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
Funding Circle US Originated $800M in 2020, More than 90% of Borrowers Were Making Payments
March 26, 2021
Funding Circle US revealed originations of £581M in 2020, equivalent to about $800M at current exchange rates. More than 90% of the company’s American borrowers were making full regular payments on their loans, Funding Circle reported. Approximately 7% were on a “payment holiday” at year-end or were not paying.
Funding Circle’s US loans generate low annual returns, its highest being a projected return of 4.1% to 4.9% for its 2016 cohort. Its 2020 cohort is projected to generate an annual return of between 1 – 3%.
Overall, Funding Circle reported a total net loss of £108.1M (approx $150M US) on just £103.7M in revenue, a massive loss that stemmed entirely from the first half of the year, attributed mostly to a write-down in “fair value.”
Funding Circle’s primary market is the UK. When comparing the market with the US, the company said that the US is in an earlier stage of development even though the market is 5x larger.
No, Corporations Can’t Sue For Usury in New York, Appellate Division Rules
March 25, 2021
Businesses hoping to use the New York State court system to invalidate an MCA or financing agreement, suffered a major defeat on Wednesday. The Appellate Division, Second Judicial Department, ruled that corporations cannot assert usury as a cause of action, even if the allegations meet the criminal usury basis. In deciding this, the Appellate Court was simply affirming what New York’s statute on the matter plainly says.
This has not stopped plaintiffs from asserting criminal usury as a cause of action in New York, however, but now such attempts will probably be fruitless.
In May 2016, Global Merchant Cash, Inc. (GMC) entered into a merchant agreement to buy the future receivables of Paycation Travel, Inc. Paycation breached the contract and GMC ultimately filed a confession of judgment. Paycation then tried to vacate the judgment by suing GMC on several grounds including its theory that the judgment was void and unenforceable because the underlying agreement was for a criminally usurious rate of interest.
GMC moved for summary judgment to dismiss the complaint and its motion was denied. GMC appealed the decision insofar as it believed Paycation could not assert criminal usury as a basis for a cause of action.
On March 24, 2021, the Court rendered its decision on the narrow debate in GMC’s favor.
“A transaction . . . is usurious under criminal law when it imposes an annual interest rate exceeding 25%” (Abir v Malky, Inc., 59 AD3d 646, 649; see Penal Law § 190.40). General Obligations Law § 5-521 bars a corporation such as the plaintiff from asserting usury in any action, except in the case of criminal usury as defined in Penal Law § 190.40, and then only as a defense to an action to recover repayment of a loan, and not as the basis for a cause of action asserted by the corporation for affirmative relief (see LG Funding, LLC v United Senior Props. of Olathe, LLC, 181 AD3d 664, 666; Intima Eighteen, Inc. v Schreiber Co., 172 AD2d 456, 457). Accordingly, the Supreme Court should have granted that branch of the defendant’s motion which was for summary judgment dismissing so much of the first cause of action as alleged criminal usury in violation of Penal Law § 190.40.
This decision did not decide the entirety of the case and litigation between the parties is still pending. It does, however, bring conclusive clarity to whether or not corporations can assert usury as a cause of action, even if it’s alleged to be criminal.
The case number is 52579/2017 in Westchester County in New York Supreme Court. The Appellate decision can be viewed here.
Tune In Tuesday at 10:30 AM EST: deBanked TV Live – With Guests From the Business Funding Industry
March 22, 2021
deBanked is hosting a livestream broadcast tomorrow beginning at 10:30 AM from a venue in Midtown Manhattan with guest speakers from two broker shops and a business funding company. There is no need to register for anything. Anyone can tune in live at deBanked.com/tv to watch it. The broadcast will run for 2.5 hours and end at 1 PM. This is an-person event being broadcast with no Zoom or virtual conversation. The event will also be recorded and made available free.
deBanked’s massive in-person conference, Broker Fair, will return to NYC later in the year on December 6th at Convene at Brookfield Place in lower Manhattan.
Connecticut Introduces Commercial Financing Disclosure and Double Dipping Bill
March 20, 2021
Ever since New York State Senator George Borrello famously questioned the meaning of “double dipping” in a commercial financing transaction, states have rushed to include the term in proposed laws despite no one knowing exactly what it means.
The latest state is Connecticut, which introduced SB 745 in February, an “Act Requiring Certain Financing Disclosures.” It is essentially a copy & paste of New York’s recent law which is slated to go into effect in June.
The Connecticut bill similarly applies to factoring, merchant cash advance, business lending and more. It was introduced by State Senator Saud Anwar (D).
A hearing held on March 2nd, drew testimony from the Commercial Finance Coalition, Small Business Finance Association, Electronic Transactions Association, Innovative Lending Platform Association, and Secured Finance Network.
If the bill passes, it is designed to go into effect in October of this year.
Maryland’s Latest Merchant Cash Advance Prohibition Bill Failed to Advance
March 18, 2021
Despite the rapid advancement of the newest merchant cash advance prohibition bill in the Maryland state legislature, the bill failed to jump over the final hurdle in a House Committee hearing on Thursday. Delegate Seth Howard (R), who introduced the bill, vigorously advocated for it to move forward so that it could proceed to the Floor, going so far as to say he was willing to make some concessions to at least get “the regulatory structure” of the bill into law.
“I don’t want to snatch defeat from the jaws of victory,” he maintained.
There were several amendments up for consideration, including the inclusion or removal of a 24% APR rate cap on MCA transactions. The subject of APR dominated the light Q&A that took place, but one delegate voiced concern that creating restrictions on capital providers to businesses that might not be able to obtain funding elsewhere would probably be counterproductive. And when a roll call of votes was taken to determine if the Bill should advance to the Floor, he voted no, as did nineteen of his colleagues. Only three voted yes, so the bill did not advance, ending its prospects for the 2021 legislative session. However, it could be reintroduced again in 2022.
Committee Vice-Chair Kathleen Dumais (D) said that she thought the bill “was not ready” despite Delegate Howard “having worked hard on it.” This was Howard’s second try in two years to move it forward. His first attempt, introduced on February 7, 2020, was called the Merchant Cash Advance Prohibition Bill. The more recent one dropped the “prohibition” label but used language that would have effectively prohibited them in the state of Maryland.
Upstart Says Covid Had No Material Impact on Loan Performance, Believes All Loan Underwriting Will be Powered by AI in the Future
March 17, 2021
Yet another online consumer lender has reported that the Covid-era was good for business. Upstart, which went public in December, recorded $1M in profit in Q4 and $6M in profit for the year. Prosper Marketplace, an Upstart competitor, reported an $18.5M profit for 2020 just days earlier.
“Despite the COVID-19 pandemic, we delivered strong growth and profits in Q4 and for the full year 2020,” Upstart CEO Dave Girouard said in the company earnings announcement. “This combination is rare among FinTechs and demonstrates the growing advantages of AI-based lending.”
Upstart actually grew its revenue in 2020 by 42% over the previous year while keeping loan performance steady.
“We’re happy to report that the COVID-19 pandemic had no material impact on the returns that our bank partners and loan investors experienced this past year.”
The company is going full speed ahead on AI-based lending. “We believe virtually all lending will be powered by AI in the future, and we’re in the earliest stages of helping our bank partners successfully navigate that transformation.”
Keenly aware that AI is an overly used buzzword, the company reminded investors about what its AI can actually do.
Our AI models, like all AI systems, are fueled by incredible amounts of data and sophisticated software to interpret that data, while most lenders consider only a handful of variables as part of a lending decision, Upstart’s model considers more than 1,000 variables about each applicant. You can think of these as the columns in a spreadsheet. And as of December 31, 2020, our model was trained on more than 10.5 million unique repayment events.
These are like the rows in the spreadsheet. And we continually upgrade the machine learning software that interprets this data, enabling us to price the next loan on our platform just a bit more accurately. Upstart goes far beyond a singular AI model predicting default risk. We have discrete AI model that improve the entire lending process, including identity fraud, income misrepresentation, loan stacking, prepayment risk, fee optimization, and more.
But of course, our model that targets default risk is the centerpiece of our system. It predicts not just the likelihood that a loan will default, but when that default can be expected to happen.
Upstart also intends to bring that technology to auto lending. The company simultaneously announced that it had acquired Prodigy Software, Inc, a tech that’s been used to assist with selling more than $6B worth of cars.
“…2021, from our perspective with auto, is really a building year,” said Girouard, “And the acquisition of Prodigy, we certainly view as an accelerator toward the point of sale, the majority of the market that happens at the dealership.”
Ireland’s Fintech Industry May Be Coming to North America
March 16, 2021
Americans asked to name an Irish fintech company often say Stripe, the company founded by two Ireland-born brothers that is dual headquartered in San Francisco and Dublin. Recently valued at $95 billion, its financial backers include Sequoia Capital and the Irish government via the National Treasury Management Agency.
Stripe’s Irish roots may not be a one-off. Though the Republic’s entire population (4.9M) is less than that of New York City (8.7M), it is home to nearly 250 indigenous fintech companies, dozens of which offer lending and payment products, according to the latest Fintech Ireland map. And many have expansion plans in the works.
Despite the close proximity to the UK, the United States and Canada tied for the #1 priority region that homegrown Irish fintech companies said they want to expand to, according to Fintech Ireland’s industry survey. The UK came in 2nd. The majority of Irish fintech companies actually said they prioritized expansion plans for the US and Canada even over expansion in their home country.
A flight from New York to Dublin can be shorter than a flight from New York to San Francisco and Ireland’s primary language is English. 7,000 people work in fintech in Ireland, the bulk of which are based in Dublin.
deBanked evaluated the market in-person during the Fall of 2019 and determined that there are many cultural and operational similarities to the US. A follow-up piece in May 2020 captured how the industry there was faring through the Covid pandemic.
Maryland MCA Prohibition Bill Morphs Into MCA APR Limit, Broker Licensing, Double Dipping, Uniform Disclosure, and Go to Jail Bill
February 18, 2021Update: A Recording of the Hearing is Here
Plans to enact “prohibition” in Maryland on merchant cash advance transactions abruptly came to a halt last year, but the legislature there has brought the issue back front and center in 2021, designing a system of prohibition while dropping the actual word from the name.
No MCA transacted in the state would be permitted to have an estimated APR that exceeds 24%, for example. The penalty for violating such a statute can be imprisonment for up to 3 years.
Newly introduced House Bill 664 (SB0532) would “prohibit a person from engaging in the business of making or soliciting a sales-based financing transaction unless the person is licensed by the Commissioner of Financial Regulation” and would require that an applicant “for a license having $20,000 in available liquid assets and to have demonstrated a sufficient level of responsibility to command public confidence and warrant faith in the honest operation of the business.”
The 26-page bill includes a laundry list of requirements and restrictions like specific disclosures, how to calculate a forward-looking estimated APR on an MCA, and a limitation of 24% on that APR.
The bill draws heavily from the recently passed law in New York, going so far as to copy and paste the section requiring MCA funders to disclose if there is literally any “double dipping” in the contract.
The Commissioner of Financial Regulation would retain sole authority to judge compliance with the law.
A House committee hearing on the bill was conducted yesterday and a subsequent one in the Senate is scheduled for February 23rd at 1pm.
You can read the full version of the Maryland House Bill here.
