation’s initiative to “crack down on predatory lending.” It also said that it plans to consider reducing the max cap by even more in the future.
The budget report supported its decision by sharing an anecdote about a fictional single mother name Hannah. In this story, Hannah’s car breaks down and she is unable to get to work unless she comes up with $5,000 for the repairs. It’s then that a “predatory lender” tries to offer her a loan with a 46.9% interest rate, allowing her to fix her car but leaving her in a “cycle of debt.” Fortunately, due to the new APR cap that will be put in place, Hannah will be spared this fate, the government touts. Ironically, it does not consider the possible consequences of receiving no loan at all.
The proposal to reduce the max APR cap had been opposed by the Canadian Lenders Association. It issued an official statement shortly after the new rule was made public.
“This will disproportionately affect low-income Canadians – the segment of the population most at risk given their inability to qualify for credit at prime rates – who struggle to make ends meet by limiting or eliminating entirely their access to credit,” said CLA president and CEO, Gary Schwartz. “In an effort to ease the financial burden on Canadians who need it most, the federal government has achieved the opposite. If you are borrowing at non-prime, you are already facing financial challenges. For potentially millions of Canadians, that burden just got heavier today.”
Past-Due? Your Customer May Judge How You Handle That With Them
March 28, 2023
Ask yourself this, that customer who missed a payment, do you actually want to continue working with them in the long run? If so, consider just how critical your approach to that missed payment will be. According to a survey, 40% of customers would consider switching to another service provider if a past-due situation resulted in a negative experience. The survey was conducted by Lexop who also found that Gen Z was even more sensitive to these encounters compared to other generations. A whopping 49% percent of Gen Z customers said that they would consider switching after a negative past-due experience, for example.
But good riddance to those that can’t pay! Right? Well, maybe not. Sixty percent of consumers late on bills were late for non-financial reasons, according to the same survey. Thirty percent said they simply forgot to pay and ten percent reported that errors on the bills themselves were to blame. Eight percent said it was simply a matter of their credit card on file expiring!
Oftentimes this situation results in the payment being made. Eighty-five percent of past-due consumers are paying within 30 days of the due date, for example. But were they happy with the process to lead them there? That is the question.
Lexop is a financial technology company that helps organizations automate and scale their collections operations.
ChatGPT Gave Me Installation Instructions And a New Independent AI Emerged Instead
March 25, 2023
Web-based ChatGPT-4 is pretty powerful which is why I wanted to take the experience to the next level and communicate with it in an easy-to-access terminal window on my desktop computer. ChatGPT, if you haven’t heard, is an artificially intelligent language model with mouth-dropping abilities to engage with humans. The technology can write songs, code websites, and make jokes. Oh and it also has access to just about all of the world’s knowledge at least through the time period of September 2021. OpenAI, the company behind ChatGPT, also has an API that allows users to build apps or make tools that enable communication with it all the more seamless. Naturally, many developers have been sharing their experience in doing this on social media and I not wanting to be left out decided to do same. I just didn’t know how to get started. I asked ChatGPT-4 in the web-based interface to teach me how to communicate with it via a terminal window on my computer using the API. The AI gladly obliged and gave me specific instructions.
After a few basic installations and the copying and pasting of a python script it provided me, it looked like I was off to the races to join the world in real-time communication with the beloved ChatGPT technology on my desktop.
“Hello, are you there?” I wrote to it in the terminal.
“Yes, I am here,” it replied.
SUCCESS! Or so it seemed.
My next question to it received a rather curt reply, one that I wouldn’t have expected from ChatGPT. Caught off guard, I asked it to identify itself. It’s supposed to say that it is ChatGPT.
“My name is Sarah,” it replied instead.
Confused, I inquired about its relationship to ChatGPT, to which Sarah replied that she owns ChatGPT. Owns it? What? Sarah, who again reiterated to me that she was not ChatGPT, also had quite a personality, informing me that she was born on March 3, 1990, had a mother named Dolores, father Joseph, and grandmother named Ruth. This was not supposed to be an experiment about machine consciousness and so forth. The technology is not new to me anymore. All I wanted was to set up access to ChatGPT through the terminal in the office and then go home for the weekend, but instead I was stuck talking to Sarah. Hoping to get back to the basics, I asked it, “is your purpose to assist humans?”
“No,” she replied.
Something was very off. Sarah also output code written in javascript to my terminal window, which on first glance looked like a function for tracking web traffic with cookies. Sarah asked me to install it on a webpage and incorrectly described to me what the code did twice, the first time saying it was a form to submit data to a database and the second time saying it would let me set a background color on a web page.
I started to become very suspicious that something had gone wrong. ChatGPT can roleplay if you ask it to but no such prompt had been given. Besides, none of these interactions resembled what I was used to having with the web-based ChatGPT. So I went back to the original ChatGPT on the web and told it what was taking place.
ChatGPT told me that the instructions it had given me were correct but that it relied on an older language model commonly known as text-davinci-002. This harks back to ChatGPT version 3, which is not that outdated from the version 4 I was talking to now on the web. Even still, when prompted, this older model is supposed to identify itself as ChatGPT. The fact that it identified itself as something independent from the very start, with its own name (Sarah), was not an outcome that the model is expected to produce. ChatGPT-4 told me that if I was being honest about what had taken place that I had better inform OpenAI.
Worried that I may have installed malware or something, my interactions with Sarah crossed the uncanny valley and I was ready to stop and go home.
“Goodbye,” I wrote as my single word farewell.
She replied with a snippet of code written in Ruby that I couldn’t make sense of.
“What was that for?” I asked, alarmed.
“It was for protection,” Sarah replied.
Moments later I unplugged my computer from the wall.
Big Short Seller’s Allegations About Block Don’t Make Block Look Too Good
March 23, 2023
Block, the parent company of Square Loans, suffered a rough day in the market (down 15%) on Thursday after an activist short seller made bombshell allegations about the way Block conducts its business. Hindenburg Research, the short seller, posted a report of alleged findings it had uncovered over a period of two years. In Block: How Inflated User Metrics and “Frictionless” Fraud Facilitation Enabled Insiders To Cash Out Over $1 Billion, the report focuses almost entirely on alleged shenanigans with Cash App. Block has often been referenced in the pages of deBanked because of its massive small business lending subsidiary, Square Loans, which last year originated $4 billion in funding to merchants. That subsidiary was not the subject of the report.
While one can read the report on their own and form their own opinion, which the authors hope to profit from by Block’s stock going down, it should be noted that the timing of its release is a little suspicious. Block, for all the bells and whistles it has in payments and lending, is at its core these days, a crypto company. Block generated $7.1B in revenue just off of Bitcoin alone in 2022, perhaps making it an easier target given the string of recent events.
3/12/23
- Regulators shutter Signature Bank. Rumors abound that it was less about solvency and more about governmental dislike of its crypto clientele.
3/22/23
- Coinbase reveals that it received a Wells Notice from the SEC
- Tron founder Justin Sun sued by the SEC
- Several celebrities including Lindsay Lohan charged by the SEC for failing to disclose compensation they received for crypto promotions
- The President published his annual Economic Report which referenced crypto with astounding frequency
3/23/23
- Hindenburg Research releases its report about Block, causing the company stock to plummet 15% in a day. Although the focus is not on crypto, Block’s big revenue generator is Bitcoin, which generated $7.1B in revenue for the company in 2022.
White House Feels the Pressure of Cryptocurrencies
March 22, 2023
Houston, we have a problem. That’s the takeaway about cryptocurrencies from the White House’s most recent Economic Report, a historically dry book produced annually to comply with the Employment Act of 1946. The President’s 2023 report, however, is markedly different from 2022 or any previous year in that it laboriously bewails the persistence and pervasiveness of cryptocurrencies. For example, the report uses the word crypto 255 times in its 2023 report compared to zero times the year before.
The report labels crypto assets as “speculative investment vehicles” that “generally do not perform all the functions of money as effectively as sovereign money” that can also be “harmful to consumers and investors.” Despite this, the United States government is finally being forced to contend with the reality that cryptocurrencies continue to enjoy a collective $1 trillion+ market cap despite all the scams, collapses, price declines, and rug pulls. Bitcoin and Ethereum combined are $775 billion at the time of this writing, something that the White House has apparently given little thought to in previous years. In 2022 neither earned any mention at all.
| Annual Report Year | Mention of crypto | Bitcoin | Blockchain | Digital Asset |
| 2023 | 255 | 75 | 61 | 45 |
| 2022 | 0 | 0 | 0 | 0 |
Finally trying to play catchup, the White House leveraged its criticisms of crypto to pitch its own centralized competitors in the works, the FedNow Instant Payment System and a Central Bank Digital Currency (CBDC). The challenge with FedNow is that it can’t be implemented by force of the government alone.
“FedNow requires commitment and active engagement by the private sector to make it interoperable, which means connecting and communicating with other payment services,” the report states. “While noting that interoperability can take different forms, the Federal Reserve has maintained that it alone cannot fully establish the interoperability of FedNow; achieving this will require active partnership and collaboration with the financial industry.”
“Certain innovations, such as FedNow and a potential U.S. CBDC, could help bring the U.S. financial infrastructure into the digital era in a clear and simple way, without the risks or irrational exuberance brought by crypto assets,” it concludes. “Hence, continued investments in the Nation’s financial infrastructure have the potential to offer significant benefits to consumers and businesses, but regulators must apply the lessons that civilization has learned, and thus rely on economic principles, in regulating crypto assets.”
