Forty-Six percent of women make up the workforce in the financial services industry with only 6% of them being CEOs. Reshaping the narrative of men dominating the finance world, women in various components of the industry are making their mark. Sarah Kelly, Lindsey Rohan, and Heather Francis are three women that particularly stand out in the commercial finance industry.
Equipped at Birth
Born into equipment finance, Sarah Kelly got her start by working for the family business at KLC Financial. After a decade of becoming an expert in the trade, she spent some time in the medical equipment finance side of the industry before finally landing at Dedicated Financial GBC, where she is now the Director of Servicing. Dedicated has been experiencing growth, according to Kelly, as the company just hired five new employees in the last couple of weeks.
“I have a lot of confidence in the leadership team and was excited that they were open to having a woman on the team,” said Kelly. “They’ve welcomed me in wholeheartedly, they always ask for my opinion, I’m always willing to give it and I feel like we’ve really all connected to make Dedicated a great company.”
Kelly believes that women should support one another to do better. Even a little friendly competition to push each other to be their best selves doesn’t hurt.
“I believe that we can really show other women that you can be whatever you want to be in this industry, that there’s no limit, there really aren’t,” said Kelly. “I feel like some people think that there might be just because they are a woman but there really is no limit and we just need to get that word out there to them…”
Practicing the Laws of Finance
Finance wasn’t exactly the plan for Lindsey Rohan after law school. Working for a law firm in Long Island she dabbled in real estate closings, but with having two small children at the time, balancing work and motherhood were always at odds. Determined to have her own practice, she started Pollack Cooper & Fisher, P.C. where she worked as a real estate attorney for 8 years. She hadn’t ever foreseen commercial finance as her next career path, but a call from a family friend led her to join a merchant cash advance company.
“It actually became quite a good fit because it’s a lot of multitasking, a lot of looking at all the various aspects of a corporation and its life, and how you can protect it,” said Rohan, Deputy General Counsel at Basepoint Capital.
Handling the legal infrastructure of the company, building out departments to make sure there are checks and balances, and making sure all the collections teams abide by the regulations are routine in Rohan’s schedule. Having much success in her position, a notable point in her career has been about building the Alternative Finance Bar Association. The AFBA was created to facilitate the exchange of information with attorney members concerning alternative finance.
“What’s interesting about this is that while the industry itself is male dominated, most of the dominant attorneys in the space are women,” said Rohan. “Some of the largest originators, the General Counsel are women. The leading compliance and regulatory firm, the two attorneys that lead the group that handle commercial business are both women. And that’s an interesting dynamic.”
Working in a predominately male-led industry can have its challenges but Rohan claimed she never found it to be anything that’s held her back. Acknowledging at conferences that only about 10% of attendees are women while the rest are men, she does not believe it has had a negative impact on growth. Rohan agrees it’s important to support women in every endeavor and to not shy away from positions in this industry.
“Just do it, just jump in,” said Rohan. “Don’t hesitate, you’re in control. The amount that you learn is the amount that you allow yourself to be exposed to.”
Funding with Francis
Graduating with a degree in Health Promotion and Education, Heather Francis took a left turn into finance. Working for a private equity firm, she managed portfolios as well as oversaw many others. That position became her crash course into the industry, fueling her relationship into the financial services world and eventually encouraging her to start her own company in 2015, Elevate Funding. As CEO and Founder, Francis has had to do it all.
“I think owning my own business is accomplishment in itself, as well as being a mom and a wife,” said Francis.
Without dwelling on the industry being predominately male, Francis believes it has opened many doors for her. The women in the field are a “close knit group” propping each other up and sharing information, she explained. She believes it is important to support everyone that demonstrates drive and attitude to better themselves. That can be providing pathways, being a soundboard, introducing people, and simply giving out words of confirmation.
“I’ve always seen that the boys have a club, so do the girls, it’s never been anything that’s been a worry to me, or I’ve been like, ‘I’m being held back because of being a woman in finance,’” said Francis.
As a Board member of the SBFA, Francis helps solve problems in the industry and contributes ideas. And with rapid change surrounding the business, she has a hopeful disposition on where it’s heading as we enter a new economic phase. Experiencing the recession back in 09’, Francis saw the industry grow exponentially between 2009 and 2011.
“Traditional finance pulls back when times are hard, and we’re able to be a little bit more nimble and move around to adjust for it, but still keep funding,” said Francis.
Bonded through finance, women are navigating throughout the industry with strong personalities, outspoken voices, and confidence. Born into the field or pivoting their way in, they seem to be embedded into every aspect. While being a team player to everyone, these women continue to push their career forward with hard work, sticking to core values, and knowing who they are.
In the 1999 film “Any Given Sunday,” Al Pacino plays a pro football coach whose obsession with winning has torn apart his family. He’s also plagued by a meddlesome team owner, challenged by an offensive coordinator who’s after his job, and vexed by a talented but narcissistic backup quarterback. But none of that stops the coach from reaching deep inside to deliver a stirring halftime pep talk to his dispirited losing team. Assuring his players that life and football are both games of inches, he beseeches them to look into the eyes of the men around them. “You’re going to see a guy who will go that inch with you,” he declares. “Either we heal now as a team or we will die as individuals.” The players rally and explode onto the field.
It’s a scenario the sales staff can’t get enough of at RapidAdvance, a Bethesda, Md.-based alternative small-business finance company with more than 200 employees. Mark Cerminaro has screened a clip of the scene countless times in a company conference room to fire up his crew. Salespeople emerged from those meetings eager to make that extra phone call, provide the telling detail on an application or do whatever else it would take to taste the victory of making the sale. For Cerminaro, the movie and the sales meetings embodied his penchant for winning ethically through teamwork, dogged persistence and great customer experience. That credo has helped propel him to top management at RapidAdvance and has earned him accolades from once-skeptical financial services peers.
Cerminaro’s story begins in his hometown of Highland Park, N.J., where he experienced a small-town vibe but enjoyed easy access to New York City, Philadelphia and the Jersey Shore. He graduated in a class of 85 students from the local public high school, playing varsity football, basketball and baseball. Summers, he worked construction, did landscaping, delivered flowers and umpired Little League. “It was a great place to grow up,” he says.
In high school, Cerminaro sometimes went along for the ride when his sister, who was five years older, was choosing a college. On a visit to Georgetown University in Washington, D.C., Cerminaro stood in the student center and gazed out at the campus. “I’m going to come here and play football,” he told himself.
He made good on that vow when his high school football team made a reputation for itself, and Georgetown was among the schools that recruited him. Besides, it made sense to go there because he was interested in studying politics and going to law school. Growing up with a father who was chairman of the local Democratic Party, Cerminaro had his eye on eventually becoming governor of New Jersey.
Playing for the NFL on the way to the governor’s mansion seemed like a good idea, too. But Cerminaro, a quarterback, blew out his throwing arm two years into his collegiate football career. His dreams of making the pros died, but that left more time for academics. He plunged into a series of four rigorous internships, three of them in politics. He served two in the Clinton White House and one on Capitol Hill with Sen. Robert Torricelli, D-N.J. He fondly recalls talking to President Bill Clinton for five minutes before a state dinner. Then two hours later, after spending time with heads of state, the President called out, “There’s Mark, my fellow Hoya.” Cerminaro will never forget it.
In the end, however, the fourth internship won out. Although Cerminaro hadn’t studied business or finance too much, he landed an internship in the local Washington, D.C., office of Morgan Stanley. If nothing else, it would help him manage his investments some day, he reasoned. However, he soon approached the operations manager and some senior brokers and offered to take on duties they didn’t want to fulfill. He had decided to learn about operations, and taking on extra work without additional compensation was in line with his new habit of figuring out what steps would take him where he wanted to go in life.
Cerminaro earned his managerial license with Morgan Stanley and accepted a job as associate branch manager in the Washington, D.C., office, managing and training new financial advisors. He considered the position great exposure to sales, management, operations and compliance – “elements that have paid dividends in the growth of my career,” he notes.
Early in Cerminaro’s tenure at Morgan Stanley, the company sent him for training with about 300 other new employees at 2 World Trade Center in Manhattan. The date was Sept. 10, 2001. When the trainees reported to the office the next day, they were in a 64th-floor conference room when they heard an explosion and saw shreds of paper floating past the windows. They didn’t realize yet that a terrorist-controlled jetliner had hit next door at 1 World Trade Center.
As they evacuated down a stairwell, the trainees heard and felt the concussion of the second plane that hit their building. “I’m 22 years old and I may be about to die,” Cerminaro remembers thinking. “Make sure my family knows I love them,” he prayed. He made it out and was greeted with smoke, debris, the flashing lights of emergency vehicles and panic in the streets. He walked to a restaurant some family friends operated in Little Italy and borrowed a working phone to call his family in New Jersey and let them know he was OK.
Returning to the D.C. office of Morgan Stanley, Cerminaro got back to work. He loved the entrepreneurial spirit at the company, but as the years passed he realized he was unlikely to amass enough power in the giant firm to dictate how it would operate, grow and change. So he was interested when someone he knew at Morgan Stanley told him about RapidAdvance, then a two-year-old company with about 20 employees. “I saw the opportunity to be part of building a company – that’s what drew me to RapidAdvance,” he recalls.
In 2007, Cerminaro interviewed with Jeremy Brown, who was RapidAdvance’s CEO at the time and has since advanced to chairman. “It was apparent that Mark had a well thought-out, well-articulated plan for sales,” Brown says of his first impression. “He had a presence about him, a command that said this guy a real leader – somebody who could make a long term component of the company.”
Cerminaro joined RapidAdvance as national sales director and began building a sales structure and team based on some of the elements of Morgan Stanley’s sales model. Developing KPIs, or key performance indicators, helped him measure progress. “You had to roll up your sleeves and get involved in every aspect of things,” he said of working for a startup in a fledgling industry. The company’s outbound call center came up with sales leads, and he cut and pasted them from an Excel spread sheet and divvied them up among the five or six account executives.
Cerminaro wanted to teach that handful of salespeople to function as business advisors and help them become the single point of contact for clients. His salespeople guided small-business owners through the application process and stayed in contact with them after the sale. He emphasized doing right by customers, teammates and the company as a whole. It was a vision that inspired the team.
“Mark was a great mentor and provided me a lot of guidance and tutelage over the years,” says Devin Delany, who started as an account executive at RapidAdvance and has moved up to director of sales. “His real mission was to create a sense of family and he executed on that to the fullest extent, creating a close knit team of upward of 40 folks who really care about one another.”
That sales “family” used dialogue marketing to refocus attention on prospects who had fallen out of the sales cycle. In those days they used a product-driven sales pitch based on merchant cash advances. Third-party partners included credit card processors and credit card ISOs. Brokers came onto the scene later.
Soon after Cerminaro arrived at RapidAdvance, the financial crisis struck. The company managed to navigate the troubled times and emerged with improved underwriting skills, a better understanding of leading indicators and a truer grasp of how its portfolio performs. Something else happened, too.
As traditional lines of credit dried up during the recession, small businesses that didn’t accept credit cards began to search for working capital. In response, Cerminaro, Brown and Joseph Looney, RapidAdvance’s chief operations officer and general counsel, sat down and outlined a plan to offer small-business loans as well as MCAs. “That effort really redefined who RapidAdvance was,” Cerminaro says of the new loans. “We went from a single-product company to now being more of a solutions-based company,” he maintains. “We were able to shift from selling a product to doing needs-based analysis with our clients and focusing on what was the right solution for them.”
Cerminaro found it exciting to develop the loan program and oversee sales, but he was looking for more. He turned part of his attention to business development and even expanded his purview to include marketing. The company was thinking along the same lines. In 2010, RapidAdvance promoted him to senior vice president, sales and marketing. “As the company has grown we have had different needs, and we leaned on Mark and his skill set every time we made a change,” Brown says. “Every time we made a change he has stepped up and done what’s asked of him.”
Producing one of the industry’s first national television ad campaigns highlighted Cerminaro’s period as senior vice president. “We were the pioneers in being able to market through that medium,” he says. “It was absolutely scary at the same time. It was a massive investment for us and we had no idea whether it would pan out.” The sales staff were waiting in anticipation when the phones began ringing after the public saw the commercial. “The original spot we put together still tests well and drives a lot of traffic,” he notes. Viewers find a tune featured in the ad sticks in their minds and can’t help humming it – sometimes when they’d prefer they didn’t, he adds.
Then came another promotion. In 2013, just before Detroit-based Rockbridge Growth Equity LLC acquired RapidAdvance, Cerminaro was named chief revenue officer and became responsible for all revenue-generating activities and all of the company’s front end efforts. The company had grown significantly over the years, but the merger increased financial backing and thus accelerated growth, he says. For him, that meant pursuing a new type of partner company – asset-based lenders and factoring companies. It wouldn’t be easy. “The traditional lending market had a lot of misconceptions about our industry,” Cerminaro admits. “A lot of people in that business were very critical.”
But Cerminaro made the rounds of trade shows and visited conference rooms until he succeeded in winning the hearts of bankers, according to Will Tumulty, RapidAdvance’s CEO. “Mark and his team have developed partnerships in the commercial lending space,” Tumulty says. “There are a number of companies that have historically viewed working-capital funding as a competitor. We don’t see ourselves competing with those companies. Mark and his team have worked with those companies to get merchants what they need.”
As a testament to Cerminaro’s success in that quest, the Commercial Finance Association named him to its 2016 list of “40 under 40” achievers. He was the only person from alternative small-business funding to make that venerable list of prominent young lending executives. He helped spur his company on to other awards, too. The RapidAdvance Bethesda office was chosen for The Washington Post Top Workplaces 2016 list, and the RapidAdvance Detroit office made the list of 101 firms recognized as Metro Detroit’s 2016 Best and Brightest Companies to Work For.
Meanwhile, Cerminaro was successfully courting mega retailers, says Brown. When the possibility of becoming a partner with Office Depot arose, Brown felt hopeful but remained skeptical because of the long lead time required to convince so many executives in such a large corporation. “But mark was dogged,” he says. “It took him probably a year to land and close the deal and negotiate the agreement and sign the account. He went to countless meetings down in Florida. He participated in endless conference calls, but mark got the deal done. It’s a relationship we’re proud of, and he is singularly responsible for closing that deal.”
In those encounters with Office Depot execs, Cerminaro displayed savvy and professionalism, Brown says. They’re traits that will continue to pay off not only for RapidAdvance but for the entire industry, maintains RapidAdvance’s Looney. “He’s out there with lots of big banks and other potential partners,” says Looney. “He’s a good face for the industry.”
For Cerminaro, it’s satisfying to see RapidAdvance become all he dreamed it could be. But that still comes in second for him and differentiates him from the coach played by Al Pacino. Cerminaro’s the kind of guy who asked his father to be his best man and now has a wife and two sons of his own. “Your family and your loved ones are by far more important than anything else in your life,” he says.
After getting pummeled in 2016, many alternative funders have licked their wounds and are flexing their muscles to go another round in 2017.
“The industry didn’t implode or go away after some fairly negative headlines earlier in the year,” says Bill Ullman, chief commercial officer of Orchard Platform, a New York-based provider of technology and data to the online lending industry. “While there were definitely some industry and company-specific challenges in the first half of the year, I believe the online lending industry as a whole is wiser and stronger as a result,” he says.
Certainly, 2016 saw a slowdown in the rapid rate of growth of online lenders. The year began with slight upticks in delinquency rates at some of the larger consumer originators. This was followed by the highly publicized Lending Club scandal over questionable lending practices and the ouster of its CEO. Consumers got spooked as share prices of industry bellwethers tumbled and institutional investors such as VCs, private equity firms and hedge funds curbed their enthusiasm. Originations slowed and job cuts at several prominent firms followed.
Despite the turmoil, most players managed to stay afloat, with limited exceptions, and brighter times seemed on the horizon toward the end of 2016. Institutional investors began to dip their toes back into the market with a handful of publicly announced capital-raising ventures. Loan volumes also began to tick up, giving rise to renewed optimism for 2017.
Notably, in the year ahead, market watchers say they anticipate modest growth, a shift in business models, consolidation, possible regulation and additional consumer-focused initiatives, among other things.
MARKETPLACE LENDERS REDEFINING THEMSELVES
Several industry participants expect to see marketplace lenders continue to refocus after a particularly rough 2016. Some had gone into other businesses, geographies and products that they thought would be profitable but didn’t turn out as expected. They got overextended and began getting back to their core in 2016. Others realized, the hard way, that having only one source of funding was a recipe for disaster.
“Business models are going to evolve quite substantially,” says Sam Graziano, chief executive officer and co-founder of Fundation Group, a New York-based company that makes online business loans through banks and other partners.
For instance, he predicts that marketplace lenders will move toward using their balance sheet or some kind of permanent capital to fund their loan originations. “I think that there will be a lot fewer pure play marketplace lenders,” he says.
Indeed, some marketplace lenders are starting to take note that it’s a bad idea to rely on a single source of financing and are shifting course. Some companies have set up 1940-Act funds for an ongoing capital source. Others have considered taking assets on balance sheet or securitizing assets.
“The trend will accelerate in 2017 as platforms and investors realize that it’s absolutely necessary for long-term viability,” says Glenn Goldman, chief executive of Credibly, an online lender that caters to small-and medium-sized businesses and is based in Troy, Michigan and New York.
BJ Lackland, chief executive of Lighter Capital, a Seattle-based alternative lender that provides revenue-based start-up funding for tech companies, believes that more online lenders will start to specialize in 2017. This will allow them to better understand and serve their customers, and it means they won’t have to rely so heavily on speed and volume—a combination that can lead to shady deals. “I don’t think that the big generalist online lenders will go away, just like payday lending is not going to go away. There’s still going to be a need, therefore there will be providers. But I think we’ll see the rise of online lending 2.0,” he says.
Despite the hiccups in 2016, Peter Renton, an avid P2P investor who founded Lend Academy to teach others about the sector, says he is expecting to see steady and predictable growth patterns from the major players in 2017. It won’t be the triple-digit growth of years past, but he predicts investors will set aside their concerns from 2016 and re-enter the market with renewed vigor. “I think 2017 we’ll go back to seeing more sustainable growth,” he says.
THE CONSOLIDATION EQUATION
Ron Suber, president of Prosper Marketplace, a privately held online lender in San Francisco, says victory will go to the platforms that were able to pivot in 2016 and make hard decisions about their businesses.
Prosper, for example, had a challenging year and has now started to refocus on hiring and growth in core areas. This rebound comes after the company said in May that it was trimming about a third of its workforce, and in October it closed down its secondary market for retail investors. Suber says business started to pick up again after a low point in July. “Business has grown in each of the subsequent months, so we are back to focused growth and quality loan production,” he says.
Not long after he said this, Prosper’s CEO, Aaron Vermut, stepped down. His father, Stephan Vermut, also relinquished his executive chairman post, a sign that attempts to recover have come at a cost.
Other platforms, meanwhile, that haven’t made necessary adjustments are likely to find that they don’t have enough equity and debt capital to support themselves, industry watchers say. This could lead to more firms consolidating or going out of business.
The industry has already seen some evidence of trouble brewing. For instance, online marketplace lender Vouch, a three-year-old company, said in June that it was permanently shuttering operations. In October, CircleBack Lending, a marketplace lending platform, disclosed that they were no longer originating loans and would transfer existing loans to another company if they couldn’t promptly find funding. And just before this story went to print, Peerform announced that they had been acquired by Versara Lending, a sign that consolidation in the industry has come.
“I think you will see the real start of consolidation in the space in 2017,” says Stephen Sheinbaum, founder of New York-based Bizfi, an online marketplace. While some deals will be able to breathe life into troubled companies, others will merge to produce stronger, more nimble industry players, he says. “With good operations, one plus one should at least equal three because of the benefits of the economies of scale,” he says.
Market participants will also be paying close attention in 2017 to new online lending entrants such as Goldman Sachs’ with its lending platform Marcus. Ullman of Orchard Platform says he also expects to see more partnerships and licensing deals. “For smaller, regional and community banks and credit unions—organizations that tend not to have large IT or development budgets—these kinds of arrangements can make a lot of sense,” he says.
A BLEAKER MCA OUTLOOK
Meanwhile, MCA funders are ripe for a pullback, industry participants say. MCA companies are now a dime a dozen, according to industry veteran Chad Otar, managing partner of Excel Capital Management in New York, who believes new entrants won’t be able to make as much money as they think they will.
Paul A. Rianda, whose Irvine, California-based law firm focuses on MCA companies, likens the situation to the Internet boom and subsequent bust. “There’s a lot of money flying around and fin-tech is the hot thing this time around. Sooner or later it always ends.”
In particular, Rianda is concerned about rising levels of stacking in the industry. According to TransUnion data, stacked loans are four times more likely to be the result of fraudulent activity. Moreover, a 2015 study of fintech lenders found that stacked loans represented $39 million of $497 million in charge-offs.
Although Rianda does not see the situation having far-reaching implications as say the Internet bubble or the mortgage crisis, he does predict a gradual drop off in business among MCA players and a wave of consolidation for these companies.
“I do not believe that the current state of some MCA companies taking stacked positions where there are multiple cash advances on a single merchant is sustainable. Sooner or later the losses will catch up with them,” he says.
Rianda also predicts that the decrease of outside funding to related industries could have a spillover effect on MCA companies, causing some to cut back operations or go out of business. “Some companies have already seen decreased funding in the lending space and subsequent lay off of employees that likely will also occur in the merchant cash advance industry,” he says.
THE REGULATORY QUESTION MARK
One major unknown for the broader funding industry is what regulation will come down the pike and from which entity. The Office of the Comptroller of the Currency that regulates and supervises banks has raised the issue of fintech companies possibly getting a limited purpose charter for non-banks. The OCC also recently announced plans to set up a dedicated “fintech innovation office” early in 2017, with branches in New York, San Francisco and Washington.
There’s also a question of the CFPB’s future role in the alternative funding space. Some industry participants expect the regulator to continue bringing enforcement actions against companies. In September, for instance, it ordered San Francisco-based LendUp to pay $3.63 million for failing to deliver the promised benefits of its loan products. Ullman of Orchard Platform says he expects the agency to continue to play a role in the future of online lending, particularly for lenders targeting sub-prime borrowers.
Meanwhile, some states like California and New York are focusing more efforts on reining in online small business lenders, and it remains to be seen where this trend takes us in 2017.
MORE CONSUMER-FOCUSED INITIATIVES ON HORIZON
As the question of increased regulation looms, some industry watchers expect to see more industry led consumer-focused initiatives, an effort which gained momentum in 2016. A prime example of this is the agreement between OnDeck Capital Inc., Kabbage Inc. and CAN Capital Inc. on a new disclosure box that will display a small-business loan’s pricing in terms of total cost of capital, annual percentage rates, average monthly payment and other metrics. The initiative marked the first collaborative effort of the Innovative Lending Platform Association, a trade group the three firms formed to increase the transparency of the online lending process for small business owners.
Katherine C. Fisher, a partner with Hudson Cook LLP, a law firm based in Hanover, Maryland, that focuses on alternative funding, predicts that more financers will focus on transparency in 2017 for competitive and anticipated regulatory reasons. Particularly with MCA, many merchants don’t understand what it means, yet they are still interested in the product, resulting in a great deal of confusion. Clearing this up will benefit merchants and the providers themselves, Fisher notes. “It can be a competitive advantage to do a better job explaining what the product is,” she says.
CAPITAL-RAISING WILL CONTINUE TO POSE CHALLENGES
Although there have been notable examples of funders getting the financing they need to operate and expand, it’s decidedly harder than it once was. Renton of Lend Academy says that some institutional investors will remain hesitant to fund the industry, given its recent troubles. “It’s a valuation story. While valuations were increasing, it was relatively easy to get funding,” he says. However, industry bellwethers Lending Club and OnDeck are both down dramatically from their highs and concerns about their long-term viability remain.
“Until you get sustained increases in the valuation of those two companies, I think it’s going to be hard for others to raise money,” Renton says.
Several years ago, alternative funders were new to the game and gained a lot of traction, but it remains to be seen whether they can continue to grow profits amid greater competition and the high cost of obtaining capital to fund receivables, according to William Keenan, chief executive of Pango Financial LLC, an alternative funding company for entrepreneurs and small businesses in Wilmington, Delaware.
These companies continue to need investors or retained earnings and for some companies this is going to be increasingly difficult. “How they sustain growth going forward could be a challenge,” he says. Even so, Renton remains bullish on the industry—P2P players especially. “The industry’s confidence has been shaken. There have been a lot of challenges this year. I think many people in the industry are going to be glad to put 2016 to bed and will look with renewed optimism on 2017,” he says.
Prior to this story going to print, small business lender Dealstruck was reportedly not funding new loans and CAN Capital announced that three of the company’s most senior executives had stepped down.
Aaron Smith sued a merchant cash advance company in the United States District Court of Southern California earlier this year for allegedly making unsolicited calls to his personal cell phone registered on the Do-Not-Call list. His name has been changed for this story because he’s a vexatious litigator, even landing on an official list of vexatious litigants by the State of California in the early 2000s thanks to his tendency to file harassing lawsuits. But that’s not all, Smith has a criminal history that includes stalking and extortion and he’s served time in prison for his role in a multi-million dollar mortgage fraud RICO conspiracy.
These days he’s suing small business financing companies for alleged violating phone calls, at least five of which we could identify through San Diego court records just over the last several months. Two of the suits appeared while we were researching this story, which means that there could probably be even more by the time that you are reading this.
Smith presumably runs a business as his website has and still continues to advertise services to consumers. But if you are not an existing customer or have not been referred by an existing customer, his website warns that attempting to contact him by any means is a violation. Suffice to say that deBanked did not attempt to contact Smith to get his side of the story.
In one complaint, Smith claims that the phone number receiving the unsolicited calls is a “private personal cellular telephone.” To his credit, a cursory glance of his business website does not appear to list any phone number for it at all. However, the Internet Archive Wayback Machine which allows users to see archived versions of web pages across time, revealed that very same phone number being prominently displayed on his business website for several years including up to as recent as September, 2015, after which it was removed. There’s reason then to question if Smith might be up to no good.
While the merits of Smith’s claims will be up to the courts to decide, his background doesn’t inspire confidence. Countless other plaintiffs using the Telephone Consumer Protection Act (TCPA) to file lawsuits have colorful backgrounds in their own right, a lot of which can be found using Google. But a suggestion relayed by some of our readers is that plaintiffs appear to be doing what they do for profit, not because they have been harmed by the calls they allegedly receive. deBanked decided to conduct its own independent research on this issue.
SUING FOR PROFIT?
That’s just what the headline of a WDSU TV story alluded to in its coverage in 2004 of a stay-at-home Pennsylvania dad named Stewart Abramson. Titled, Man Who Turns Table On Telemarketers Turns Profit, Too, quotes Abramson as saying, “First, I’ll write them all and tell them that I’m willing to settle for the minimum statutory damages per call, which is $500, but if they don’t want to settle, then I’ll file a civil complaint.”
In a case he won against a debt consolidation firm for calling him with a prerecorded message, Abramson reportedly said, “It would have made sense for them to pay the minimum damages due me, but they wanted to put up a fight. I don’t mind. I’ll take more money.”
Abramson continued to say at the time that he felt empowered by Congress to stop this illegal activity and that he was just doing his part and making a little money for doing so. More than a decade later, Abramson’s name is still showing up as a plaintiff in TCPA cases, including in at least one complaint discovered by deBanked against a small business financing company.
According to court records, the defendant contended that Abramson was “in the business of suing entities for violations of the TCPA,” an accusation the judge ruled irrelevant to the particular matter at hand.
Michael Goodman, a partner in the Washington DC office of law firm Hudson Cook, who was not asked about this case specifically, said in an emailed interview that generally accusing someone of being a serial plaintiff might not really help.
“Accusing a plaintiff of being a serial or professional TCPA plaintiff is unlikely to affect the outcome much, if at all,” Goodman said. “While there are outliers, the general rule is that the court will assess the merits of each case individually and will not ‘punish’ a plaintiff for being a serial or professional TCPA plaintiff.”
An email address for Abramson could not be located and given the special circumstances of his history, we did not attempt to call him.
If ever there was a TCPA celebrity however, it’d be Diana Mey, a self-described stay-at-home mom who started wrangling with telemarketers in 1998 after what her website described as “a series of intrusive telemarketing calls by a Sears affiliate pitching vinyl siding.”
She’s an important figure in TCPA history, not just because she’s been awarded millions through her lawsuits but also because she helped draft the FTC’s rules. Reports show her participating in FTC-hosted telemarketing forums in 2000 and 2002 and her name even appears in the footnotes of the FTC’s Telemarketing Sales Rule entered into the Federal Register in 2003. And so we followed Mey’s story online, noting that she has actually become famous for her pursuits, even appearing in a TV segment for ABC News in 2012. Her website at www.dianamey.com teaches others how they too can pursue monetary damages from telemarketers that engage in illegal practices.
“The first step is to write a formal ‘demand’ letter to the president of the company, stating that the letter is a formal claim for money […] for violations of the Telephone Consumer Protection Act of 1991,” her website advises.
It was quite a surprise then to discover that this Diana Mey was the same Diana Mey captioned as a plaintiff in a current case against a small business financing company. Almost two decades after her first experience, she is still filing lawsuits for alleged telemarketing violations.
Mey declined to respond to our questions even though they were not about that case, citing pending litigation.
“I’m a mom and I’m a housewife, and I’m an accidental activist,” Mey said in that 2012 ABC News interview. Others have referred to her as a “private attorneys general,” defined as someone who brings a lawsuit considered to be in the public interest.
That same title has been attributed to one Robert Braver who is the man behind www.do-not-call.com which launched in 1998 as “a consumer’s resource for stopping unsolicited telemarketing calls.” His comments appear in FCC records and he was also featured in a Dateline NBC special in 2002 about a new telemarketing scheme that was alarming consumers. Suffice to say Braver has been a consumer proponent in this area of the law for a long time, a role that has not come without risks.
According to Braver, the attorney for one telemarketer he sued, arranged to have his (then) elementary school age kids stalked and photographed, a terrifying ordeal that was only made worse after the attorney allegedly sent him a fax bragging about it. But he has continued on, noting that while he has gotten much fewer junk faxes, telemarketing calls have gotten more out of hand over time, to the point where they’re disruptive to everyday life.
“My wife is a middle school teacher,” Braver said. “She doesn’t work in the summer and gets home before I do when she is teaching. She typically leaves her phone in her purse in a spot in the kitchen and hangs out in in the den or back patio. It’s gotten so bad at times that when I need to call her, she doesn’t get up and run to look at her phone when it rings, and I have ignored unknown calls on my cell and let them go to voicemail, only to find out later that they were legit calls.”
And sometimes it’s a total mystery how they even get added to a list. “We have two teenage boys still at home, and they have cell phones too. Somehow my youngest son’s cell number got on a marketing list for student loan debt relief, and was getting 10-15 calls a day for a while,” Braver explained.
Contrast that with a story that appeared in the Dallas Observer in 2010 about one Craig Cunningham, another celebrity-like TCPA figure who still has active cases pending, public records reveal.
According to the story, Cunningham stays at home on a “dumpy couch” to wait for a particular type of phone call, “one from a representative of a debt collection agency or a credit card company, whom he’ll try to ensnare like a Venus fly trap,” the Observer reported. Cunningham is said to have learned his trade from online message boards, where we decided to look next to see if there was anyone out there indeed talking about TCPA lawsuits for profit.
On May 25, 2014, a participant using the pseudonym codename47 published a thread titled, TCPA enforcement for fun and for profit up to 3k per call on fatwallet.com, the exact kind of salacious headline that defendant companies have probably imagined in their worst nightmares. Codename47 has a big fan base it seems, with one user even suggesting to him that he should create and sell a “sue telemarketers” package so that people could do what he does for side income.
Codename47 is Craig Cunningham, who we reached out to with some questions through the fatwallet forum. He declined to answer them, citing pending litigation and the fact that he no longer does interviews.
One user on fatwallet in 2010 said of Cunningham, “It’s kind of hard to convince a Federal judge that you are a victim when you are trying to find a publisher for a book called CREDIT TERRORIST.”
It now being six years later, no such book can be found in Amazon or through Google. A link to where purported information on it once was leads to a page-not-found error. The Archive Wayback Machine however, produces an interesting find.
Tales Of A Debt Collection Terrorist: How I Beat the Credit Industry At Its Own Game and Made Big Money From the Beat Down is the title of a proposed book in 2010 by Craig Cunningham and Brian O’Connell. O’Connell is a writer/content producer for TheStreet.com and a well-known and widely published author. He tells deBanked that he wished he had written it with Cunningham but that they didn’t move forward with it.
But the proposal remains, including the description of Cunningham as being a highly sought after expert in the field of debt collection “revenge” industry.
Outside of fatwallet, the only other real mention of the proposed book could be found on a website called debtorboards.com. Lenders might find the website horrifying considering the forum’s tagline is “Sue Your Creditor and Win.” With more than 20,000 members and nearly 300,000 posts, the forum has an entire section dedicated to TCPA. Legal strategy is a dominant topic and it’s abundantly obvious that people are working together to stop companies from calling them.
Sadly, it’s not all innocent consumers out there. For example, the TCPA has invited abuse to the point where at least one person admitted to buying cell phones to maximize the chances of getting illegal calls so that they could sue. That’s what serial plaintiff Melody Stoops said in a June 2016 deposition as part of her case against Wells Fargo in the Western District of Pennsylvania.
Q. Why do you have so many cell phone numbers?
A. I have a business suing offenders of the TCPA business — or laws.
Q. And when you say business, what do you mean by business?
A. It’s my business. It’s what I do.
Q. So you’re specifically buying these cell phones in order to manufacture a TCPA? In order to bring a TCPA lawsuit?
Purchasing at least 35 phones, she even went so far as to register them with out-of-state area codes in places she thought were more economically depressed and therefore more likely to get violating calls. Stoops sent out so many pre-litigation demand letters and filed so many lawsuits that she could not be certain how many she sent out or how many suits she was in, according her to deposition.
Apparently Stoops found the line of legal perversion and crossed it. On June 24, 2016, the judge ruled in favor of Wells Fargo because she wasn’t injured by the calls she received, nor were the injuries she claimed within the “zone of interests” the law was meant to protect. “It is unfathomable that Congress considered a consumer who files TCPA actions as a business when it enacted the TCPA,” he wrote.
A TURNING POINT?
Hudson Cook law partner Michael Goodman said, “the impact of Stoops v. Wells Fargo is still to be determined, but I would say that it is significantly fact specific and therefore unlikely to result in large-scale changes in TCPA private actions. Stoops put a lot of effort into becoming a magnet for calls that could violate the TCPA. In many TCPA cases, consumers do not need to try that hard to receive a call that could prompt a TCPA suit.”
Stoops was pursuing calls while most of the advice and discussion uncovered online is about what to do if you get a call, not about how to create the calls in the first place. Even debtorboards, for example, is a registered non-profit, keeping consistent with its image as a consumer empowerment tool.
If the tide is turning though, it’s not in a direction favorable to telemarketers. Goodman said that “in July 2015, the FCC announced a new interpretation of the TCPA’s ‘autodialer’ standard that significantly expanded the definition and introduced a lot of unnecessary uncertainty as to what is and is not a regulated autodialer. That interpretation is currently being challenged in court. There’s a bit of a trend among courts requiring plaintiffs in autodialer cases to do more than simply allege that they were called with an autodialer. These courts, possibly in an effort to frustrate TCPA autodialer cases, are requiring plaintiffs to include circumstantial evidence of dialer use in their complaints: dead air, hang-up calls, generic messages, and so on. But the TCPA’s penalty structure still encourages suits that should not be brought.”
FCC Commissioner Ajit Pai, who was appointed by President Obama, voiced dissent to this new interpretation, echoing Goodman’s comments that it encourages frivolous suits.
An excerpt of Pai’s official dissent is below:
“Some lawyers go to ridiculous lengths to generate new TCPA business. They have asked family members, friends, and significant others to download calling, voicemail, and texting apps in order to sue the companies behind each app. Others have bought cheap, prepaid wireless phones so they can sue any business that calls them by accident. One man in California even hired staff to log every wrong-number call he received, issue demand letters to purported violators, and negotiate settlements. Only after he was the lead plaintiff in over 600 lawsuits did the courts finally agree that he was a “vexatious litigant.”
The common thread here is that in practice the TCPA has strayed far from its original purpose. And the FCC has the power to fix that. We could be taking aggressive enforcement action against those who violate the federal Do-Not-Call rules. We could be establishing a safe harbor so that carriers could block spoofed calls from overseas without fear of liability. And we could be shutting down the abusive lawsuits by closing the legal loopholes that trial lawyers have exploited to target legitimate communications between businesses and consumers.
Instead, the Order takes the opposite tack. Rather than focus on the illegal telemarketing calls that consumers really care about, the Order twists the law’s words even further to target useful communications between legitimate businesses and their customers. This Order will make abuse of the TCPA much, much easier. And the primary beneficiaries will be trial lawyers, not the American public.”
The FCC reviewed 19 individual petitions on the matter, some of which included relatively recent comments from the individuals we’ve mentioned so far. The appearance is that the FCC has collaborated with some individuals continuously over time or that individuals have collaborated continuously with the FCC. It might not matter though. Michael Goodman says that “the TCPA gives distinct enforcement rights to the FCC as well as persons who receive a call that violates the statute.”
“It isn’t really a matter of whether a particular violation should be handled by the FCC or privately,” Goodman adds. “Private plaintiffs have independent incentive to sue thanks to the TCPA’s penalty structure, and, compared to the FCC, private plaintiffs do not have to be as choosy in picking targets for actions.”
And what are the violations and penalties exactly? Goodman explained as follows:
“Depending on the specific TCPA provision at issue, private actions may be brought by individual consumers as well as businesses. The autodialer and prerecorded message provisions can be enforced by individuals and consumers, and they can sue based on a single improper call. For these provisions, the TCPA directs courts to award $500 per violation; courts do not have discretion to award a lesser figure. Courts do have discretion to award up to three times that amount (i.e., up to $1,500) per violation for willful or knowing violations. The TCPA’s do-not-call provisions are enforced by individual consumers, and this type of action requires more than one unlawful call in a 12-month period. For the do-not-call provisions, courts do have discretion to award less than $500 per violation (and can triple the penalty for willful or knowing violations).
The FCC has authority to obtain penalties of up to $16,000 per day of a continuing violation or per violation. FCC rules establish factors for the FCC to consider in calculating a proper penalty figure, including the nature of the violation, history of prior offenses, and ability to pay.”
“The base $500 per violation in statutory damages that consumers are entitled to hasn’t increased since the TCPA went into effect in 1992,” said activist Robert Braver. “This should be increased, especially since the TCPA does not allow for the recovery of attorney’s fees.”
Goodman said that private actions are much more common than FCC enforcement actions. That much is obvious. Private actions are becoming all too common in the small business financing industry where so many cases were uncovered through public records that we lacked the resources to follow them all.
More lawsuits might not be the cure though, according to Braver. He said that “more egregious telemarketing (massive robocall campaigns) should be criminalized on the federal level,” adding that “it’s one thing for an unscrupulous telemarketer to allow their shell corporation to have an uncollectible money judgment, but it’s another thing when individuals can wind up with a felony conviction on their records, and possible jail time.”
While that suggestion might antagonize telemarketers, Braver said that his cell phone, which is listed on the Do-Not-Call-Registry, can receive as many as 4-5 telemarketing calls per day, generally robocalls.
Whether plaintiff allegations from cases in this industry are true or not, legal fees over TCPA cases have continued to be an expense that many small business financing companies are contending with. Those costs have a way of being tacked on to the price of financing for small businesses that need capital, making it a lose-lose situation.
One marketing company in the industry who had to remain anonymous because settlement negotiations at the time were likely to include a non-disclosure clause, posed the question, “how are you supposed to help small businesses if you can’t actually call small businesses?”
“More and more merchants are using their cell phone as their business phone,” he argued. “The TCPA regulations need to be changed so that a merchant can’t claim his cell phone is his business phone one minute and his personal phone the next.”
Indeed, the motivations, facts and alleged damages in TCPA complaints are not always clear. And even though the plaintiffs don’t always win, the laws as they are, can make telemarketing difficult no matter how careful one is.
Still dialing for dollars these days? Just know that some folks may be just a little too happy that you called them. And for all the wrong reasons.
Good luck out there.