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Senator Kramer: eGood afternoon,
Madam Chair, Mr. Vice Chair,

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members of Finance Committee,
Kramer to introduce Senate Bill

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532, which deals with regulating
and licensing, sales based

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financing products. These
transactions are not currently

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regulated by Maryland law. And
colleagues, hopefully this

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legislation will sound somewhat
familiar to you. As I introduced

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legislation last year on the
same subject. I have had some

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conversations with
representatives of the industry.

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And there has been some limited
meeting of the minds

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predominantly around the idea of
regulating the industry rather

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than prohibiting the industry.
But the regulating part is where

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we are going to have to agree to
disagree. Last year's

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legislation that I brought to
the committee would have

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prohibited prohibited merchant
cash advances in Maryland.

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Merchant cash advances are just
one type of sales based

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financing. The industry made
their case that they believe

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there is a market for this kind
of financing and Maryland and

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those folks who have are
concerned about the predatory

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nature of this industry, and I
accepted the notion that all

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right, maybe there is a place
for it, if it is properly

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licensed and regulated. So the
legislation before you this

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year, does not prohibit the
practice, it regulates in

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licenses generate not just
merchant cash advances, but all

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forms of sales based cash
advances, and other similar

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pardoning online financing,
which is also referred to as

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FinTech lending. The bill is
limited in its scope, to

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financing and amounts of
$500,000 or less. The reason for

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that is that we are looking to
protect small businesses in the

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state, mom and pop businesses in
the state. This is not about

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Martin Marietta, or Lockheed
Martin, or Marriott. This is

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about our small mom and pop
businesses. And currently, there

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is no regulation of this
industry, and it is the Wild

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West. So the way these deals
work, is that in exchange for an

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amount of money, let's say it's
$100,000. The online lender

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agrees to sell that small
business $100,000 And a small

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business obligates itself to pay
back that 100,000 And another

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$100,000 on top. And what the
lender does, is they have access

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to the business's credit card
and bank accounts, and they suck

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their money every day at the
close of business right off the

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top until their $100,000 is paid
back over whatever period of

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time they've agreed to do it.
And the $100,000 interest that

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they've charged is also paid
back. So they consider this a

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sale. So it is not in their
definition a loan and therefore

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is not governed by federal and
state regulations. The way banks

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and credit unions are right now.

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As the industry grows and
flourishes and it has

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dramatically based on its
ability to charge Unlimited,

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unlimited interest rates and
frequently mislead and

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fraudulently Miss characterize
their Financing products. The

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stories of businesses ruined as
a consequence are springing up

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like mushrooms after a summer
storm. Stories of 400% interest

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rates are more common than not
stories of aggressive

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confessions of judgment. Were
part of the documents that the

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small business sign allows the
lender to go into court and just

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present the document and claim
that the small business has

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failed to make a payment allows
them to seize the assets of the

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business without the business
having any opportunity to go

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into court or get a lawyer to
come in and say no, wait a

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minute, this is not accurate.
I'm current on my payments.

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Speaker 2: I'm ready to testify.

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Senator Kramer: Cold calls.
aggressive sales tactics with

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misleading information are
hallmarks of the industry and

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harassing follow up calls,
pushing small business owners to

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take deals that are too good to
be true because they are too

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good to be true. Our standard
operating procedures of this

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industry, the industry as a
whole is to the mom and pop

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businesses and merchants what
payday loans were to consumers.

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That is why we banned them in
Maryland. But this business, I

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mean, this bill doesn't ban it,
license and regulate. Businesses

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begin a death spiral as their
profits are sucked off the top

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by the FinTech lenders that are
connected connected directly to

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their bank accounts. The Federal
Reserve conducted a study which

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has raised significant red flags
and alarms about this industry,

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and its frightening and
dangerous practices. Bloomberg

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has had a months and months
long, ongoing investigation

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about vulnerable and
unsuspecting businesses being

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destroyed due to the predatory
practices of these lenders. And

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in their most recent chapter,
Bloomberg offered the following

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about one of the small
businesses that they

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interviewed. And they say, the
company advanced the business a

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total of $250,000, the business
paid back more than $600,000.

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And the company still still
seize their assets and put them

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out of business. It is
imperative that we act this

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session to implement the
protections in this bill, with

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the exception of the rate cap,
which I will discuss in greater

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detail as we go along. The bill
before you right now matches

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what has been done in
California, the fourth largest

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economy on planet Earth. And in
New York, California and New

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York have adopted these
regulations. Much of the

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language of this bill has been
lifted verbatim from the New

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York law, including annual
percentage rate requirements

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estimates of an annual
percentage rate, the industry

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will be whining to you all about
how it is not possible to do an

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estimated APR. Well, it is
possible. And if the industry

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wants to sell its products in
California and New York, they

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will be providing an estimated
APR to the businesses that they

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are profiting from. And the
reason New York and California

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are requiring this is so that
the small business owners will

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have a better idea of what it is
that they are signing and what

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they're going to be paying and
obligating themselves to. So

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what's in the bill. It's not a
whole lot. The first 20 pages

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deal with number one, the
licensing regime. And that will

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come under the Office of the
Commissioner of financial

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regulation, when that office is
intimately familiar with the

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language of this bill. They have
been very involved during the

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interim in working through this
language. Number two in the bill

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is the required estimated APR
that I just Made mentioned to,

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and it comes straight out of
what New York has already passed

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into law. So when they tell you
it can't be done, it can be

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done.

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Number three disclosures, what
kind of disclosures? It's pretty

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simple stuff. The total amount
of the funds provided the

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estimated annual percentage
rate, the term of the loan, the

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method, frequency and amount of
payments, fees that will be

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charged that may not be
currently disclosed a copy of

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the transaction documents to the
small business owner and a

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description of collateral
requirements. Number four, the

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bill would prohibit the use of
confessions of judgment and

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you're going to have some of
these folks in the industry

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today say no, we don't use
these. And that's great if it's

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part of their business model not
to use confessed judgment.

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That's great. But there are too
many in the industry as a whole

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that do use confessions of
judgment. Finally, that and this

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is different. I'm going to be
100% upfront with the committee

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about this. The bill establishes
a great cap. In the bill,

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currently it says 24% There is
an amendment and I will discuss

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that a little bit further, that
will allow up to 36% interest.

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And this is going to be a policy
decision community. At what

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point is it too much is 100%.
Too much is 300%. Too much is

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400%. Too much interest. That's
going to be a policy committee.

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Currently, no state has a cap in
this bill. It as well. If

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adopted with the amendment, the
cap will be 36% interest. And I

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welcome the opportunity, madam
chair when the committee takes

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the bill up for a vote to
discuss the rate cap, and if we

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think it is, in fact appropriate
to put a cap on the users

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interests, that is currently
being charged right now. So I

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mentioned there are going to be
amendments. In fact, there are

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two one of which the committee
has already received. It

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clarifies a bill drafting error
that the bill applies to

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commercial lending. And number
two, the amendment that will be

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coming as a consequence of the
bill hearing on the House side

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will adopt in full the New York
regulations governing all of

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this online lending. And and it
also there is a the Attorney

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General's Office indicating that
they felt they should not have a

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role to play in this
legislation. So in the second

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amendment that I mentioned, the
Attorney General's office will

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be taken out of the legislation
and all of it will rest entirely

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within the commissioner of
financial regulations office.

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With that, Madam Chair, I thank
you all very much. We have the

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leadoff witness, Mr. Cat, its
Peck is someone who is

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intimately familiar with this
industry, because he's been in

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it. And he knows how important
it is to do exactly what is in

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the bill before you because he
had to compete with the bad

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actors. And, and he knows how
important it is to put these

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regulations into place. So that
legitimate, honest fair of folks

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in this industry will be the
ones competing, not the bad

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actors. So thank you, Madam
Chair.

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Thank you. Are there questions
of the sponsor? Okay, and we're

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going to your need witness? Who
is the noise cat it's that you

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have witnesses, we'll have two
and a half.

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Speaker 4: Thank you so much.
Senator Kramer, thank you so

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much for that introduction and
Senators. I'm happy to be here.

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My name is Louis Caditz-Peck.
I'm the Director of Public

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Policy at Lending Club. Lending
Club is a fintech company. And

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we're also a bank. Over the last
decade, we've facilitated about

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one and a half billion dollars
in loans to borrowers in

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Maryland. I launched lending
clubs small business lending

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program in 2014, to offer lower
cost transparent loans to

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businesses underserved by banks.
And we soon saw that small

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businesses struggle to access
capital has really changed.

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Small businesses are now
inundated with offers of

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capital, often from high cost
financing companies that don't

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transparently disclose the
rates, they'll charge.

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Committee, I'm going to
apologize my video doesn't seem

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to be working, but I've joined
for video on my cell phone. I

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can switch the sound to that if
that makes it easier to follow

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my videos elsewhere. So it's
really easy actually to imagine

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yourself facing the kind of
situation that is small

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businesses in that the senator
described. If you needed

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capital, would you take
financing from a company

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offering a 15% purchase
percentage or a loan with a 20%

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APR? It might not be clear, but
what it helps to know if if if

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you were told that the first
option has an APR of 120%.

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Without this bill, you would
likely never be told that

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predatory lending is taking down
small businesses in your

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districts. I spoke yesterday to
a woman and Kara DiPietro, CEO

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of a company and Senator Zonies
district. I don't know if she's

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a relation to Chris on the call.
They build commercial interiors,

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including for Johns Hopkins and
for the US Capitol. She is a

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savvy businesswoman. Mr. piatra
was named Maryland's small

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business owner of the Year by
the SBA, and she told me that

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when she took a new round of
financing the contracts

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initially they seemed clear, it
seemed like they told her

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everything they were supposed
to, but they turned into a whack

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a mole of lies. A series of
interrelated financing companies

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hooked her first by sending less
money than they told her they

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were going to send. And then as
she tried to get the full

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amount, they pulled her through
this goose chase of refinances

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adding fees each time. There are
industry words for these kinds

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of practices. The contract
focused on an initially on a

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price of 10%. That was not
actually the APR. Her lawyers

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later figured out that the APR
was 200% and included these

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confessions of judgment that the
senator described. At the end of

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the day. This cost her hundreds
of 1000s of dollars of business,

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and the company just spent three
years in survival mode, just

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trying to stay afloat fighting
off these predatory lenders,

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instead of growing and creating
jobs in Maryland. As the senator

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described, I work with the
legislators in California in New

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York to pass the Small Business
truth and lending laws on which

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Senate Bill 532 is largely
based. Those laws passed with

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overwhelming bipartisan support
very broad support from the

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small business community
nonprofit advocacy and industry.

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Everyone agreed that small
businesses just deserve to be

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told the price they're going to
pay in a transparent way.

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Federal Reserve research has
found in at least four different

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research studies, that small
businesses today are often

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misled towards higher cost
financing. With pricing metrics

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used in the market today that
are not transparent

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sufficiently. The Fed
specifically describes merchant

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cash advance it with the words
potentially higher cost less

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transparent credit product,
those are the Federal Reserve

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researchers words not mine. They
also found that black and

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Hispanic owned businesses are
twice as affected by these

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higher cost less transparent
credit products. So why does the

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Federal Reserve research and
California and New York and now

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Maryland all agree that APR is
the standard for transparent

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disclosure rather than some
other metric? It's because APR

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is the only metric that enables
apples to apples comparisons of

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products of different types,
amounts and likes. It's the

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standard embedded over 50 years
of the Truth in Lending Act. As

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the senator described, you might
hear opposition, saying that

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they can't estimate an APR. In
fact, providers of this kind of

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financing already do estimate
and disclose APRs. To calculate

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APR, whatever the form of
financing, companies can use the

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formula that's in the federal
Truth in Lending Act, it's

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algebra, you plug in how much
money you get, and how much

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money you pay back. And when and
it's at an APR. For sales based

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financing, you'd have to plug in
some estimates. And these

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companies have the estimates,
financing companies don't give

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away money with no expectation
of when that money is going to

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come back to them. SB 532
provides two methods to guide

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these estimations to make sure
there's no funny business. But

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also it's flexible. This is the
same approach that New York and

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California took. Some companies
with high APRs may argue that

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APR is not a helpful disclosure,
and that quoting cost and just

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dollar amount should be enough,
like, why isn't enough to just

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to tell you that the fee is
going to be $10,000? It's

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because that does not allow you
to make a comparison between

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financing of different amounts
and different lengths to just to

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quickly illustrate before I
close, consider you're renting a

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house for $10,000. Is that a
good deal? You need to know how

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long you get to use that house
for $10,000. Paying $10,000 For

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six months of a house or
financing is more expensive than

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paying $10,000 for five years,
what's the all in cost per year?

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That's what the APR tells you. I
urge you to advance Senate Bill

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532, with the amendments that
the senator described. Small

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businesses are really depending
on it. Thank you.

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Madam Chair: Thank you. Are
there questions of this witness?

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00:20:47.850 --> 00:20:49.260
Senator Feldman?

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00:20:49.260 --> 00:20:52.270
Senator Feldman: It just I
apologize because I don't have

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access right now. With testimony
but so was just so unclear

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00:20:58.720 --> 00:21:00.490
because I heard a couple of
different things. And I just

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want to make sure I got the
facts and probably could ask

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Kramer. But, okay. Disclosure,
so just back on the New York

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California laws, which Senator
Kramer mentioned this bill's

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model of so I understand about
the disclosure, just so I'm

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clear. So do those, those
particular states have caps,

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like this one on APR, this bill
is 24%. Because I heard you talk

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a lot about disclosures and
disclosing what the deal is. But

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you didn't mention those states
having a specific APR cap? Maybe

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00:21:36.310 --> 00:21:41.380
I missed it, and I don't have.
So it's not a catch, should they

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catch a thing? I just want to
make sure I understand New York

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and California relative to this
bill.

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Speaker 4: Yeah, thank you for
highlighting that those bills

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did not include a rate cap. And
as the senator pointed out,

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that's a really important public
policy decision and frankly, a

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complicated one to consider.

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Senator Feldman: Okay, that's
really pretty specific. Thank

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you, Madam Chair.

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Madam Chair: And Senator
Feldman, I did by when I

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00:22:03.660 --> 00:22:08.880
introduced that we do not have
this makes us unique if we were

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to adopt this. Okay.

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00:22:10.920 --> 00:22:13.740
Senator Feldman: I just wanted
to make sure I heard it

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accurately. Right. Thank you,
thanks.

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Madam Chair: Okay. Senator
Jennings.

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Senator Jennings: Thank you,
Madam Chair. So, Louis, you're

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00:22:20.650 --> 00:22:23.200
with Lending Club?

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00:22:24.330 --> 00:22:24.930
Speaker 5: That's correct.

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00:22:25.810 --> 00:22:28.990
Senator Jennings: So my question
is, so you say you don't do

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00:22:28.990 --> 00:22:31.090
these types of loans, but you do
lend in Maryland?

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00:22:32.730 --> 00:22:34.830
Speaker 5: That's when I say we
don't do these types of loans,

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00:22:34.830 --> 00:22:37.200
I'm referring to merchant cash
advances, we offer other loan

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00:22:37.200 --> 00:22:37.830
products.

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00:22:38.470 --> 00:22:40.870
Senator Jennings: So what I see
is most people that are going to

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00:22:40.870 --> 00:22:44.440
use these are businesses that
are truly suffering, and are

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00:22:44.440 --> 00:22:47.950
probably on the teater of going
out. And this is kind of a Hail

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00:22:47.950 --> 00:22:50.710
Mary pass, that some of them are
going to throw to try to save

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00:22:50.710 --> 00:22:55.030
their business, which has a lot
of risk to the lender. So my

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00:22:55.030 --> 00:22:58.330
question to you is, do you have
a product that you could offer

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00:22:58.510 --> 00:23:03.250
one of these businesses that
knowing that going into this,

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00:23:03.460 --> 00:23:05.890
that your probability of getting
paid back is going to be very

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00:23:05.890 --> 00:23:09.220
limited? Because of you know,
the business really isn't in

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00:23:09.220 --> 00:23:12.040
good shape? I'm trying to figure
out what what the industry would

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00:23:12.040 --> 00:23:13.120
offer a customer.

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00:23:13.120 --> 00:23:18.370
Speaker 5: Senator? Yes, we do.
Yes, we do. The small business

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00:23:18.370 --> 00:23:22.270
financing we offer is also
focused on underserved small

307
00:23:22.270 --> 00:23:26.110
businesses, it sees five times
the representation of minority

308
00:23:26.110 --> 00:23:28.960
owned small businesses as
compared to traditional banking.

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00:23:29.290 --> 00:23:32.380
There is a risk spectrum here.
And so I don't want to, you

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00:23:32.380 --> 00:23:35.230
know, delude you that there's a
point where a business is

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00:23:35.230 --> 00:23:40.030
really, really risky and hard to
lend to. And much of this

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00:23:40.030 --> 00:23:43.120
industry is focused on that
segment of the market. And I

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00:23:43.120 --> 00:23:45.970
think the question is, are they
focused on that in a way with

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00:23:46.150 --> 00:23:49.510
where a, the small business
knows what they're getting into?

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00:23:49.540 --> 00:23:52.180
They have transparency in the
documents so that they are

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00:23:52.180 --> 00:23:56.020
making an informed choice? That,
yes, they're making a Hail Mary

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00:23:56.020 --> 00:23:59.620
pass where they know they're
going to pay a 400% APR to try

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00:23:59.620 --> 00:24:03.070
to resurrect their business? And
second, are the products being

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00:24:03.070 --> 00:24:06.520
offered by this industry offered
in a way where there's oversight

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00:24:06.640 --> 00:24:09.490
by the regulator so that when
they try to run a scam, like

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00:24:09.490 --> 00:24:13.660
they did on Ms. DiPietro's
business that there's someone

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00:24:13.660 --> 00:24:18.220
who can help help hold that scam
to account? And third, I think

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00:24:18.220 --> 00:24:21.370
you'd consider are the products
at a certain level actually

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00:24:21.370 --> 00:24:24.190
structured in a way that can
that can help a business. I

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00:24:24.190 --> 00:24:28.360
think that with the way that the
senators described, this bill

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00:24:28.360 --> 00:24:29.380
would help on all accounts.

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00:24:30.330 --> 00:24:33.090
Senator Jennings: And then my
last question, doing research on

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00:24:33.090 --> 00:24:37.830
this was dealt with accounts
receivable factoring. Could you

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00:24:37.830 --> 00:24:41.010
consider this factoring for
receivables that you're getting

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00:24:41.010 --> 00:24:44.910
paid in advance for future
sales? I'm just trying to figure

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00:24:44.910 --> 00:24:47.100
out what the difference between
this and what factoring is

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00:24:47.100 --> 00:24:49.800
because research I went down a
whole different rabbit hole.

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00:24:50.110 --> 00:24:56.800
Speaker 4: Sure. So legally,
merchant cash advance products

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00:24:57.130 --> 00:25:00.160
like to associate themselves
with factoring from a legal

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00:25:00.160 --> 00:25:02.920
perspective, from the
perspective of the business, the

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00:25:02.920 --> 00:25:06.580
products are really pretty
different. If you're using

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00:25:06.580 --> 00:25:11.560
factoring, you actually have an
invoice that you're trying to

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00:25:11.590 --> 00:25:15.100
get paid on. And when you get
paid on it, that's the end of

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00:25:15.100 --> 00:25:18.850
the transaction for you, you got
paid, the factor collects on the

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00:25:18.850 --> 00:25:23.080
invoice. And that's really short
term financing. That's like 3060

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00:25:23.110 --> 00:25:27.490
days, maybe 90 days, typically,
in Merchant Cash events, you

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don't have an invoice and it's
really much more like a loan,

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I'll be at the except that the
payment is variable, you're

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00:25:34.510 --> 00:25:36.850
getting money, and then you're
repaying it in the future over

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00:25:36.850 --> 00:25:41.140
time, it tends to be the terms
on these tend to be six to 18

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months. And they tend to be used
by different classes of business

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00:25:46.570 --> 00:25:51.130
to some extent. So one thing
that the bill does very well to

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00:25:51.130 --> 00:25:55.630
your question, Senator, is that
it kind of it just avoids a lot

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00:25:55.630 --> 00:25:59.020
of the legal mucky muck of
whether you call these things,

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00:25:59.710 --> 00:26:02.110
whether you call them merchant
cash advance a loan or not,

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00:26:02.500 --> 00:26:05.200
that's a hot issue. It's a legal
issue that's really important to

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00:26:05.200 --> 00:26:08.260
companies that don't want to be
covered by lending law. And your

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00:26:08.260 --> 00:26:11.530
bill basically stays out of this
bill stays out of that fight by

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00:26:11.530 --> 00:26:15.130
using this term sales based
financing. So it doesn't really

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00:26:15.130 --> 00:26:18.940
apply on whether the stuff is a
loan or not alone. It just says

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00:26:19.030 --> 00:26:21.850
whatever it is, it's financing.
And if it's financing, we think

357
00:26:21.850 --> 00:26:25.090
a small business should be able
to go into it informed with

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00:26:25.090 --> 00:26:27.580
their eyes wide open, able to
make an apples to apples

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comparison of the cost.

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Speaker 1: Right, thank you,
thank you, Madam Chair.

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Madam Chair: I'll tell you other
questions for this witness.

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00:26:35.880 --> 00:26:40.710
Alright, we're going next to
Kaylee Lachlear.

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00:26:40.710 --> 00:26:43.150
Kaylee Lachlear: Good afternoon,
honorable members of the

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00:26:43.213 --> 00:26:46.776
committee, Kaylee Locklear here
on behalf of the Maryland

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00:26:46.838 --> 00:26:50.589
Retailers Association. Last
year, the legislation introduced

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00:26:50.651 --> 00:26:54.277
as you've heard was an outright
ban on these types of loan

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00:26:54.340 --> 00:26:58.090
products. Very clearly, we heard
from industry and even some

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00:26:58.153 --> 00:27:01.966
concerns on this committee, that
we should be regulating them

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00:27:02.029 --> 00:27:05.529
instead, which is the bill we
are hearing supportive and

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00:27:05.592 --> 00:27:09.405
presenting to you today. I draw
your attention to the massive

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00:27:09.468 --> 00:27:13.031
reporting series Bloomberg's
Businessweek has released in

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00:27:13.093 --> 00:27:16.532
your written testimony with
story after story about the

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00:27:16.594 --> 00:27:20.032
problems with sales based
financing companies and their

374
00:27:20.095 --> 00:27:24.033
very predatory nature. They are
now one of the most visible and

375
00:27:24.095 --> 00:27:27.909
well marketed lending products
and businesses are suckered in

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00:27:27.971 --> 00:27:31.784
completely unclear about what
they're getting themselves into

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00:27:31.847 --> 00:27:35.535
with quick and easy cash. But
the sick reality is that they

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00:27:35.598 --> 00:27:39.286
can end up paying back and
upwards of 450% in interest with

379
00:27:39.348 --> 00:27:43.037
massive upfront fees. You heard
what the bill does from the

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00:27:43.099 --> 00:27:47.100
sponsor, but I just want to hit
on two important areas. A cap is

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00:27:47.162 --> 00:27:50.913
incredibly important as the
interest rates these unregulated

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00:27:50.976 --> 00:27:54.789
companies are getting away with
is flat out criminal. What it

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00:27:54.851 --> 00:27:58.352
does, Senator Jennings your
points earlier is it traps a

384
00:27:58.415 --> 00:28:02.165
small businesses in a cycle of
debt, they will never escape,

385
00:28:02.228 --> 00:28:06.041
with many actually having to
take out another advance just to

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00:28:06.104 --> 00:28:09.542
try to cover that first. And
then I'll point to banding

387
00:28:09.604 --> 00:28:13.105
confessions of judgment. And
it's also highly important.

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00:28:13.168 --> 00:28:16.793
Before borrowers get a loan,
they have to sign a statement

389
00:28:16.856 --> 00:28:20.669
giving up their right to defend
themselves. If a lender takes

390
00:28:20.732 --> 00:28:24.482
them to court. It's like an
arbitration agreement except the

391
00:28:24.545 --> 00:28:28.233
borrower always loses. Armed
with a confession a lender can

392
00:28:28.296 --> 00:28:32.296
without proof and you heard this
earlier accuse borrowers of not

393
00:28:32.359 --> 00:28:36.297
paying and legally seize their
assets before they've even known

394
00:28:36.360 --> 00:28:39.985
what happened. In dozens of
interviews and court pleadings

395
00:28:40.048 --> 00:28:43.986
borrowers describe lenders who
forged documents, lied about how

396
00:28:44.049 --> 00:28:47.487
much they were owed, or
fabricated defaults out of thin

397
00:28:47.549 --> 00:28:50.487
air. Finally, many of these
online lenders have

398
00:28:50.550 --> 00:28:54.238
intentionally done anything and
everything they can to kill

399
00:28:54.301 --> 00:28:58.114
these bills, not the narrative
that you're about to hear from

400
00:28:58.176 --> 00:29:01.927
many of them. Again, New York
and California have moved very

401
00:29:01.990 --> 00:29:05.553
similar legislation with
regulations that are rolling out

402
00:29:05.615 --> 00:29:09.116
shortly. And finally, even the
FTC is stepping in at the

403
00:29:09.178 --> 00:29:13.054
federal level. We urge Maryland
to do the same and I'm glad to

404
00:29:13.117 --> 00:29:14.430
answer any questions.

405
00:29:16.590 --> 00:29:22.530
Madam Chair: Questions for this
witness? Okay, we're going next

406
00:29:22.530 --> 00:29:26.010
to Robert Anton, Maryland
Bankers Association.

407
00:29:27.380 --> 00:29:29.540
Robert Anton: Thank you very
much, Madam Chairman, members of

408
00:29:29.540 --> 00:29:32.900
the committee, Robert Anton on
behalf of the Maryland Bankers

409
00:29:32.900 --> 00:29:37.160
Association, and on behalf of
our banks all over the state of

410
00:29:37.160 --> 00:29:40.580
Maryland, we'd like to thank
Senator Kramer for sponsoring.

411
00:29:40.730 --> 00:29:44.960
We think it's important
legislation. The I'm not going

412
00:29:44.960 --> 00:29:47.720
to repeat what the other
witnesses have said. I think

413
00:29:47.720 --> 00:29:51.530
what I'd like to do is to call
the committee's attention. You

414
00:29:51.530 --> 00:29:55.430
can find it online and I'll be
happy to send a link, in

415
00:29:55.430 --> 00:30:00.320
December of 2019 the United
States Federal Reserve Bank did

416
00:30:00.320 --> 00:30:05.960
a study on online lending. It's
a lengthy document. It's a 36

417
00:30:05.960 --> 00:30:11.600
page, single spaced document.
But it has some important things

418
00:30:11.600 --> 00:30:14.420
in it. What they did is they
convene two different study

419
00:30:14.420 --> 00:30:20.240
groups with 80 small businesses,
in each study group. And they've

420
00:30:20.240 --> 00:30:25.610
met and they discussed this and
they went through it. And what

421
00:30:25.610 --> 00:30:30.920
they determined and I'm going to
quote from the, the study, the

422
00:30:31.220 --> 00:30:35.720
businesses said, quote, it is
difficult to compare when they

423
00:30:35.720 --> 00:30:39.320
are using different models and
different terminology, quote,

424
00:30:39.710 --> 00:30:42.710
they don't like to use the word
interest, and they dress it up

425
00:30:42.710 --> 00:30:46.460
in other ways to conceal the
real cost of the loan, unquote,

426
00:30:46.940 --> 00:30:51.080
quote, I don't know what a
factor rate is, quote, full

427
00:30:51.080 --> 00:30:54.680
disclosure, like on credit cards
or mortgages, it's what's

428
00:30:54.680 --> 00:31:02.180
necessary, they need to state
the actual APR, unquote, when

429
00:31:02.180 --> 00:31:05.390
you go down and scroll down
further in this study, they took

430
00:31:05.390 --> 00:31:09.950
an example says table three
represents APR equivalents for a

431
00:31:09.950 --> 00:31:15.500
common scenario in which $50,000
is repaid in six months,

432
00:31:15.650 --> 00:31:20.030
according to the terms and rates
promoted on the lender site. So

433
00:31:20.030 --> 00:31:24.680
one of them advertised on the
site, a 1.15, factor rate,

434
00:31:24.680 --> 00:31:29.360
whatever that means. The
estimated APR for that loan was

435
00:31:29.360 --> 00:31:35.210
approximately 70%. One of them
quoted a 4% fee rate, whatever

436
00:31:35.210 --> 00:31:40.520
that means. That was
approximately a 45% APR. Another

437
00:31:40.520 --> 00:31:46.070
one quoted 9% simple interest.
But when you calculated the APR,

438
00:31:46.310 --> 00:31:52.340
it was 46%. They quote that many
of these loans ends up depending

439
00:31:52.340 --> 00:31:56.330
on when you're repaid. In triple
figures, if you put it into an

440
00:31:56.330 --> 00:32:02.390
APR, so we support the
legislation, our members do not

441
00:32:02.390 --> 00:32:05.060
make these loans, I don't
believe they will ever make

442
00:32:05.060 --> 00:32:08.780
these loans. They make
traditional business loans, you

443
00:32:08.780 --> 00:32:12.710
get a note that has a rate of
interest, there's an APR, you

444
00:32:12.710 --> 00:32:15.530
repay it over ever, how many
months you're going to repay it.

445
00:32:15.830 --> 00:32:19.370
And you can say I went to this
bank, and they gave quoted me

446
00:32:19.370 --> 00:32:22.220
this rate. And I went to this
bank, and they quoted me that

447
00:32:22.220 --> 00:32:26.660
rate, and they can compare what
the rates are. And as you often

448
00:32:26.660 --> 00:32:28.970
heard me saying, there's no
industry, I don't believe

449
00:32:28.970 --> 00:32:31.370
anywhere in the state of
Maryland, we're in the country

450
00:32:31.370 --> 00:32:34.280
that's suddenly regulated as the
banking industry at the state

451
00:32:34.520 --> 00:32:37.760
and federal level. So thank you
very much. We urge the committee

452
00:32:37.760 --> 00:32:39.470
to give the bill a favorable
report.

453
00:32:39.510 --> 00:32:43.830
Madam Chair: Okay, Senator
Battle has a question for you.

454
00:32:44.160 --> 00:32:46.740
Senator Battle: Thank you, Madam
Chair. And thank you, Mr. Anton.

455
00:32:46.980 --> 00:32:51.900
So my question isn't that I
oppose having a cap on the rate.

456
00:32:51.900 --> 00:32:55.500
But as you and I both know, a
lot of banks will not loan to

457
00:32:55.500 --> 00:32:59.520
the small businesses that don't
have the assets. And so this is

458
00:32:59.520 --> 00:33:02.580
an option for some of these
businesses that really don't

459
00:33:02.580 --> 00:33:07.680
have another way to achieve
loans. So I'm not sure if we, we

460
00:33:07.680 --> 00:33:10.080
need to find a middle ground
somewhere. So these small

461
00:33:10.080 --> 00:33:13.890
businesses can continue to get
the money they need, you know,

462
00:33:13.890 --> 00:33:14.580
when they need it.

463
00:33:15.449 --> 00:33:18.059
Robert Anton: Let me just say,
certified, I'll be happy to sit

464
00:33:18.059 --> 00:33:21.239
down with you and show you the
actual statistics. And the

465
00:33:21.239 --> 00:33:24.479
programs that Maryland banks are
doing for small business

466
00:33:24.479 --> 00:33:28.559
lending. Once again, we're very
heavily regulated. And we have

467
00:33:28.559 --> 00:33:33.629
to comply with myriad federal
and state regulations. But we

468
00:33:33.629 --> 00:33:38.009
are supporting a number of bills
this year, both in the Senate

469
00:33:38.009 --> 00:33:42.599
and in the house to facilitate
small business lending and as a

470
00:33:42.869 --> 00:33:46.169
top priority for the banking
industry. I think the real

471
00:33:46.169 --> 00:33:50.219
question here and the challenge
is, you know, can you come up

472
00:33:50.219 --> 00:33:53.189
with something and other states
have and the Federal Reserve

473
00:33:53.189 --> 00:33:57.719
seems to think you can to
establish something that small

474
00:33:57.719 --> 00:34:02.489
businesses can use to compare
this transaction to another

475
00:34:02.489 --> 00:34:05.219
transaction. And not all the
small business lenders use the

476
00:34:05.219 --> 00:34:09.329
same one line lenders use the
same terms. They use a whole

477
00:34:09.329 --> 00:34:13.199
variety of terms, we need a
consistent term that people can

478
00:34:13.199 --> 00:34:16.139
compare. And then the question I
guess you have to answer is what

479
00:34:16.139 --> 00:34:20.729
is an appropriate app for these
transactions? So but I'd be

480
00:34:20.729 --> 00:34:26.279
happy to sit down and with our
staff at the NBA and show you

481
00:34:26.279 --> 00:34:29.189
exactly and anybody else on the
committee, what we're doing in

482
00:34:29.189 --> 00:34:31.199
the in the world of small
business lending.

483
00:34:32.580 --> 00:34:36.750
Madam Chair: So these online
lenders have the ethereal terms

484
00:34:36.750 --> 00:34:42.900
they just come down as to what
the terms on an average person

485
00:34:43.080 --> 00:34:46.920
who's unsophisticated and trying
to make the loan no matter how

486
00:34:46.920 --> 00:34:50.490
bad off they are, doesn't want
to end up worse off and very

487
00:34:50.520 --> 00:34:59.310
often they are going to be under
this scenario. Great. Are there

488
00:34:59.310 --> 00:35:02.910
other questions? Senator,
Senator Reid?

489
00:35:02.910 --> 00:35:06.020
Senator Reid: Thank you, Madam
Chair. And I think my question

490
00:35:06.020 --> 00:35:10.940
is maybe for Bob. I think so, in
the bill, we it talks about a

491
00:35:10.940 --> 00:35:13.280
limit on you have to have a
certain amount of money

492
00:35:13.280 --> 00:35:24.620
available as liquid capital. I,
I guess. I'm curious. You can't

493
00:35:24.620 --> 00:35:28.520
get a loan from a bank without
some level of capital, usually

494
00:35:28.550 --> 00:35:31.760
correct? I mean, not a
commercial loan to help you

495
00:35:31.790 --> 00:35:35.990
correct? I mean, your your
clients would not. That's my

496
00:35:35.990 --> 00:35:37.880
experience. I mean, am I correct
in saying that?

497
00:35:38.470 --> 00:35:44.530
Robert Anton: I think you know,
once again, we're required by

498
00:35:44.530 --> 00:35:49.300
both federal and state
regulators, to make sure that we

499
00:35:49.300 --> 00:35:54.490
properly evaluate a borrower's
ability to repay. And part of

500
00:35:54.490 --> 00:35:57.760
that ability to repay just like
when you apply for a mortgage,

501
00:35:58.180 --> 00:36:00.430
they want to know, How much
money do you have in the bank?

502
00:36:01.150 --> 00:36:05.230
What is your income? What assets
do you have? Because they're

503
00:36:05.230 --> 00:36:10.900
lending out their depositors
money. And they and then they

504
00:36:10.960 --> 00:36:17.740
are obligated to make sure that
that depositor's money is repaid

505
00:36:17.800 --> 00:36:19.780
to the bank. So.

506
00:36:19.780 --> 00:36:22.900
Senator Reid: It isn't part of,
but don't we, at times a

507
00:36:22.900 --> 00:36:26.830
business will go get a loan on
the potential of what they're

508
00:36:26.830 --> 00:36:29.380
going to be able to do, correct.
I mean, it can't just be

509
00:36:29.380 --> 00:36:33.880
potential, usually. But what was
the difference? And I look, it's

510
00:36:33.880 --> 00:36:35.800
clear to me looking at some of
the things you're obviously

511
00:36:35.800 --> 00:36:38.200
there's some issues with this.
I'm not I'm not suggesting that

512
00:36:38.200 --> 00:36:42.850
anybody, everybody engaged in
this practices is doing the

513
00:36:42.850 --> 00:36:49.180
right thing. You know, but
aren't we at times? Or we?

514
00:36:49.360 --> 00:36:51.790
Wouldn't it be wrong to just try
to get rid of this entirely? It

515
00:36:51.820 --> 00:36:54.400
sounds like we're trying to
basically say you can't do it

516
00:36:54.400 --> 00:36:56.230
unless you have a certain amount
of capital available?

517
00:36:56.990 --> 00:36:59.600
Robert Anton: No, I think what I
think what what we're trying to

518
00:36:59.600 --> 00:37:02.360
say what Senator Kramer's trying
to say, and what they've said in

519
00:37:02.360 --> 00:37:08.930
other states, is, we want some
consistency, you know, in in the

520
00:37:08.930 --> 00:37:13.670
terms so that borrowers you
know, can, you know, I don't

521
00:37:13.670 --> 00:37:17.360
know what a factor rate is, a
fee rate is, to the borrowers

522
00:37:17.360 --> 00:37:21.680
can can look at it and, and
comparison shop, and maybe they

523
00:37:21.680 --> 00:37:24.800
can get a better deal from this
one line lender versus that one

524
00:37:24.800 --> 00:37:28.760
line lender, but it's not apples
and oranges. It's all apples

525
00:37:28.760 --> 00:37:32.060
when they compare. I think it's
in your industry and with banks

526
00:37:32.060 --> 00:37:36.290
as well, I think the other issue
really is, you know, it's I

527
00:37:36.290 --> 00:37:39.650
think you have to decide, you
know, you know, is should there

528
00:37:39.650 --> 00:37:45.470
be a cap whatever amount that
is, and should they be

529
00:37:45.530 --> 00:37:49.670
regulated? I think that the
opponents are whether signup

530
00:37:49.670 --> 00:37:52.250
tables amendments or not, I
don't know, they're not

531
00:37:52.250 --> 00:37:56.480
necessarily objecting to being
regulated. I don't know that

532
00:37:56.480 --> 00:38:03.020
they're necessarily objecting to
having an APR. I know they

533
00:38:03.020 --> 00:38:08.060
object to having any capital.
And I see Krista keto nodding

534
00:38:08.060 --> 00:38:14.840
his head. But, you know, I think
that, you know, we need to have

535
00:38:14.840 --> 00:38:19.160
a discussion about, you know,
how should this industry be, be

536
00:38:19.160 --> 00:38:19.910
regulated?

537
00:38:20.240 --> 00:38:22.370
Senator Reid: And well, I think
that's fair, I just, I feel

538
00:38:22.370 --> 00:38:25.580
like, my my impression from the
hearings is that we think they

539
00:38:25.580 --> 00:38:29.720
really are just, you know, bad
and shouldn't exist. I mean, a

540
00:38:29.720 --> 00:38:33.890
glossary of terms makes sense to
me, I don't, I just am concerned

541
00:38:33.890 --> 00:38:36.950
about, look, I don't think it's
right, that people can go in and

542
00:38:36.950 --> 00:38:39.890
get a loan on their credit card
at Walmart, you know, but and

543
00:38:39.890 --> 00:38:42.980
it's a terrible financial habit
to get into, but we don't make

544
00:38:42.980 --> 00:38:47.180
it illegal. So. But there are
terms I get to a point about

545
00:38:47.180 --> 00:38:49.130
terms, certainly, and being able
to compare apples and apples,

546
00:38:49.130 --> 00:38:51.320
there's terms those people can
find out what the term is, but

547
00:38:51.500 --> 00:38:51.890
thank you.

548
00:38:52.170 --> 00:38:55.650
Senator Kramer: Senator Reid, if
I can clarify, I think what.

549
00:38:57.480 --> 00:39:01.560
Yeah, no, he asked this question
about this need to have certain

550
00:39:01.590 --> 00:39:06.090
assets, this is not the business
that has to have the assets, the

551
00:39:06.090 --> 00:39:09.540
business looking to get the
loan, these elements of the

552
00:39:09.540 --> 00:39:14.370
financial institution taking the
loan. So that madam chair that

553
00:39:14.370 --> 00:39:15.480
needs to be clarified.

554
00:39:15.600 --> 00:39:16.770
Senator Reid: I misread that.
Thank you.

555
00:39:17.820 --> 00:39:23.970
Madam Chair: And Bob and and Mr.
Sponsor, would you agree, some

556
00:39:23.970 --> 00:39:29.130
people are in such bad shape in
a loan that they will get will

557
00:39:29.130 --> 00:39:32.640
put them in worse shape. There
are times when you in extreme

558
00:39:32.640 --> 00:39:35.940
loans, then there are other
people that could get a loan,

559
00:39:35.940 --> 00:39:39.630
but they need to really
understand the terms and not

560
00:39:39.630 --> 00:39:43.350
only to understand them orally,
it ought to be down in writing

561
00:39:43.440 --> 00:39:46.920
with the imprimature of the
entity that is offering a loan

562
00:39:46.920 --> 00:39:50.130
so you can have something to
hold on to.

563
00:39:50.190 --> 00:39:53.070
Senator Kramer: And you're
absolutely correct. Yes, that is

564
00:39:53.070 --> 00:39:53.550
correct.

565
00:39:53.890 --> 00:39:56.680
Robert Anton: If I could, Madam
Chair, just very quickly, just

566
00:39:56.710 --> 00:39:59.650
you know, I would really urge
you to look at the Federal

567
00:39:59.650 --> 00:40:03.340
Reserve of study, because that's
not one side or the other.

568
00:40:03.340 --> 00:40:06.790
That's the Federal Reserve. And
the three examples that they

569
00:40:06.790 --> 00:40:12.550
give the APR one was 70%, the
APR on the other was 45%, the

570
00:40:12.550 --> 00:40:20.080
APR and others 46%. No bank is
charging for APR 46% or 70% that

571
00:40:20.080 --> 00:40:20.680
I can tell you.

572
00:40:20.680 --> 00:40:23.010
Madam Chair: Okay, and Bob,
you're gonna get me to Federal

573
00:40:23.010 --> 00:40:23.310
Reserve.

574
00:40:24.090 --> 00:40:25.770
Robert Anton: Yes, ma'am. I'll
send it to every member of the

575
00:40:25.770 --> 00:40:29.100
committee with the link. I see
Senator Augustine smiling. You

576
00:40:29.100 --> 00:40:30.540
can't wait to read it. I know.

577
00:40:32.550 --> 00:40:39.330
Unknown: Okay, that's next to,
wait a minute, yeah Robin

578
00:40:39.330 --> 00:40:39.840
McKinney.

579
00:40:41.880 --> 00:40:43.920
Robin McKinney: Madam Chair, Mr.
Vice Chair, members of the

580
00:40:43.920 --> 00:40:46.620
committee. My name is Robin
McKinney. I'm the co founder and

581
00:40:46.620 --> 00:40:49.500
CEO of the cash campaign of
Maryland. Cash stands for

582
00:40:49.500 --> 00:40:51.720
creating assets, savings and
hope. And we help low to

583
00:40:51.720 --> 00:40:55.140
moderate income individuals and
families to be more financially

584
00:40:55.140 --> 00:40:59.880
secure here in strong support of
Senate Bill 532. This committee

585
00:40:59.880 --> 00:41:02.790
well knows and has anyone who's
been around for a while has seen

586
00:41:02.790 --> 00:41:06.720
me and this can be a lot talking
about access to capital at what

587
00:41:06.720 --> 00:41:10.260
cost. And that's really what
this bill comes down to for me

588
00:41:10.440 --> 00:41:13.530
is that at the end of the day,
yes, people need access to

589
00:41:13.530 --> 00:41:16.710
money. But if that money puts
them in a worse financial

590
00:41:16.710 --> 00:41:21.210
situation, then we need to put
more guardrails around it. And

591
00:41:21.210 --> 00:41:25.290
that is really what Senate Bill
532 does is it puts guardrails

592
00:41:25.320 --> 00:41:28.470
around a current system that is
unregulated, and as you've

593
00:41:28.470 --> 00:41:32.760
heard, has a very range of
impacts. We've seen a lot of it,

594
00:41:32.760 --> 00:41:35.250
particularly on small
businesses, I do want to mention

595
00:41:35.250 --> 00:41:38.820
that we are seeing from our
partners, a targeting of black

596
00:41:38.820 --> 00:41:41.940
and Latino businesses in Prince
George's and Montgomery County,

597
00:41:42.000 --> 00:41:46.890
people going door to door asking
for, you know, people to take

598
00:41:46.890 --> 00:41:50.100
out these loans, folks that are
getting in way over their head

599
00:41:50.100 --> 00:41:53.520
not understanding the set of
terms or the terms actually

600
00:41:53.520 --> 00:41:57.750
changing. We have talked about
online lending, which is a great

601
00:41:57.750 --> 00:42:01.050
opportunity for a lot of
businesses and people to access

602
00:42:01.050 --> 00:42:04.200
capital. But if it's expensive,
if it's having a disparate

603
00:42:04.200 --> 00:42:07.410
impact on black and Latino
businesses, then we need to put

604
00:42:07.410 --> 00:42:10.650
against some guardrails.
Personally, at the cash campaign

605
00:42:10.650 --> 00:42:13.080
of Maryland, we have on our
website, a list of all of our

606
00:42:13.080 --> 00:42:16.590
partners, our free tax
preparation locations across the

607
00:42:16.590 --> 00:42:21.150
state. Cash personally receives
both marketing in the mail as

608
00:42:21.150 --> 00:42:25.320
well as electronically, like
lead generation emails from a

609
00:42:25.320 --> 00:42:27.630
range of these different
products, not because of

610
00:42:27.630 --> 00:42:30.450
anything that cash is doing. But
on behalf of some of our

611
00:42:30.450 --> 00:42:33.240
businesses. And I will tell you,
they are all either rural

612
00:42:33.240 --> 00:42:36.810
businesses, black owned or
Latino owned businesses. So we

613
00:42:36.810 --> 00:42:39.900
at cash are being particularly
targeted for us to take out

614
00:42:39.900 --> 00:42:42.510
these loans. For these
businesses that aren't even our

615
00:42:42.510 --> 00:42:45.810
business, we just happen to
offer a service there. So we are

616
00:42:45.810 --> 00:42:48.840
definitely seeing as a problem.
The last thing I just want to

617
00:42:48.840 --> 00:42:52.020
mention is the importance of
disclosure, putting out all of

618
00:42:52.020 --> 00:42:55.470
the terms is very important. But
that timing of the disclosure is

619
00:42:55.470 --> 00:42:58.680
very key that it's before
someone has signed on the dotted

620
00:42:58.680 --> 00:43:01.440
line that they really understand
everything that they're getting

621
00:43:01.440 --> 00:43:04.590
into. And just to close with
where I started with the cost of

622
00:43:04.590 --> 00:43:08.160
capital, this committee and the
General Assembly has long stated

623
00:43:08.160 --> 00:43:12.630
on the personal lending side,
that our usery cap of 33% is

624
00:43:12.630 --> 00:43:16.560
enough for these smaller dollar
loans. And so as we think about

625
00:43:16.590 --> 00:43:21.030
a cap, and considering what a
cost of capital can do for a

626
00:43:21.030 --> 00:43:24.090
small business, especially in
these economic times, we ask

627
00:43:24.090 --> 00:43:27.180
that you remember that and urge
a favorable report on Senate

628
00:43:27.180 --> 00:43:28.230
Bill 532.

629
00:43:30.960 --> 00:43:36.630
Madam Chair: Any questions for
this witness? Okay, we're going

630
00:43:36.630 --> 00:43:38.220
next to Chris DiPietro.

631
00:43:39.860 --> 00:43:41.510
Chris DiPietro: Madam Chair,
members of the committee, my

632
00:43:41.510 --> 00:43:45.890
name is Chris DiPietro. I'm here
on behalf of Fiserv. Fiserv is a

633
00:43:45.890 --> 00:43:49.490
global financial services
company, is probably one of the

634
00:43:49.490 --> 00:43:54.560
leading payment processors in
the world. We are here favorable

635
00:43:54.560 --> 00:44:01.220
with amendment. I think 95% of
what Senator Kramer described in

636
00:44:01.220 --> 00:44:05.180
his opening statement about the
bill will be addressed with all

637
00:44:05.180 --> 00:44:09.140
the issues that we support about
this bill. We have offered we're

638
00:44:09.170 --> 00:44:12.380
offering amendments, we will get
them to committee counsel, I

639
00:44:12.380 --> 00:44:14.600
believe the proponents of the
bill have a copy of our

640
00:44:14.600 --> 00:44:18.080
amendments already. But let me
just talk about a few things we

641
00:44:18.080 --> 00:44:21.620
fully support licensing. I think
that's the key. The commissioner

642
00:44:21.620 --> 00:44:25.310
of financial regulation has to
know what the landscape is of

643
00:44:25.310 --> 00:44:27.980
the companies that are doing
this type of product. That's

644
00:44:27.980 --> 00:44:31.970
number one. The estimated APR,
there was a lot of talk about

645
00:44:31.970 --> 00:44:35.810
that, yes, New York and
California require an estimated

646
00:44:35.810 --> 00:44:38.750
APR. We're doing business in
those states. But let me be

647
00:44:38.750 --> 00:44:43.250
clear, the rules and regulations
related to estimated APR have

648
00:44:43.250 --> 00:44:46.730
not been promulgated yet.
Whatever they happen to be our

649
00:44:46.730 --> 00:44:50.060
company will will comply with
that. And if that's the case in

650
00:44:50.060 --> 00:44:52.790
Maryland and you choose to go
down this road, we will comply

651
00:44:52.790 --> 00:44:57.230
with those regulations as well.
We fully agree that disclosure

652
00:44:57.260 --> 00:45:02.090
has to be a part of the issue
and On the the confessions of

653
00:45:02.090 --> 00:45:05.180
judgments, we never did that
anyway. So we are full support

654
00:45:05.180 --> 00:45:07.970
of that, where we draw the
issue, and I'm going to focus

655
00:45:07.970 --> 00:45:12.920
most of my time on this is the
is the cap on the APR. The other

656
00:45:12.920 --> 00:45:17.060
two states, as they everybody
has said already do not have the

657
00:45:17.060 --> 00:45:22.700
cap. I argue this, if you
include a cap, I think it's

658
00:45:22.700 --> 00:45:26.480
going to get rid of most of this
this industry in this

659
00:45:26.480 --> 00:45:29.600
availability of this product in
the state of Maryland. So it

660
00:45:29.600 --> 00:45:32.900
will basically have the effect
of the bill that Senator Cramer

661
00:45:32.900 --> 00:45:37.670
introduced last year. So I think
Senator Abidal was spot on a

662
00:45:37.670 --> 00:45:41.780
little bit earlier, when she
says, If companies cannot get

663
00:45:41.810 --> 00:45:45.860
this type of availability of
capital, they're going to be

664
00:45:45.860 --> 00:45:48.890
forced to go into the
traditional lending commercial

665
00:45:48.890 --> 00:45:52.130
lending market. I know a little
bit about this, because before I

666
00:45:52.130 --> 00:45:55.250
was a lobbyist in Annapolis,
that was a commercial lender for

667
00:45:55.250 --> 00:45:58.850
a major financial institution
for 10 years, they do not make

668
00:45:58.850 --> 00:46:03.410
loans unless there is collateral
on that loan. And they do not

669
00:46:03.410 --> 00:46:07.970
make loans to businesses, unless
there's a personal guarantee.

670
00:46:08.030 --> 00:46:10.910
And there's a net worth
sufficient to cover the

671
00:46:10.910 --> 00:46:14.480
extension of the credit. If you
fall into that bucket, which

672
00:46:14.480 --> 00:46:18.290
many small businesses do, you're
not going to you're not going to

673
00:46:18.290 --> 00:46:21.650
get capital from a bank, like
bobbins said, there's there's

674
00:46:21.830 --> 00:46:25.670
you're lending depositors money
out there stronger regulations

675
00:46:25.670 --> 00:46:28.850
and rules that apply to that,
and there should be. So I think

676
00:46:28.850 --> 00:46:31.490
you need to consider that.
Senator Jennings talked a little

677
00:46:31.490 --> 00:46:34.340
bit earlier about these are
people that are teetering on the

678
00:46:34.340 --> 00:46:36.290
edge, and that they're gonna,
you know, they're on their way

679
00:46:36.290 --> 00:46:39.530
out, you know, might, their
businesses might fail. Two

680
00:46:39.530 --> 00:46:43.700
things I want to understand. In
our model, we only, you know,

681
00:46:43.700 --> 00:46:47.360
the clover system, you probably
seen it in, in merchants that

682
00:46:47.360 --> 00:46:49.670
you frequent in your
neighborhood, it's a very

683
00:46:49.670 --> 00:46:52.970
popular piece of hardware that
merchants use to process

684
00:46:52.970 --> 00:46:56.600
payments, credit and debit
payments through their their

685
00:46:56.600 --> 00:47:02.330
businesses, we only advanced
this type of capital to people

686
00:47:02.330 --> 00:47:06.890
that we do business with,
through the clover product. So

687
00:47:06.890 --> 00:47:09.770
we're not out there, like Miss
McKinney said, knocking on

688
00:47:09.770 --> 00:47:13.130
doors, trying to sell these
products to individuals that we

689
00:47:13.130 --> 00:47:18.140
don't have a relationship with.
We do that also. Because we know

690
00:47:18.140 --> 00:47:21.020
how that the what the business
flow is of that business,

691
00:47:21.020 --> 00:47:24.650
because we see their daily
receipts. So we know what their

692
00:47:24.650 --> 00:47:28.310
highs and lows are, we have a
good sense of how they're going

693
00:47:28.310 --> 00:47:32.360
to be able to repay that. And I
think I think it's key A lot of

694
00:47:32.360 --> 00:47:35.960
people, a lot of small
businesses use this to finance

695
00:47:35.960 --> 00:47:39.290
the ups and downs of their
business cycle. If you are a

696
00:47:39.290 --> 00:47:43.940
heavily Christmas oriented
company, and you're selling

697
00:47:43.940 --> 00:47:46.970
things at Christmas time, you
might need one of these loans in

698
00:47:47.000 --> 00:47:50.180
August to buy your your
inventory. But you'll know

699
00:47:50.180 --> 00:47:54.530
you'll be able to repay it back.
The issue with the APR is that

700
00:47:54.530 --> 00:47:57.770
if you put a cap on it, even
with all due respect to the

701
00:47:57.770 --> 00:48:02.210
sponsor, even at 36% will will
basically eliminate this

702
00:48:02.210 --> 00:48:04.730
product, at least from our
perspective from the Maryland

703
00:48:04.730 --> 00:48:08.480
market. So I really urge caution
and not moving in that

704
00:48:08.480 --> 00:48:15.080
direction. I think we're 95% in
alignment with the intent of the

705
00:48:15.080 --> 00:48:18.170
sponsor and the Maryland
Retailers Association. We've met

706
00:48:18.170 --> 00:48:21.740
with him multiple times over the
interim. I hope we can work this

707
00:48:21.740 --> 00:48:24.380
out. We've worked other issues
out with him before, as this

708
00:48:24.380 --> 00:48:28.820
committee well knows. So we're
here to do that. Kim Ford from

709
00:48:28.820 --> 00:48:31.910
Fiserv is going to follow behind
me and she's going to talk a

710
00:48:31.910 --> 00:48:34.490
little bit more about the detail
of actually how these

711
00:48:34.490 --> 00:48:38.450
transactions work to clear up I
think some of the misconceptions

712
00:48:39.380 --> 00:48:42.980
or blanket statements about how
all they all work. But I'm happy

713
00:48:42.980 --> 00:48:44.270
to answer any questions in the
meantime.

714
00:48:44.270 --> 00:48:46.500
Madam Chair: Chris, would you
say some of these businesses,

715
00:48:46.500 --> 00:48:51.840
though, are so fragile and had
somebody taken out one of these

716
00:48:52.530 --> 00:48:56.580
just before the pandemic started
last year, and they knew what

717
00:48:56.580 --> 00:49:00.000
they were getting it for the
Thanksgiving or Christmas

718
00:49:00.000 --> 00:49:02.910
season. They're dead in the
water. But.

719
00:49:02.940 --> 00:49:06.150
Chris DiPietro: That could be
true, Senator, that could be

720
00:49:06.150 --> 00:49:09.810
true, Madam Chair. But But I
think you might hear a story

721
00:49:09.810 --> 00:49:14.070
later that we heard in the House
hearing of a company not ours.

722
00:49:14.220 --> 00:49:16.800
And I'll let them explain it
because it's their story. But

723
00:49:17.280 --> 00:49:20.460
they they took on one of these
advances right before the

724
00:49:20.460 --> 00:49:25.470
pandemic and they their business
went to zero. And the company

725
00:49:25.470 --> 00:49:28.440
didn't say okay, you still owe
us you still owe us for you

726
00:49:28.440 --> 00:49:33.540
know, pushing judgments on they
the reputable companies will put

727
00:49:33.540 --> 00:49:38.520
this on hold. And I as far as I
can explain this. We do not

728
00:49:38.520 --> 00:49:43.890
pursue these transactions in
court for judgment if they are

729
00:49:43.890 --> 00:49:46.980
not able to repay. That's our
policy for our company.

730
00:49:46.980 --> 00:49:47.940
Madam Chair: The thing though,
Chris, is that when you're

731
00:49:47.940 --> 00:49:51.330
talking about online, you could
be dealing with somebody in your

732
00:49:51.330 --> 00:49:52.980
locker. You don't know who it.

733
00:49:54.430 --> 00:49:56.740
Chris DiPietro: Well, that could
be true. And I think that's

734
00:49:56.740 --> 00:49:58.840
where the regulation comes in.
And that's where the

735
00:49:58.840 --> 00:50:02.140
commissioner comes in. That's
not the case for us. You know,

736
00:50:02.140 --> 00:50:08.320
we're a US based company with
worldwide reach. You know, we

737
00:50:08.320 --> 00:50:13.930
have over 2000 employees in the
state of Maryland in Hagerstown.

738
00:50:14.950 --> 00:50:19.420
Our, Kim can talk more about
this, our average loan amount or

739
00:50:19.480 --> 00:50:24.610
advance amount, I should say, is
18,800 in Maryland, that's our

740
00:50:24.610 --> 00:50:30.070
average, and the fee would never
go over $5,200. And that's at

741
00:50:30.070 --> 00:50:32.650
the very high end, most are
going to be much lower than

742
00:50:32.650 --> 00:50:37.270
that. So the problem with the
estimated APR, I'm not saying

743
00:50:37.270 --> 00:50:43.270
we're opposed to estimating the
APR, but it's a moving target.

744
00:50:43.480 --> 00:50:47.230
It depends on how well the
business is doing. Because they

745
00:50:47.230 --> 00:50:51.100
decide upfront, well, I want to
be aggressive and pay this back

746
00:50:51.130 --> 00:50:55.090
this back quickly. So I'm going
to authorize you to take out 20%

747
00:50:55.090 --> 00:50:59.230
of my receipts every day, that
which would be aggressive. Other

748
00:50:59.230 --> 00:51:03.940
businesses say I can't afford to
do that, only take 5% out. And

749
00:51:03.970 --> 00:51:08.770
you know, we that that's just,
you know, how the flexibility of

750
00:51:08.770 --> 00:51:11.020
the product for the customer.
So.

751
00:51:11.760 --> 00:51:14.460
Madam Chair: When you are very,
very needy.

752
00:51:14.460 --> 00:51:14.782
Chris DiPietro: Yes.

753
00:51:15.300 --> 00:51:18.480
Madam Chair: And not all that
sophisticated, you're likely to

754
00:51:18.480 --> 00:51:22.920
be overly optimistic about what
you can do and how you can.

755
00:51:24.580 --> 00:51:27.130
Chris DiPietro: And I'm sure
there for lack of a better word

756
00:51:27.130 --> 00:51:32.020
is an underwriting process that
Fizer undergoes to before they

757
00:51:32.020 --> 00:51:34.570
actually make a decision. I
don't think we just give this to

758
00:51:34.570 --> 00:51:38.470
anybody. So I think Kim can talk
a little bit about that and how

759
00:51:38.470 --> 00:51:38.980
it works.

760
00:51:39.060 --> 00:51:42.630
Madam Chair: We're going to Kim
Ford right now. And you have to

761
00:51:42.630 --> 00:51:42.710
Chris DiPietro: Thank you Madam
Chair.

762
00:51:43.190 --> 00:51:44.990
Kim Ford: Thank you, Madam Chair
Kelly, Vice Chair Feldman,

763
00:51:44.990 --> 00:51:48.020
members of the committee, I am
Kim Ford, SVP of Government

764
00:51:48.020 --> 00:51:51.200
Relations with Fiserv again, as
Chris said, we're here as a

765
00:51:51.200 --> 00:51:54.470
favorable with amendment
position, Chris covered a lot of

766
00:51:54.470 --> 00:51:57.740
the points, you know, but just
to emphasize a few things. So

767
00:51:57.800 --> 00:52:00.080
again, we are not an online
lender, we're a payment

768
00:52:00.080 --> 00:52:03.710
processing company, we set up
the clover capital program,

769
00:52:03.710 --> 00:52:06.620
which is a merchant cash advance
program just a couple of years

770
00:52:06.620 --> 00:52:10.340
ago, in direct response to
requests that we were getting

771
00:52:10.340 --> 00:52:13.670
from our business clients. So
our businesses, were saying

772
00:52:13.700 --> 00:52:16.550
there are times where we need
money, we're not able to get a

773
00:52:16.550 --> 00:52:19.850
bank loan, for whatever reason.
And you know, would this be

774
00:52:19.850 --> 00:52:22.340
something that you would be
willing to set up. So the way

775
00:52:22.340 --> 00:52:26.090
that it works with our program,
again, you have to be a clover

776
00:52:26.090 --> 00:52:31.220
customer, an existing customer
of Fiserv and, you know, the

777
00:52:31.220 --> 00:52:34.370
business comes to us with they
essentially apply for a funding

778
00:52:34.370 --> 00:52:37.910
amount. And then what we do is
we look at their historical

779
00:52:37.910 --> 00:52:40.880
debit and credit card
transactions. So if they've been

780
00:52:40.910 --> 00:52:44.450
a customer of ours for a year,
we will look at that year, if

781
00:52:44.450 --> 00:52:47.060
they've been in business with us
less than a year, we'll look

782
00:52:47.060 --> 00:52:49.700
less than a year. So we look at
those credit and debit card

783
00:52:49.700 --> 00:52:53.270
transactions. And we come up
with an amount that we think is

784
00:52:53.270 --> 00:52:56.240
appropriate based on the volume
of transactions that they're

785
00:52:56.240 --> 00:53:00.950
getting on a daily base basis.
So we come up with a percentage

786
00:53:01.100 --> 00:53:05.930
that that business will pay us
back every day based on those

787
00:53:05.930 --> 00:53:09.230
debit and credit transactions.
So again, that's going to

788
00:53:09.230 --> 00:53:12.950
fluctuate based on how well
they're doing. If they are not

789
00:53:12.950 --> 00:53:17.150
bringing in money, we do not get
that merchant cash advance paid.

790
00:53:17.150 --> 00:53:21.620
So they pay us when they get
paid. And it's a percentage of

791
00:53:21.620 --> 00:53:24.440
their daily transactions, it's
never going to be 100%, they're

792
00:53:24.440 --> 00:53:27.170
never going to not be able to
put money in the bank because

793
00:53:27.170 --> 00:53:30.530
they were paying their merchant
cash advance back. And as Chris

794
00:53:30.530 --> 00:53:35.150
said, you know, we do not do
confessions of judgment. This is

795
00:53:35.150 --> 00:53:38.240
actually fi serves money that
we're sending out. It's not it's

796
00:53:38.240 --> 00:53:41.930
not a bank that we're borrowing
from to pay our business. And so

797
00:53:41.960 --> 00:53:45.680
if that business were to go out
of business, we take that

798
00:53:45.680 --> 00:53:49.340
merchant cash advance as a loss,
that's just money that comes out

799
00:53:49.370 --> 00:53:53.750
of our pocket. You know, when we
have a statement, the agreement

800
00:53:53.750 --> 00:53:58.190
that the business signs, we say
very clearly on that front of

801
00:53:58.190 --> 00:54:01.520
the agreement, what the purchase
price is, how much the business

802
00:54:01.520 --> 00:54:04.400
will receive, how much the
agreement will actually cost

803
00:54:04.400 --> 00:54:08.960
them, and then the total
repayment amount. Again, we are

804
00:54:08.960 --> 00:54:12.770
very comfortable with the
disclosures, especially if we

805
00:54:12.770 --> 00:54:15.230
can conform those to New York,
we're comfortable with the

806
00:54:15.230 --> 00:54:18.230
licensing, it's really the cap
that we struggle with. And

807
00:54:18.230 --> 00:54:21.140
again, I think part of that
challenge is when you look at an

808
00:54:21.140 --> 00:54:25.820
APR, that's a generally a 12
month, you know, monthly type of

809
00:54:25.820 --> 00:54:29.030
payment over the course of a
year. Whereas these products are

810
00:54:29.030 --> 00:54:33.020
generally paid back in six
months or less. And so, you

811
00:54:33.020 --> 00:54:36.770
know, when you when you apply to
a cap to that type of product,

812
00:54:36.770 --> 00:54:39.680
it's kind of apples and oranges,
it skews the economics quite a

813
00:54:39.680 --> 00:54:42.110
bit. And I think the other piece
that I'll just say before I

814
00:54:42.110 --> 00:54:45.980
close about having a cap is
again, if the business is doing

815
00:54:45.980 --> 00:54:49.340
well, they may elect to pay more
on that merchant cash advance so

816
00:54:49.340 --> 00:54:52.340
that they can just be done with
it. And a cap would actually

817
00:54:52.340 --> 00:54:56.330
prevent that from happening.
Because again, if they bring in

818
00:54:56.360 --> 00:54:59.840
you know, 10% of maybe 100,000
in revenue is a different

819
00:54:59.840 --> 00:55:04.340
amount. And then 10% of $1,000
in revenue. And so you know, if

820
00:55:04.340 --> 00:55:07.460
you're subject to a cap and that
business wants to actually do

821
00:55:08.030 --> 00:55:10.490
faster payment, it's going to be
difficult. Thank you.

822
00:55:10.950 --> 00:55:14.100
Madam Chair: Let me just say
this. As I listen, and I'm

823
00:55:14.160 --> 00:55:17.190
trying to be very open minded, I
believe you're running a

824
00:55:17.190 --> 00:55:21.990
legitimate business that knows
for years. But you have one

825
00:55:21.990 --> 00:55:26.370
business, and 99% of the
Marylanders who find themselves

826
00:55:26.370 --> 00:55:33.300
needing to go to market to look
for a cash infusion, necessarily

827
00:55:33.300 --> 00:55:39.810
find any one company we want, we
need something that can be

828
00:55:39.810 --> 00:55:45.270
there, no matter where they go.
And because you are also online,

829
00:55:45.600 --> 00:55:50.490
and you can lend to people in
other states, there's nothing

830
00:55:50.490 --> 00:55:53.820
that will stop you under the
terms of other states from doing

831
00:55:53.820 --> 00:55:59.520
what you do. We need to know
that the 99% of small businesses

832
00:56:00.240 --> 00:56:06.030
get into trouble and who need
transparency, they need

833
00:56:06.060 --> 00:56:15.360
regulations. They need to know
upfront what they will own, and

834
00:56:15.360 --> 00:56:22.800
that it is solid, need to have
the regulatory help. But the

835
00:56:22.800 --> 00:56:25.680
bill basically is laying out. I
don't think.

836
00:56:25.720 --> 00:56:27.790
Chris DiPietro: We support that,
Madam Chair, we support that.

837
00:56:28.320 --> 00:56:31.830
Madam Chair: Anything against
what you're doing. But because

838
00:56:32.190 --> 00:56:37.140
not everybody's going to find
your one company. A lot of them

839
00:56:37.140 --> 00:56:40.260
would still enough if we were to
say but your company is the

840
00:56:40.260 --> 00:56:43.140
model and insufficient and we
don't need to do these other

841
00:56:43.140 --> 00:56:47.250
things. We'd have a lot more
people still in trouble.

842
00:56:47.640 --> 00:56:49.560
Chris DiPietro: So again, just
to be clear, we support

843
00:56:49.560 --> 00:56:52.440
everything about the bill except
up Cap. That's the only thing we

844
00:56:52.440 --> 00:56:53.130
don't support.

845
00:56:53.490 --> 00:56:54.060
Madam Chair: Okay.

846
00:56:54.150 --> 00:56:55.590
Chris DiPietro: So we agree with
you, Madam Chair.

847
00:56:55.680 --> 00:56:59.970
Madam Chair: Okay. Alright.
Senator Kramer?

848
00:57:00.840 --> 00:57:03.930
Senator Kramer: Yes, thank you,
Madam Chair. And Kim and Chris,

849
00:57:04.290 --> 00:57:08.100
first of all, I want to say
thank you, you both have been

850
00:57:08.130 --> 00:57:14.100
very upfront in trying to work
through the regulations to get

851
00:57:14.100 --> 00:57:18.900
this bill in a posture where you
would feel comfortable

852
00:57:18.900 --> 00:57:23.400
supporting it. And and I do
acknowledge that look, your

853
00:57:23.400 --> 00:57:28.290
business model, I don't think
there's a lot of concern with as

854
00:57:28.290 --> 00:57:33.720
the chair was pointing out, but
we're dealing with everyone in

855
00:57:33.720 --> 00:57:38.730
this industry that doesn't
necessarily share your business

856
00:57:38.730 --> 00:57:45.060
model. So I get it, you support
the bill in its entirety with

857
00:57:45.060 --> 00:57:49.860
one piece. And that's the cap.
So let me ask you this, because

858
00:57:49.860 --> 00:57:53.610
as I stated in my introduction
of the bill, I think this is a

859
00:57:53.610 --> 00:57:57.060
policy decision that the
committee will need to take up

860
00:57:57.060 --> 00:58:02.040
at a voting session. But is
there any point where you

861
00:58:02.040 --> 00:58:10.890
believe it's not too much? In
other words, is 100% interest?

862
00:58:11.160 --> 00:58:18.300
Okay, is to send 300 Is there a
point where you would say, All

863
00:58:18.300 --> 00:58:21.630
right, look, we get it. It's too
much.

864
00:58:21.750 --> 00:58:24.390
Chris DiPietro: Yeah. Senator, I
wish I wish we could simply

865
00:58:24.390 --> 00:58:27.720
answer that question. I agree
with you. 100. I wish we could

866
00:58:27.720 --> 00:58:31.020
answer that question. But the
variables for this type of

867
00:58:31.020 --> 00:58:33.960
product, because what you're
talking about is a fixed amount

868
00:58:33.960 --> 00:58:37.800
that we're that we're advancing
to the merchant. And then

869
00:58:37.800 --> 00:58:43.560
there's a fixed amount for the
fee for that advance. So the APR

870
00:58:43.680 --> 00:58:49.500
all depends on how quickly or
how slowly they repay that loan.

871
00:58:49.710 --> 00:58:54.810
So they're gonna be all gotchas
situation. If you put too low of

872
00:58:54.810 --> 00:58:58.560
a cap one there, we're going to
be in a gotcha situation, and

873
00:58:58.560 --> 00:59:01.470
we're not going to be compliant
with the law. If we can't be

874
00:59:01.470 --> 00:59:04.380
compliant with the law with the
cap. We're not going to make

875
00:59:04.380 --> 00:59:07.200
these types of advances in
Maryland. That's the bottom

876
00:59:07.200 --> 00:59:07.530
line.

877
00:59:08.200 --> 00:59:11.020
Madam Chair: We have several
unfavorables. And we need to

878
00:59:11.020 --> 00:59:17.260
hear those witnesses also. Let's
go to Chris Graham, Innovation

879
00:59:17.260 --> 00:59:19.330
Lending Platform Association.

880
00:59:20.680 --> 00:59:21.400
Chris Graham: Madam Chairman.

881
00:59:21.400 --> 00:59:22.570
Madam Chair: You have two and a
half minutes.

882
00:59:23.230 --> 00:59:25.060
Chris Graham: Chris Graham with
Innovative Lending Platform

883
00:59:25.060 --> 00:59:27.550
Association. Thank you for
allowing me to testify.

884
00:59:27.640 --> 00:59:29.950
Madam Chair: Mr. Graham. Are you
unmuted?

885
00:59:30.520 --> 00:59:31.150
Chris Graham: I am.

886
00:59:33.310 --> 00:59:37.420
Madam Chair: Mr. Graham, I see
your mouth moving but we can't

887
00:59:37.420 --> 00:59:37.990
hear you.

888
00:59:39.880 --> 00:59:40.990
Chris Graham: How about now,
does that work?

889
00:59:40.990 --> 00:59:41.470
Madam Chair: Yes.

890
00:59:41.470 --> 00:59:45.200
Chris Graham: Yes technology.
Chris Graham, Innovative Lending

891
00:59:45.200 --> 00:59:49.130
Platform Association. Our
position is very similar to

892
00:59:49.160 --> 00:59:54.230
Firserv's. We fully support
disclosure. We were in the

893
00:59:54.230 --> 00:59:58.460
driver's seat for a long time in
New York along with Louis and

894
00:59:58.460 --> 01:00:01.070
the responsible business lending
coalition on the bill that

895
01:00:01.070 --> 01:00:05.360
passed there. We fully supported
we worked very closely with

896
01:00:05.390 --> 01:00:09.500
business advocacy groups with
the sponsors to craft what we

897
01:00:09.500 --> 01:00:15.320
feel is sort of the gold
standard model legislation. For

898
01:00:15.350 --> 01:00:19.040
for small business finance
regulation, like Pfizer, we do

899
01:00:19.040 --> 01:00:22.130
have to oppose this bill because
of the cap. And I just want to

900
01:00:22.130 --> 01:00:26.510
make a few a few quick points.
There is absolutely a place in

901
01:00:26.510 --> 01:00:29.390
the market for these products,
as I think has been mentioned

902
01:00:29.390 --> 01:00:33.770
earlier, banks are not filling
the credit need of Maryland

903
01:00:33.770 --> 01:00:38.540
small businesses. For businesses
that are not as established, do

904
01:00:38.540 --> 01:00:42.620
not have collateral do not have
large cast assets. This is a way

905
01:00:42.620 --> 01:00:46.340
for them to get financing in
return for a payment of a

906
01:00:46.340 --> 01:00:49.610
percentage of their future
sales. I always equate this more

907
01:00:49.610 --> 01:00:57.050
to taking on an investor, where
they're giving you a providing

908
01:00:57.050 --> 01:00:59.300
you with cash in return, they're
getting a piece of your

909
01:00:59.300 --> 01:01:03.920
business. But with these
products, it is just for a set

910
01:01:03.950 --> 01:01:09.590
amount, instead of forever. The
cap is tantamount to a band for

911
01:01:09.590 --> 01:01:13.130
two reasons. One, it ignores the
economics that I just laid out

912
01:01:13.820 --> 01:01:17.480
of these products primarily
being utilized by companies that

913
01:01:17.480 --> 01:01:20.750
either don't have the assets or
the collateral or the credit for

914
01:01:20.750 --> 01:01:24.680
traditional bank loan, or banks
can't serve them fast enough. My

915
01:01:24.680 --> 01:01:28.160
dad owns a pizza place of his
pizza oven breaks, he can't wait

916
01:01:28.400 --> 01:01:32.990
248 weeks for funding, right?
You need a quick infusion of

917
01:01:32.990 --> 01:01:36.770
cash to invest in your business
to get back to your business.

918
01:01:37.160 --> 01:01:41.960
The other thing that it ignores
is the time factor. The question

919
01:01:41.990 --> 01:01:46.550
of is 100% Enough is 200%
Enough, if the financing is

920
01:01:46.550 --> 01:01:51.740
really short, that percentage
goes up dramatically. My dad

921
01:01:51.740 --> 01:01:54.980
pizza oven, if he gets the
financing to get a new pizza

922
01:01:54.980 --> 01:01:58.670
oven in and business is booming,
and he pays that financing back

923
01:01:58.670 --> 01:02:05.120
in two weeks, that APR may very
well be well over 100%. And for

924
01:02:05.120 --> 01:02:09.590
those two reasons that cap is
tantamount to a ban. And if you

925
01:02:09.590 --> 01:02:13.190
ban this product, what's going
to happen? Right the banks are

926
01:02:13.190 --> 01:02:16.820
not filling the credit needs of
the small businesses. If you ban

927
01:02:16.820 --> 01:02:20.840
the people who are someone
mentioned offshore actors. If

928
01:02:20.840 --> 01:02:24.770
our members and five serve and
other quality businesses cannot

929
01:02:24.770 --> 01:02:28.430
do this, offshore companies will
step in and it'll be much worse

930
01:02:28.430 --> 01:02:29.390
for small businesses.

931
01:02:30.590 --> 01:02:33.530
Madam Chair: Thank you very
much. Are there questions for

932
01:02:33.530 --> 01:02:38.840
this witness? Okay, we're going
next to Patrick Sigfried thread,

933
01:02:39.080 --> 01:02:41.660
Rapid Financial Services LLC.

934
01:02:43.280 --> 01:02:44.390
Patrick Sigfried: Thank you
Madam Chair, members of this

935
01:02:44.390 --> 01:02:47.510
committee. My name is Patrick
Sigfried. I'm here on behalf of

936
01:02:47.510 --> 01:02:51.950
Rapid Financial Services. Rapid
was founded in 2006. And we've

937
01:02:51.950 --> 01:02:55.520
been headquartered in montgomery
county, maryland ever since. To

938
01:02:55.520 --> 01:02:58.730
date, we've provided over $2
billion of working capital to

939
01:02:58.730 --> 01:03:01.730
small businesses throughout the
United States. And we employ

940
01:03:01.730 --> 01:03:06.500
nearly 200 employees at our
Bethesda office. Our financing

941
01:03:06.500 --> 01:03:09.110
products include sales based
financing, which is the subject

942
01:03:09.110 --> 01:03:12.440
of 532. Again, this type of
financing allows small

943
01:03:12.440 --> 01:03:15.260
businesses to sell a portion of
their future revenue in exchange

944
01:03:15.260 --> 01:03:18.140
for immediate working capital,
and a sales based financing

945
01:03:18.140 --> 01:03:20.960
transaction. And I think this is
important to reiterate, there is

946
01:03:20.960 --> 01:03:24.800
no repayment term interest rate
or set payment amounts. And most

947
01:03:24.800 --> 01:03:27.380
importantly, there is no
personal guarantee required of

948
01:03:27.380 --> 01:03:30.380
the business owner. And again,
this is a I want to highlight

949
01:03:30.380 --> 01:03:33.650
this because this is not what
you see when you have a loan

950
01:03:33.650 --> 01:03:37.550
product or a line of credit
product. With because there's no

951
01:03:37.550 --> 01:03:41.180
personal guarantee the risk is
placed on the funder rapid takes

952
01:03:41.180 --> 01:03:44.090
the risk of the business slowing
down or even failing. And again,

953
01:03:44.090 --> 01:03:46.790
I was here last year, and I
testified to the benefits of

954
01:03:46.790 --> 01:03:49.340
sales based financing. And
unfortunately, the COVID

955
01:03:49.610 --> 01:03:52.040
pandemic has proven how
important it can be to small

956
01:03:52.040 --> 01:03:55.370
businesses, especially for the
lack of a personal guarantee, as

957
01:03:55.370 --> 01:03:58.700
many businesses were shut down
due to COVID. Those businesses

958
01:03:58.700 --> 01:04:01.340
with a sales based financing
product were required to make

959
01:04:01.340 --> 01:04:04.400
any payments. Moreover, if those
businesses have to shut their

960
01:04:04.400 --> 01:04:07.460
doors forever, the business
owners will not be liable for

961
01:04:07.460 --> 01:04:10.010
the remaining balance because
there's no personal guarantee.

962
01:04:10.130 --> 01:04:12.500
And again, this is different
than with a loan or line of

963
01:04:12.500 --> 01:04:14.960
credit product. Because with
those products, the business

964
01:04:14.960 --> 01:04:16.970
owner is still required to make
payments under the terms of the

965
01:04:16.970 --> 01:04:20.570
transaction throughout COVID.
And if the business ultimately

966
01:04:20.570 --> 01:04:23.660
failed, the business owners who
guaranteed those transactions

967
01:04:23.660 --> 01:04:26.690
are still liable to the lender
for the amounts that need to be

968
01:04:26.690 --> 01:04:29.330
repaid. Again, that's not true
with a sales based financing

969
01:04:29.330 --> 01:04:34.970
transaction. Nationwide, rapid
has provided or has to over 290

970
01:04:34.970 --> 01:04:37.640
customers with sales bait
financing accounts that

971
01:04:37.640 --> 01:04:40.640
experience decreased revenue as
a result of COVID. In the event

972
01:04:40.640 --> 01:04:43.460
that these businesses ultimately
failed, rapid would take the

973
01:04:43.460 --> 01:04:47.480
loss a loss of over $9 million.
However, the owners of the small

974
01:04:47.480 --> 01:04:51.140
businesses but not rapid
anything. In Maryland, we've had

975
01:04:51.140 --> 01:04:54.650
over 10 customers who were
severely impacted by COVID. And

976
01:04:54.650 --> 01:04:57.110
in the event these businesses
unfortunately do not survive

977
01:04:57.290 --> 01:05:00.050
their business. Their business
owners will walk away debt free

978
01:05:00.620 --> 01:05:03.770
We are unable to support 532 as
it would have strict access to

979
01:05:03.770 --> 01:05:07.010
the support and type of working
capital. Moreover, I would apply

980
01:05:07.010 --> 01:05:09.380
the truth at the federal Truth
in Lending Act to a commercial

981
01:05:09.380 --> 01:05:12.770
finance product that the act was
never meant to cover. Tila does

982
01:05:12.770 --> 01:05:15.380
not provide any guidance or
language and applying APR to

983
01:05:15.380 --> 01:05:18.200
commercial financing, and more
specifically sales based

984
01:05:18.200 --> 01:05:22.460
financing, such as a financing
and issue in 532. And again,

985
01:05:22.730 --> 01:05:26.150
while I know California and New
York has passed some laws

986
01:05:26.150 --> 01:05:28.790
related to these products, the
regulations implementing those

987
01:05:28.790 --> 01:05:33.740
laws have not been finalized.
And if ultimately, I shall we

988
01:05:33.740 --> 01:05:37.340
oppose 532. We will, we are
committed to work with this

989
01:05:37.340 --> 01:05:40.160
committee and the sponsor to
create a comprehensive

990
01:05:40.160 --> 01:05:42.410
legislation to regulate
commercial financing.

991
01:05:43.610 --> 01:05:44.270
Madam Chair: Thank you.

992
01:05:45.110 --> 01:05:46.070
Senator Kramer: Madam Chair.

993
01:05:46.130 --> 01:05:51.350
Madam Chair: Yes. There's one
thing left, can I tell you one

994
01:05:51.350 --> 01:05:54.800
thing, and I'm gonna call it I
just happened to look at the

995
01:05:54.800 --> 01:05:56.750
letter from the Attorney
General, which is an

996
01:05:56.750 --> 01:06:00.530
informational letter. They
didn't take a thought. But lets

997
01:06:00.530 --> 01:06:04.850
everybody take a look at the
last sentence in paragraph one.

998
01:06:05.150 --> 01:06:08.840
And the rest of this letter, it
comes up with some things that I

999
01:06:08.840 --> 01:06:12.080
think might require some
amendment. And they I think

1000
01:06:12.080 --> 01:06:15.170
there's some unintentional
things that may happen in draft

1001
01:06:15.170 --> 01:06:21.410
and take a look, I won't go
further. But I think the bill is

1002
01:06:21.410 --> 01:06:29.000
solid, innocent 10. And there is
a need for regulation and just

1003
01:06:29.000 --> 01:06:30.350
take a look at this to see.

1004
01:06:30.350 --> 01:06:34.310
Senator Kramer: Madam Chair, if
I may. In my introductory

1005
01:06:34.310 --> 01:06:38.930
remarks, I indicated that
there's an amendment coming in

1006
01:06:38.930 --> 01:06:43.430
response to that letter from the
Attorney General. He is off is

1007
01:06:43.430 --> 01:06:48.770
completely out of the bill, put
everything into the commissioner

1008
01:06:48.770 --> 01:06:52.940
of financial rigging. Okay. All
right. So that's gonna be coming

1009
01:06:52.940 --> 01:06:55.370
to the committee. Yes. Thank
you. And I appreciate your

1010
01:06:55.370 --> 01:06:59.060
pointing that out. I do have a
question for Mr. Sigfried,

1011
01:06:59.060 --> 01:06:59.420
Madam.

1012
01:06:59.420 --> 01:07:01.670
Madam Chair: And we got one more
witness you want to hear it?

1013
01:07:01.670 --> 01:07:02.240
Okay.

1014
01:07:02.540 --> 01:07:05.570
Senator Kramer: And I suspect
I'll have a question for Ms.

1015
01:07:05.570 --> 01:07:10.940
Fisher as well. But real fast,
Mr. Sigfried. Obviously, you've

1016
01:07:10.940 --> 01:07:16.820
heard to this evening here, with
everyone else who has testified

1017
01:07:16.820 --> 01:07:22.280
this evening with regard to the
legislation in that they have

1018
01:07:22.280 --> 01:07:26.600
all agreed to all aspects of the
bill with the exception of the

1019
01:07:26.600 --> 01:07:31.700
cap. But you made the point of
indicating there is no personal

1020
01:07:31.730 --> 01:07:35.840
guarantee from the owner. So let
me ask you this. What what

1021
01:07:35.840 --> 01:07:39.920
recourse does your company have
if someone stops paying?

1022
01:07:41.400 --> 01:07:42.810
Patrick Sigfried: If they
legitimately stopped paying

1023
01:07:42.810 --> 01:07:44.460
because of the business failure?
None.

1024
01:07:44.490 --> 01:07:47.040
Senator Kramer: Yeah. If they
stop paying you, what is the

1025
01:07:47.040 --> 01:07:47.700
recourse?

1026
01:07:47.790 --> 01:07:49.230
Patrick Sigfried: Well, again,
Senator, I think you'd

1027
01:07:49.230 --> 01:07:52.080
misunderstand the product, they
don't stop paying, they stopped

1028
01:07:52.080 --> 01:07:54.810
processing credit card
transactions, and because

1029
01:07:54.810 --> 01:07:57.600
they're not credit processing
credit card transactions, that

1030
01:07:57.630 --> 01:08:00.270
means unfortunately, the
business is not doing well. And

1031
01:08:00.270 --> 01:08:03.450
what is your recourse? We do not
have any recourse?

1032
01:08:04.860 --> 01:08:08.040
Senator Kramer: No. No interest,
no recourse with regard to the

1033
01:08:08.040 --> 01:08:12.780
business assets to the business
assets, correct? Yes. Okay. So

1034
01:08:12.780 --> 01:08:17.760
now we just hit on something
very important that you have

1035
01:08:17.760 --> 01:08:20.850
failed to share with the
committee in your testimony,

1036
01:08:21.030 --> 01:08:25.950
because you said sir, and I
wrote down verbatim owners walk

1037
01:08:25.950 --> 01:08:30.210
away debt free, the risk is on
the lender. These are direct

1038
01:08:30.210 --> 01:08:34.350
quotes from you, sir. But the
fact of the matter is, you can

1039
01:08:34.350 --> 01:08:38.250
go in and seize the business
bank accounts, sir, you can go

1040
01:08:38.250 --> 01:08:43.020
in and seize their assets, their
inventory, their fixtures, their

1041
01:08:43.200 --> 01:08:47.460
equipment, you do in fact, have
recourse sir. So when you

1042
01:08:47.460 --> 01:08:52.500
represent it to this committee,
walk away dead free. That really

1043
01:08:52.500 --> 01:08:55.320
wasn't quite accurate statement
wasn't sir.

1044
01:08:56.010 --> 01:08:58.890
Patrick Sigfried: So Senator,
again, the customers are rapid

1045
01:08:58.890 --> 01:09:03.270
finances. excuse for sorry, the
pun, but they don't have access

1046
01:09:03.270 --> 01:09:04.980
to banks. They don't they don't
have.

1047
01:09:05.850 --> 01:09:10.320
Senator Kramer: My question for
you. Is that you explained that

1048
01:09:10.320 --> 01:09:13.860
there is in fact, recourse and
you can seize all the assets of

1049
01:09:13.860 --> 01:09:17.670
the business and in fact, sir,
last year at the hearing on this

1050
01:09:17.670 --> 01:09:23.610
bill, we saw the 20 pages of
lawsuits that you filed against

1051
01:09:23.610 --> 01:09:27.000
small business owners, because
you go after their business

1052
01:09:27.000 --> 01:09:35.310
assets. you seize everything
that they have. Again, Senator

1053
01:09:37.020 --> 01:09:38.280
so again, thank you.

1054
01:09:39.930 --> 01:09:43.230
Madam Chair: One other witness
and we want to hear the last

1055
01:09:43.230 --> 01:09:47.400
witness. So if we could hear now
from Katherine Fisher commercial

1056
01:09:47.400 --> 01:09:52.050
finance coalition. Miss Fisher.

1057
01:09:53.040 --> 01:09:54.930
Katherine Fisher: Thank you,
Madam Chair and members of the

1058
01:09:54.930 --> 01:09:58.230
committee. This has been a long
afternoon. So thanks for bearing

1059
01:09:58.230 --> 01:10:02.010
with me to hear my time.
testimony. My name is Kate

1060
01:10:02.010 --> 01:10:05.820
Fisher. I'm a partner with a
firm Hudson Cook, based in

1061
01:10:05.820 --> 01:10:09.570
Maryland and I represent the
commercial finance Coalition, a

1062
01:10:09.570 --> 01:10:12.480
group of responsible finance
companies that provide capital

1063
01:10:12.480 --> 01:10:17.250
to small and medium sized
businesses. Proponents of this

1064
01:10:17.250 --> 01:10:20.910
legislation are describing it as
allowing small businesses to

1065
01:10:20.910 --> 01:10:24.600
compare apples to apples so they
can understand the cost of

1066
01:10:24.600 --> 01:10:28.650
financing across products. And
the federal reserve study that

1067
01:10:28.650 --> 01:10:31.890
Mr. Hinton mentioned, and that
that you will be receiving a

1068
01:10:31.890 --> 01:10:35.790
copy of apparently, is very
good, and it says that small

1069
01:10:35.790 --> 01:10:40.230
businesses need help comparing
costs across different types of

1070
01:10:40.230 --> 01:10:44.700
financing. Respectfully, this
legislation does not address

1071
01:10:44.700 --> 01:10:49.980
that issue. This legislation
singles out only one product

1072
01:10:50.040 --> 01:10:56.700
sales based financing, and this
product is not alone. The

1073
01:10:56.700 --> 01:11:00.000
California and New York
legislation that has been

1074
01:11:00.000 --> 01:11:03.900
referenced has some important
differences that I'd like to

1075
01:11:03.900 --> 01:11:07.770
touch on but both of those
states have addressed

1076
01:11:07.920 --> 01:11:12.780
disclosures across commercial
financing as a whole. It applies

1077
01:11:12.780 --> 01:11:17.790
to loans lines of credit,
invoice factoring, Merchant Cash

1078
01:11:17.790 --> 01:11:24.060
Advance sales based finance.
This legislation before you only

1079
01:11:24.060 --> 01:11:27.690
applies to a very narrow slice
of commercial finance and

1080
01:11:27.690 --> 01:11:32.880
commercial finance is
complicated. As a result, this

1081
01:11:32.880 --> 01:11:37.050
does not provide an opportunity
to comparison shop across

1082
01:11:37.050 --> 01:11:40.530
commercial finance. It would
only provide it would only

1083
01:11:40.530 --> 01:11:45.930
require one small sliver of the
commercial finance world to

1084
01:11:45.930 --> 01:11:51.840
provide these types of
disclosures. California passed a

1085
01:11:51.840 --> 01:11:56.940
law that will require a rate
disclosure. The law does not

1086
01:11:56.940 --> 01:12:02.520
require an APR disclosure in
California. The regulator has

1087
01:12:02.520 --> 01:12:09.060
been working for two years to
draft regulations that have

1088
01:12:09.060 --> 01:12:13.200
proposed an APR disclosure. But
because this issue is so

1089
01:12:13.200 --> 01:12:18.930
complicated, particularly trying
to apply an APR disclosure to

1090
01:12:18.930 --> 01:12:22.830
sales based finance, which is
not alone does not have fixed

1091
01:12:22.830 --> 01:12:28.530
required payments or a fixed
term. It has proved to be so

1092
01:12:28.530 --> 01:12:31.230
complex that so far the
regulations have not been

1093
01:12:31.230 --> 01:12:38.460
finalized. New York has proposed
an APR disclosure, again across

1094
01:12:38.850 --> 01:12:42.180
almost all segments of
commercial finance, not just one

1095
01:12:42.180 --> 01:12:47.160
narrow product. Although that
law has been passed, and it will

1096
01:12:47.160 --> 01:12:52.050
require an APR disclosure, the
regulator will have to put out a

1097
01:12:52.050 --> 01:12:55.620
lot of complicated rules in
order to require an APR

1098
01:12:55.620 --> 01:12:58.710
disclosure for this type of
product. And I just want to show

1099
01:12:58.710 --> 01:13:02.250
you as an example of how
complicated it is, this is an

1100
01:13:02.250 --> 01:13:07.860
example of the formula for
calculating APR. It is it is

1101
01:13:07.890 --> 01:13:13.140
more complex than simply
calculating the payment amount.

1102
01:13:20.280 --> 01:13:24.900
All right, well, one sorry. My
apologies. One thing, one last

1103
01:13:24.900 --> 01:13:30.480
comment. Because of the
complicated issue. We ask that

1104
01:13:30.510 --> 01:13:35.160
the commissioner of financial
regulations working group that

1105
01:13:35.160 --> 01:13:40.470
was formed to discuss this
legislation and this issue be

1106
01:13:40.500 --> 01:13:45.150
reauthorized and reformed this
the commissioner put together a

1107
01:13:45.150 --> 01:13:49.110
working group as Senator Kramer
participated industry was

1108
01:13:49.110 --> 01:13:50.430
invited, to.

1109
01:13:50.610 --> 01:13:53.880
Madam Chair: You're really are
going beyond terms.

1110
01:13:53.970 --> 01:13:59.760
Katherine Fisher: Sorry, just my
my point is that this is a very

1111
01:13:59.760 --> 01:14:03.570
complicated issue. The
commercial finance coalition

1112
01:14:03.570 --> 01:14:07.770
supports disclosure supports
licensing supports the ban on

1113
01:14:07.800 --> 01:14:12.270
confessions of judgment does not
support the cap or an APR

1114
01:14:12.270 --> 01:14:16.740
disclosure. And And my point is
that this is a complicated issue

1115
01:14:16.740 --> 01:14:18.960
that should be considered more.
Thank you.

1116
01:14:18.960 --> 01:14:22.800
Madam Chair: Thank you. Are
there questions for this one?

1117
01:14:24.810 --> 01:14:26.880
Senator Kramer and Senator
Benson.

1118
01:14:27.300 --> 01:14:30.060
Senator Kramer: Thank you in my
question, very quick and easy

1119
01:14:30.060 --> 01:14:36.120
Madam Chair. Miss Fisher, you
said that the APR APR is highly

1120
01:14:36.120 --> 01:14:41.340
technical and complicated. And
you are the committee to see

1121
01:14:41.880 --> 01:14:46.650
Einstein's formula of
relativity. Let me ask you this.

1122
01:14:47.100 --> 01:14:55.860
Does your industry not utilize
computers? Input Output? Does

1123
01:14:55.860 --> 01:14:59.520
your industry not utilize
computers? Are you telling me

1124
01:14:59.520 --> 01:15:02.460
that the four formula that you
held up before the committee,

1125
01:15:02.460 --> 01:15:06.750
please share with us is how your
industry will have to calculate

1126
01:15:06.750 --> 01:15:11.370
the APR for everyone
transactions because they don't

1127
01:15:11.370 --> 01:15:12.810
utilize computers.

1128
01:15:13.200 --> 01:15:15.030
Katherine Fisher: Thank you for
asking that. And as you said,

1129
01:15:15.060 --> 01:15:18.510
input, output, I would
characterize this as garbage in

1130
01:15:18.510 --> 01:15:23.040
garbage out, because there's no
fixed term and no fixed payment

1131
01:15:23.040 --> 01:15:26.820
schedule. And so the information
that will be run through that

1132
01:15:26.850 --> 01:15:30.450
calculation will result in a
disclosure. That's wrong.

1133
01:15:30.780 --> 01:15:33.900
Senator Kramer: And I appreciate
your commentary about garbage.

1134
01:15:33.900 --> 01:15:37.350
But I think what we've heard was
garbage in and garbage out. But

1135
01:15:37.350 --> 01:15:39.000
thank you very much, Madam.

1136
01:15:40.770 --> 01:15:45.990
Madam Chair: Alright, I think we
have reached that point. And

1137
01:15:45.990 --> 01:15:50.370
we've heard all of the bills for
today, and thanks to everybody

1138
01:15:50.370 --> 01:16:00.300
who has participate. Oh, Senator
Benson? Yeah. Well, you gotta

1139
01:16:00.300 --> 01:16:04.050
unmute. Unmute.

1140
01:16:06.100 --> 01:16:08.050
Senator Benson: Thank you very
much. Miss Fisher, I just want

1141
01:16:08.050 --> 01:16:13.390
to ask a question that was asked
before. What procedure? Do you

1142
01:16:13.450 --> 01:16:16.780
what happens with the people who
are not able to pay or the

1143
01:16:16.780 --> 01:16:20.290
people who fail to pay? What
process do you all follow?

1144
01:16:20.760 --> 01:16:23.340
Katherine Fisher: Yes, ma'am.
Thank you for asking that. In a

1145
01:16:23.340 --> 01:16:29.250
space finance transaction, the
promise to pay is only a promise

1146
01:16:29.250 --> 01:16:33.060
to pay a percentage of revenue
to the extent that revenue is

1147
01:16:33.060 --> 01:16:37.920
created. For example, if I have
a pizza restaurant, I am

1148
01:16:37.920 --> 01:16:42.480
promising to pay 10% of the
revenue I get for each slice

1149
01:16:43.260 --> 01:16:47.760
that I sell. So if I have a
great month, and I saw a lot of

1150
01:16:47.760 --> 01:16:52.320
pizza that I'm wondering, with
the pandemic, when restaurants

1151
01:16:52.320 --> 01:16:56.640
had to close, though only to
take out, have their capacity

1152
01:16:56.640 --> 01:17:02.340
reduced significantly, those
restaurants have a revenue drop

1153
01:17:03.060 --> 01:17:10.050
the payments by contract, also
with drop. If the business was

1154
01:17:10.080 --> 01:17:13.890
unable to pay, because revenue
dropped, then there is no

1155
01:17:13.890 --> 01:17:20.340
obligation to pay. There is no
now, and and I'm not trying to

1156
01:17:20.340 --> 01:17:23.670
be cute here, because the
business does promise not to do

1157
01:17:23.670 --> 01:17:28.320
things such as hide money, your
open additional bank accounts.

1158
01:17:28.440 --> 01:17:34.590
So there are are if the business
takes intentional steps to

1159
01:17:34.620 --> 01:17:39.330
deprive or cheat on what they
owe, then there is recourse but,

1160
01:17:39.660 --> 01:17:44.970
but failure to generate enough
revenue, never be an event of

1161
01:17:44.970 --> 01:17:47.010
default under one of these
contracts.

1162
01:17:48.560 --> 01:17:51.590
Senator Benson: So you all don't
go so you all don't go in and

1163
01:17:51.890 --> 01:17:57.710
and retrieve their property and
go through the don't go into

1164
01:17:57.710 --> 01:18:00.860
their bank accounts, and you
don't do those kinds of things?

1165
01:18:01.890 --> 01:18:05.580
Katherine Fisher: Thank you for
asking. If if the business

1166
01:18:05.580 --> 01:18:10.140
revenue drops, then none of
those actions would be taken. If

1167
01:18:10.140 --> 01:18:14.820
the business has, let's say,
opened up a second bank account,

1168
01:18:15.150 --> 01:18:18.480
and they're they're hiding their
revenue into into that second

1169
01:18:18.480 --> 01:18:22.770
bank account so that they are
essentially committing fraud,

1170
01:18:23.040 --> 01:18:28.350
then those types of actions such
as Uniform Commercial Code

1171
01:18:28.350 --> 01:18:33.450
process to exercise a security
interest on perhaps their

1172
01:18:33.480 --> 01:18:35.730
inventory and equipment, that
would be an appropriate

1173
01:18:35.730 --> 01:18:36.510
response.

1174
01:18:38.880 --> 01:18:43.080
Madam Chair: Okay, I think that
was the last question and we've

1175
01:18:43.080 --> 01:18:45.390
had a very interesting
afternoon. We appreciate

1176
01:18:45.390 --> 01:18:48.900
everyone's testimony, and have a
good evening.