Business Lending
Are You Robodialing? The TCPA and FCC Scoop You Need to Know
July 2, 2015
In 1991, when Congress began regulating autodialers via the Telephone Consumer Protection Act, our phones and our relationships with them were vastly different from what that equipment and those relationships look like today. At that time, Congress was regulating a world without text messages and ubiquitous cell phones and a world where autodialers were infuriating consumers nationwide for their ability to generate and dial telephone numbers indiscriminately without regard for who was on the receiving end of the call.
In the intervening years, Congress has made modest TCPA amendments to address unsolicited faxes and nefarious manipulation of caller ID information, but it has otherwise failed to adjust the law to reflect the way we communicate today. The FCC has tried harder than Congress to update its TCPA rules, but it too has failed in this regard. The result is a set of obsolete standards whose significance vastly outpaces their sense due to the TCPA’s private right of action and rigid statutory damages calculation. Companies hoping the FCC would pivot toward sanity in its recent announcement of TCPA guidance are surely disappointed today.
The TCPA has always defined a regulated “autodialer” as equipment with the capacity to store or produce telephone numbers to be called using a random or sequential number generator and to dial such numbers. The FCC’s TCPA rules retain that formal definition, but the FCC has explained that predictive dialers and other equipment enhancing dialing efficiency are also regulated as autodialers because of their capacity to dial numbers without human intervention. The FCC has repeatedly confirmed that the focus of the “autodialer” standard is on the equipment’s capacity, not its actual use.
A number of courts have tried to make this “capacity” standard more concrete by limiting it to the equipment’s present capacity, that is, what the equipment was capable of doing when the calls at issue were replaced, without considering what the equipment could be reconfigured to do at some future time. These courts explained that a focus on present capacity was necessary to ensure that every person’s smartphone would not be regulated as an autodialer based on what it could be reprogrammed to do.
The FCC received a number of petitions seeking more formal, universal guidance on the TCPA’s “autodialer” standard. We are still waiting for the FCC to publish the guidance it has approved, but according to the FCC’s June 18, open meeting, that guidance will not make this issue any clearer. According to the FCC’s preview, that guidance will affirm that the TCPA’s “autodialer” standard focuses on the equipment’s capacity, ensuring that “robocallers cannot skirt consumer consent requirements through changes in calling technology design or by calling from a list of numbers.” If this is an accurate summary of the FCC’s guidance, it will do absolutely nothing to resolve the most pressing concerns on this issue. It will not address whether “click-to-dial” technology, which involves some human intervention but may have the capacity to operate without it, is regulated as an “autodialer.” It will not address whether the definition’s “capacity” element is limited to present capacity or also includes possible future capacity. The surge in private TCPA litigation makes these ambiguities treacherous.
Although the FCC discussion of its TCPA guidance touts the protections provided to consumers, the autodialer provisions apply equally to business-to-business calling. MCA companies must be aware of the TCPA’s autodialer requirements for B2B calling campaigns. They can be sued for improper calls placed to businesses, as well as errant B2B calls that are answered by individual consumers. The FCC’s TCPA rules establish that callers must have the call recipient’s “prior express written consent” for sales calls placed to cell phones using an autodialer or a prerecorded message. This form of consent requires a signed writing from the call recipient and requires certain “magic words” disclosures that must be provided when the consent is obtained. This consent requirement applies to B2B calls as well as B2C calls, and the existence of an established business relationship between the parties to the call does not provide any relief from this requirement. Non-sales calls to cell phones using an autodialer or a prerecorded message require “prior express consent.” This term is not defined, but the FCC has explained that a call recipient provides valid consent to a creditor by volunteering his or her cell phone number to the creditor, such as on a credit application. There are tricky details in this standard, so MCA companies should proceed with caution in order to establish valid TCPA consent.
Technology makes our lives easier, but it makes our TCPA compliance analysis more complicated. The TCPA should not impede technological developments that do no harm, but the law’s enforcement scheme encourages “professional plaintiffs” and greatly increases the likelihood that a TCPA violation will result in a lawsuit. The FCC is presently fumbling an opportunity to address this. It’s unclear when another such opportunity will arise or what it will take for the FCC to decide to align its TCPA rules with the real world.
The Rest of the Alternative Lending Industry’s Funding Numbers
July 1, 2015
Let’s be serious, the industry’s much bigger than we may have let on when we published the industry leaderboard (some mods have been made) in the May/June issue.
Right after deBanked sent the final file off to the printers in May, PayPal announced that the widely circulated $200 million lifetime funding figures were slightly outdated.
How off were they?
Oh, just by about $300 million or so. By May 7th, PayPal’s Working Capital program for small businesses had already exceeded $500 million. The industry leaderboard has been revised to reflect the news. PayPal says they are funding loans at the rate of $2 million per day, which puts them on pace for more than $700 million a year. Um, wow?
One name that’s missing from that list is Amazon, whose secretive short term business loan program is reported to have already generated hundreds of millions of dollars in loans. Given the $300 million discrepancy that PayPal let ruminate for months, we’re in no position to speculate on Amazon. Anyone could try to assess what they’ve been up to however, since they file UCCs on their clients under the secured party name “AMAZON CAPITAL SERVICES, INC.”
Of course if you’re craving specific numbers, an anonymous source inside Yellowstone Capital revealed that Yellowstone produced $35.5 Million worth of deals in the month of June alone. Yellowstone has a strategically diverse business model that allows them to either fund small businesses in-house (essentially on their own balance sheet) or broker them out to other funders. Yellowstone was listed on deBanked’s May/June industry leaderboard at $1.1 Billion in lifetime deals and $290 Million in 2014. June’s figures indicate that they are probably well on their way to surpassing last year’s numbers.
Curiously, platform/lender/broker/marketplace company Biz2Credit has been hanging on to the same stodgy old number for more than a year.
Funded over $1.2 billion. 200,000+ happy customers.http://t.co/3h64lI4cgG #smallbusiness #Funding
— Biz2Credit (@biz2credit) June 19, 2015
They were touting that same $1.2 Billion number exactly 1 year ago. Surely they have done more since then? Biz2Credit’s service covers a much wider scope however so a direct comparison with their peers may not be appropriate. A lot of their loans are arranged through traditional banks which are typically transacted in amounts larger than the average $25,000 deal alternative lenders do.
A source familiar with Biz2Credit’s breadth said he observed a deal where the company helped a businessman in Mexico obtain financing to purchase a new helicopter, a transaction which apparently necessitated a team to fly down there to sign paperwork. Definitely not a standard transaction!
When we published the industry leaderboard initially, it admittedly omitted some of the industry’s largest players. Many firms are fairly secretive about the numbers they release and we’re in no position to disclose numbers that aren’t supposed to be public. Below is data that we hadn’t published previously.
The industry’s unsung behemoths
The $300 million lifetime funding figure publicized by NYC-based Fora Financial can’t be that stale. It’s the number currently stated on their website and a late February 2015 company announcement revealed they were only at $295 million at the time. We feel comfortable enough to now have Fora Financial on the leaderboard.
In 2014, Delaware-based Swift Capital revealed that they had funded more than $500 million. It’s unclear how much that’s increased since then.
Credibly (formerly RetailCapital), has publicized that they’ve funded more than $140 million in their lifetime. Founded in Michigan, the company has opened offices in New York, Arizona, and Massachusetts. They’ve been added to the lifetime leaderboard.
New York City-based AmeriMerchant has a claim on their website that they have funded more than $500 million since inception. How much more exactly? We’re not sure.
Coral Springs, FL-based Business Financial Services keeps their figures mostly under wraps but a good guess would place their lifetime figures at somewhere between $700 million and $1.2 billion.
Miami, FL-based 1st Merchant Funding had reportedly funded close to $100 million in the Spring of 2014. It’s uncertain as to where they might be now.
Woodland Hills, CA-based ForwardLine surpassed $250 million in funding as far back as 2013.
Orange, CA-based Quick Bridge Funding disclosed more than $200 million in funding in late 2014.
Troy, MI-based Capital For Merchants has funded $220 million since inception. But there’s more to the story. Capital For Merchants is owned by North American Bancard, a merchant processing firm that acquired another merchant cash advance company, Miami, FL-based Rapid Capital Funding in late 2014. And coincidentally, Rapid Capital Funding had just acquired American Finance Solutions months earlier, which is an Anaheim, CA-based merchant cash advance company that had funded more than $250 million since inception. All told, North American Bancard owns at least three merchant cash advance companies: Capital For Merchants ($220 million), American Finance Solutions ($250 million+), and Rapid Capital Funding (undisclosed). There are rumors that they’re in talks to acquire at least one more company in the space, which, if true, would make North American Bancard one of the industry’s most powerful players.
Don’t bother counting up the above totals
These figures all barely scratch the surface as deBanked’s database indicates there are literally hundreds of genuine direct funders in the industry.
Thanks to the company representatives that took the time to confirm their funding numbers with us directly. Anyone interested in sharing their figures can email sean@debanked.com. If there is a gross inaccuracy somewhere as well, please report it to us.
This page might be updated in the future so check back!
Is Amazon Already a Top 10 Funder?
June 29, 2015
18 months ago I mentioned Amazon’s quiet entry into business lending but nobody’s really talked about it. But earlier today in a story that was supposed to highlight the company’s push into China, they revealed some interesting details that the rest of the alternative lending industry deserves to know about.
1. Amazon offers three to six-month loans of $1,000 to $600,000 to help merchants buy inventory.
2. Amazon has already funded hundreds of millions of dollars.
3. Sellers are reporting interest rates of 6% to 14% but it’s unclear if these are APRs or dollar for dollar costs since the loans are for much less than a year. I suspect the effective APRs are higher.
While Amazon is obviously doing these to grow Amazon merchants, the short maturities and stunning loan volume definitely earns them a spot on the list of the biggest funders in the industry.
Another fact worth repeating is this tidbit from PayNet:
“The default rate for small businesses with credit under a $1 million stood at 1 percent in 2014 but is seen rising to 1.6 percent in 2015, as new lenders with varying ability to assess risk increase lending, according to small business credit ratings provider PayNet.”
Tech-based Lenders Clobbered On Dose of Bad Economic News
June 29, 2015How would tech-based lenders fare in a slumping market? Not very well apparently…
OnDeck (ONDK) and Lending Club (LC) set new record lows earlier today amid bad news coming out of Greece and Puerto Rico. OnDeck is down almost 43% from its IPO price and down 61% from its all time high. It was down more than 8% today even though the Dow was only down 2%.
$ONDK was unaware that it focused on Greek loans…. interesting 8.6% drop.
— Mark Holder (@StoneFoxCapital) Jun. 29 at 05:48 PM
The downward trend was dissected in a post that was published just hours before today’s further fall.
Meanwhile Lending Club is in new territory, down 3% from its IPO price and down 50% from its high. So what are investors saying about this?
$LC hmm i really dunno what to say about this…
— mike pham (@mincogneto) Jun. 29 at 05:30 PM
That’s kind of the overall gut feeling. Many feel this company is being unfairly dragged down and yet it continues to fall. A mounting campaign by the Puerto Rican government to declare bankruptcy and a Greek debt disaster clobbered everything today including Lending Club. One tweeter came up with a great idea last week, bail out Greece with a loan from Lending Club…
If all else fails with the IMF #Greece should just apply on @LendingClub pic.twitter.com/RbtnMm5JaO
— World First USA (@WorldFirstUS) June 22, 2015
Last week no one was even talking about Puerto Rico. Now all of the sudden they’re in a “death spiral.”
Watch the death spiral coverage on CNN
The market’s tech lending darlings might’ve gotten pummeled like everyone else but the ease with which they drop should probably be a warning sign. Neither offshore dilemma stands to have any impact on their businesses. So what would happen if a relevant issue were to arise such as a domestic disaster, a sudden rise in unemployment, a recession, a financial crisis, skyrocketing fuel prices, a steep increase in the fed funds rate, or even something no one dares talk about like a legal ruling that could jeopardize the entire bank charter model?
It’s quite possible that both companies haven’t bottomed out just yet….
——–
Note: I have no equity positions in either company. I do own Lending Club notes however.
What Happened to OnDeck? (ONDK)
June 29, 2015The lockup expiration came and went but the fall of OnDeck’s stock price started much before that. There were no insider stock sales reported to the SEC since shares became unrestricted anyway.
There’s very little trading volume on an average day and investors on the big message boards either ignore this stock or don’t understand it.
The trend started on May 4th when they released Q1 earnings. The direction wasn’t very much different than Q4. Loan volume went up, interest rates came down, and no profits were to be had, nor were any expected for the rest of the year.
The market interpreted decreasing interest rates as pressure from competitive forces however and down went the stock price.
OnDeck’s execs insisted that they had lowered rates as part of a deliberate strategy to create stickier customers and attract new borrowers. CEO Noah Breslow himself said during the previous 2014 Q4 earnings call that “there’s so much search cost associated with going out and looking at other places and so much uncertainty around that, they [small businesses] typically just take that offer that OnDeck has provided to them.”
His theory is supported by the results of Lending Tree’s recent survey that revealed nearly 60% of small businesses did not comparison shop business loans online during their loan application process.
It’s possible though that the drop had little to do with OnDeck’s actual performance. That same day, Goldman Sachs hinted that they would be joining the tech-based lending field when they announced the hire of Harit Talwar from Discover Financial Services.
But before they had a chance to recover, Barrons published a story that was highly critical of OnDeck just a month later on June 5th. “It’s a subprime lender in dot-com clothing,” the author wrote. It was a tough characterization for them to refute, what with their 50% interest rates and double digit percentage charge-offs and all.
And then the lockup expiration on June 15th coincided with the big reveal of Goldman’s intentions to compete in the marketplace. News sources that picked up the story predicted that the move would impact online lenders like Lending Club and OnDeck. OnDeck’s stock hit a record low that day.
OnDeck has been stuck in the 12s ever since. Can they dig themselves out?
If competition is a factor in the market’s perception, and it probably should be, then investors should keep an eye on the industry’s other top players. OnDeck is not alone in this space and Goldman Sachs will be in for a bigger fight than they probably expect.
Source: deBanked’s May/June Magazine issue
The CFPB is Pretty Busy With Actual Consumers
June 28, 2015
It’s often theorized by industry insiders that the Consumer Financial Protection Bureau (CFPB) will play a role in business to business transactions. But when you actually talk to those employed by the government agency, it seems very unlikely. The CFPB is already very busy playing the role of Better Business Bureau, albeit a nationalized version.
There is currently no categorical option to report business loan or merchant cash advances on their website and the complaints lodged by consumers pertain to very basic consumer problems, such as issues with their credit cards or student loans.
Here’s an example of a CFPB complaint:
2009 XXXX XXXX, XXXX XXXX Thursday of every month I got pulled from class to get a new loan for my living and tuition expenses. I was at XXXX for one year and if I didn’t go to sign the papers for my new loan every month I wouldn’t be able to continue my classes to XXXX. I missed out on important class information and had to make them up on my own time. Homework and other hands on tasks became more difficult to accomplish if I didn’t make up the lost time going to sign loan papers. I was told a rough amount that my school loan would be. About {$15000.00}. I started paying {$120.00} a month for my loan agreement then Genesis Lending increased it to {$190.00}. I called to ask why the increase in payment amount each month. I was told they saw i had a higher income so they adjusted the payment accordingly. Is that legal? I’ve been paying this amount for 6 years and still owe {$13000.00}. I called Genesis Lending and come to find out they have been rolling over all the interest I pay on the loan every year. So all I’m paying is interest basically for the last 6 years. I don’t think I ‘m being treated fairly or legally.
Many complaints are just like this, where consumers are not actually reporting illegal activity but instead using the CFPB to vent their frustration. In this situation, the victim was busy with homework and wasn’t sure how their student loan worked so they filed a complaint with the federal government…
The end result was that the lender responded by saying it wasn’t really their problem, the borrower didn’t dispute this response and the CFPB marked the case as closed. Seems like a great use of everybody’s time.
In the handful of presentations I’ve attended by the CFPB, they said they often find themselves redirecting complaints to the business that the consumer is complaining about much like the BBB would do.
The Challenges in Offering Financing to Latino Businesses
June 20, 2015
The number of minority-owned businesses jumped nearly 46% from 2002 to 2007, according to the Minority Business Development Agency. The growth rate is three times as much as for U.S. businesses as a whole. These businesses increased 55% in revenues over that five-year period. There are a number of minority groups within this category. Latino businesses are leading the way. Latinos are the fastest growing ethnic group in the United States today. Like it or not these numbers are likely to increase due to economic blocs. The U.S. has created a number of free trade agreements with Mexico, Central America and South America. Latinos are our next door neighbors.
The SBA is the largest guarantor in the U.S. and does not offer any specific minority business loan program to Latinos. The U.S. Hispanic Chamber of Commerce offers advice to Latino business owners, but does not offer any loans. Traditional banks continue to maintain stringent guidelines for all businesses. Alternative finance companies and online lenders have a long way to go to tap into this
niche market.
Alternative lenders, online lenders and peer-to-peer lenders can cater to this niche market, but it requires a lot of resources and knowledge. We can categorize Latino businesses into one broad category. However, as a Hispanic entrepreneur, my experience has been that the Latino business community is complex in nature.
Latino Businesses by Age Groups
There are two types of Latino entrepreneurs. The older generation tends to be within the age range of 45 to 70 years old. These business owners are not accustomed to doing business over the Internet, email, fax, or phone. Online lenders may have difficulties in retrieving information from these clients. This group has a high level of distrust in doing business via the Internet. The majority of our clients within this age group are accustomed to doing business face to face. This sales and marketing strategy can be very expensive for lenders, unless you have a team of field agents. The younger generation of this group is made up of Latino entrepreneurs in the age range of 25 to 45. This group is more accustomed to using online banking and online systems. Forbes recently reported that, “With a median age of 28 years old, the timing is ripe for organizations/brands to make a firm commitment to the Hispanic consumer.”
Family Decisions and Delayed Gratification
Despite the age category, many Latino businesses are family-based. Based on my experience, the decision making process is made among family members. You could offer a $50,000 loan at a cost of factor of 1.30 to the husband and he may need to consult with his wife and his children before he signs his John Hancock. This makes the decision-making
process challenging.
Manuel Cosme Jr., the chair of the National Federation of Independent Businesses (NFIB) Leadership Council in California and co-founder of Professional Small Business Services in Vacaville, California has said, “Family plays a big role in Hispanic culture, so naturally it plays a big role in Hispanic-run businesses.”
Trust Factors
Even if you have a Latino staff or bilingual staff, Latino business owners need to trust you in order to gain their business. You will need to build good rapport with these businesses to get them to fill out a loan application and send it via fax, email or online. Latinos are accustomed to traditional banking methods and brick and mortar businesses.
“When we looked at online US Hispanics in 2006, there were four main roadblocks to US Hispanic e-Commerce adoption: 48% of online Hispanics did not want to give out personal financial information; 46% wanted to be able to see things before buying; 26% had heard about bad experiences purchasing online; and 23% did not have access to a credit or debit card,” says Roxana Strohmenger, Director in charge of Data Insights Innovation at Forrester. These are some of the challenges that we face by conducting our business in a digital manner.
According to mediapost.com, only 32% of online Hispanics use the Internet for their banking needs. In order for online lenders to succeed with this marketplace, U.S. banks need to do more to market to Hispanics online. Alternative lenders need to understand that there are barriers to entry in this marketplace.
Social Media
The Pew Research Center conducted a study that clearly indicates the usage of social media by Hispanics. Accordingly, 80 percent of Hispanic adults in the U.S. use social media and the same study revealed that Latino Internet users admitted to using Facebook as the leading social platform. A lot of business owners love to show the storefront, their family working in their businesses, and other images. You should consider Facebook as part of your overall marketing strategy to tap into this marketplace.
Going overseas
Another option to consider is going overseas. CAN Capital set up an operation in Costa Rica mostly for their business processing services. In fact, we at Lendinero decided to do something different that no one else is doing. We set up the majority of our operations in Central America, consisting of outbound agents, digital marketers, programmers and loan analysts. There are great benefits to having a full bilingual staff overseas and the cost of personnel is less expensive. At the same time, there are huge challenges. Since I am of Hispanic descent, it was easier to set up our operation in a Latin American country. However, there are cultural differences and you have to take into account the economic and political conditions of each country. Setting up a corporation can take 1 to 3 months and it is more expensive than the U.S.
The labor pool is huge, but finding the right people can be a challenge. In addition, training agents, processors, and support staff can be time consuming and you may run for a few months before you begin to see a profit. If your staff did not live in the U.S., you need to train them on U.S. culture, the economy, and other topics.
Furthermore, Internet speed and Internet services can be a challenge. Be prepared to pay a high cost for Internet. And labor laws are not like the U.S. If you fire an employee, you will be forced to pay unpaid vacation and a severance. In addition, you have to take other costs into consideration such as travel costs, lodging, auto leasing, and more.
Lastly, if you don’t know people in the country you plan on setting up in, an outsourced business processing service will charge you more money for rent and other services knowing that you are coming from the U.S. It is highly recommended you pair up with a native or someone who has done business in the countries you consider.
In summary, the Latino business community continues to lack financing. This niche market needs to be educated on the revolutionary paradigm shifts in business lending and online lending. If you can obtain these clients, they are clients for life. Once you obtain them as a client, they are loyal. They will not leave you.
OnDeck Stock Pummeled in Run Up to Lockup Expiration
June 10, 2015
OnDeck (ONDK) hit a new low on Tuesday, bottoming out at $13.94 in intraday trading. It closed at $14.03. Absent any recent company news, the trend downward was likely a side effect of downward pressure on Lending Club (LC) as their lockup period expired. Lending Club closed at $16.97 near its all time low.
The OnDeck drop may have also been caused by the recent story that appeared in Barrons that labeled the company and the industry they operate in, risky, saturated, and overpriced.
On Deck is a different business. Its profits come from using its own balance sheet to make risky, high-interest rate loans to small businesses. With rivals as large as Goldman Sachs gathering around these companies’ shallow high-tech moats, the competition for quality borrowers will make it tougher for On Deck to keep growing loan originations near a triple-digit pace without loosening underwriting standards. Even in today’s benign conditions, On Deck charges off more than 12% of its loans annually, while its yields on those risky loans have declined for nine straight quarters. It’s a subprime lender in dot-com clothing.
Barrons laid out the case that OnDeck is a lender. OnDeck has always taken the position that they are a tech company. The conflicting market perceptions have made their stock price very chaotic.
OnDeck’s lockup period expires on June 15th.
