Mnuchin and Powell Defend Pandemic Aid Programs, Say Congress Needs to Agree Before They Can Give out More Money

September 23, 2020
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Capitol BuildingYesterday, Treasury Secretary Steven Mnuchin and Federal Reserve chair Jerome Powell testified on the COVID response before the House Financial Services Committee.

They championed the largest stimulus package in the Nations’s history and said the economy was recovering well.

Mnuchin advocated for bipartisan support of targeted forgivable loans- a second PPP loan for businesses still losing revenue, funded by either a new stimulus, reusing the $130 billion still leftover, or reallocating $200 billion from the Main Street Lending program. Of course, all of that is up to Congress, he said.

“I think there’s broad bipartisan support for extending the PPP in businesses that have had revenue drops for a second check,” Mnuchin said.

Chair of the committee, Maxine Waters D-CA, led the questioning. She asked for removing the loan minimum, and noting the slow economic activity; she said 32% of renters could not pay their bills at the beginning of Sept. Other charges, like the possibility of a second wave, were leveled toward the executives.

In response to questions to the Main Street Lending Program (MSLP,) they argued the program was not designed as a stimulus but as a “backstop” and liquidity to already present loan markets.

This might explain why last month, the Congressional Oversite Committee investigated the MSLP because of its low adoption rate and found many problems. 

To date, less than $2 billion of loans are “in the pipeline” out of the $600 billion allocated in April. The program is designed with non-forgivable loans supplied by 509 traditional FDIC insured lenders, at a minimum of $250,000. The majority of these lenders are not accepting new customers, unlike PPP loans facilitated by more than 5,000 lenders to mostly new clients- including fintech firms.

The Fed already lowered the minimum down from $1 million, but after questioning whether it could be lowered to under $100,000, Powell said there was very little demand for loans under $100,000. In response to Representative Andy Barr R-KY, about how the program could be improved to service smaller businesses, Powell responded that the program wasn’t created for that.

“The limit now is $250,000, and we have very little demand below a million, as I told the chair a while back,” Powell said. “We’re not seeing demand for very small loans. And that’s really because the nature of the facility and the things you’ve got to do to qualify, it tends to be larger sized businesses.”

The SBA reported findings from the third round of PPP on Aug 10th. The organization found that loans under $50k were the largest category issued. 68% of the 5,212,128 PPP loans were under $50k, and 87% were under $250k. 

GOP Proposes PPP Skinny Bill, Vote Thursday

September 9, 2020
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Capitol BuildingOn Tuesday, Senate Republicans introduced a slimmed-down “Skinny Bill” stimulus proposal, offering $500 billion proposed aid that they believe both sides of the aisle can agree on.

The Bill will extend PPP loans into the fall with $258 billion and certain small businesses will also be able to receive a second forgivable loan. If passed, the Skinny will also reintroduce weekly unemployment benefits of $300- half the $600 CARES act benefits that ended in July.

The Senate will vote on the proposed bill Thursday afternoon. The vote will test the GOP’s cohesion, which could not garner enough support for the $1 trillion HEALS act introduced in July. To pass, the Bill will need seven Democrat votes and 60 votes overall.

If it passes, it will have to survive the Democrat-controlled house. House Majority Leader Nancy Pelosi has already spoken against the Bill, saying it is filled with Republican “poison pills” that cannot pass in the House. House Dems are calling the Bill wholly political. Senate Majority leader Mitch McConnell said that if the Bill can not pass, the GOP can demonstrate that Dems are “stonewalling” aid.

Interview With Polling Expert Scott Rasmussen

May 7, 2020
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On Tuesday, I interviewed nationally recognized public opinion pollster Scott Rasmussen, who is the publisher of ScottRasmussen.com and is the editor-at-large for Ballotpedia, about the trajectory of the presidential race and how the current environment is affecting how people think.

Mr. Rasmussen will be a guest speaker at Broker Fair 2020 Virtual on June 11, 2020. You can watch the video interview below.

$2 Trillion Senate Relief Bill to Pass Vote, Includes Small Business Funds

March 26, 2020
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Main StreetSenate leaders Mitch McConnell and Chuck Schumer have come to an agreement over a stimulus package that would inject $2 trillion into the US economy. With senators debating the bill at the time of writing, it is expected to pass. Said to be the largest and most robust rescue package in American history, the bill would see $300 billion go to the SBA for its 7A loan program.

“At last we have a deal,” McConnell said after negotiations wrapped up at 1:30am on Wednesday morning. McConnell later described the bill as “a war-time level of investment into our nation.”

According to Stephen Denis, Executive Director of the SBFA, who was closely engaged with the language being placed into the bill, certain small businesses who receive SBA loans may have their loan converted to a grant, depending upon how they aim to spend the financing. As well as this, Denis made clear that small businesses will be able to use these funds to pay any charges linked to an online small business loan or MCA.

“There’s different things that you can use the SBA money for,” Denis explained in a call. “Payroll support, obviously, including paid sick leave, medical, or family leave; costs related to health care; employees salaries; mortgage payments; rent payments; utilities. And then this is another thing that we got inserted into the bill, we wanted to make sure that businesses had the flexibility to use this funding to pay existing debt obligations that were incurred before the covered period. What this means is that if a business had taken out an MCA or a loan, that they could use this money to pay off the obligations.”

As well as allotting funds for the SBA, the bill provides for cash payments of up to $1,200 to be made available directly to individuals, $2,400 for married couples, and an additional $500 per child, which will be reduced if the individual makes more than $75,000 annually or if the couple makes over $150,000. $350 billion will also be made available to help small businesses mitigate layoffs and support payroll.

The most recent example of something akin to this bill is the Troubled Asset Relief Program (TARP) that was established to help financial institutions in the aftermath of the ’08 financial crisis. And with there being some surprise in retrospect to how TARP’s funds were ultimately used, there is concern about supervision of these funds.

When asked on Monday who would provide oversight for the program to fund businesses, President Trump replied with, “I’ll be the oversight.” However, since then White House officials have agreed in closed-door negotiations that an independent inspector general as well as an oversight committee will be instated to supervise the loans.

Despite stalling in the Senate several times throughout Wednesday, Denis is confident that the bill will be voted through the Senate, and following this, through the House.

“Never make a guarantee in Washington. That’s something I’ve learned in my career. But I think this is something that both sides, both Democrats and Republicans, recognize needs to get done right now. And I can’t imagine anymore political games after the agreement this morning.”

As well as this, Denis was eager to highlight that many funders and broker shops fall under the classification of a small business, and would be eligible for some of the funds promised by this $2 trillion bill; and that if you are wondering how you might access some of the relief package upon its passing through government, to reach out to him.

The Pandemic, The Economy, and The Presidential Race

March 20, 2020
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Note from the Editor: In early February, I asked one of our regular journalists, Paul Sweeney, to look into the economy and the presidential race to size up the coming election season. As he was wrapping up his interviews over the span of a month, things took a startling turn, and COVID-19 came to the forefront and changed everything. This story is an amalgamation of reporting that started one way and quickly morphed into another. In light of how fast the situation is changing, we are publishing it now rather than waiting until early April to release it in print.

masked crowd

A version of this story will appear in deBanked’s Mar/Apr 2020 magazine issue. To receive copies in print, SUBSCRIBE FREE

Chris Hurn, who heads an Orlando-area financial firm in Florida that specializes in small business lending, says he is witnessing fear and desperation among business owners whose stores, shops and enterprises have been thrown into a tailspin by the coronavirus pandemic.

“We’ve been overwhelmed with telephone calls and e-mails,” says Hurn, chief executive at Fountainhead Commercial Capital, a non-bank Small Business Administration lender which boasts more than $250 million in originations last year. “I’ve fielded over 300 inquiries from borrowers about these loans in just the last few days,” he added. “People are telling me that they’re being harmed and don’t know how they’ll make payroll. The SBA needs to act.”

What Hurn is experiencing in Florida is not just an isolated incident. Thousands of small businesses are under siege nationwide as Americans’ have gone into isolation in response to the pandemic, helping precipitate a full-blown economic crisis. As of March 17, the coronavirus – also known as Covid-19 – had leapfrogged across the globe since appearing in China in December, 2019, infecting people in 100 countries. There are now some 272,000 confirmed Covid-19 cases worldwide and close to 11,300 deaths, according to data compiled by scientists at Johns Hopkins University in Baltimore.

In the U.S., the number of cases has cleared 19,000 as of March 20, the death toll has climbed above 230, and coronavirus cases have been recorded in all 50 states. The Center for Disease Control reports that the number of cases are growing at 25-30% per day. But experts warn that, because of a lack of testing, the actual number of cases is certainly higher.

Covid-19The outbreak is drawing comparisons to the worldwide influenza pandemic of 1918. Popularly known as the “Spanish Flu,” that virus may have claimed as many as 100 million lives, according to estimates by the World Health Organization. Medical officials say that persons 70 and older and those with underlying medical conditions, such as a weakened immune system, are most at risk in the current pandemic.

“What makes this disease so lethal,” says Rachel Scott, a family physician in Austin, Texas and the author of “Muscle and Blood,” a pathbreaking study of occupational diseases, “is that people in the vulnerable population who come down with the virus are prone to contract severe acute respiratory distress syndrome. In ARDS, the virus destroys the sacs in the lungs, preventing oxygen from being delivered into the blood stream. By the time people with severe ARDS are hospitalized and treated with a ventilator, it may already be too late.”

To blunt the accelerated pace of contagion, governors and mayors are putting restrictions on citizens by curbing gatherings and monitoring interactions. Governors in 44 states have forced restaurants and bars to close shop in an unprecedented regulation of U.S. citizens. Meanwhile, millions of Americans self-quarantined and self-isolated and re-examined how they interact socially, commercially and professionally. Increasingly draconian controls to moderate the trajectory of the outbreak are not only turning cityscapes into ghost towns from coast-to-coast but throwing a giant monkey wrench into the U.S. economy.

Treasury Secretary Steven Mnuchin has reportedly warned Congressional leaders that the unemployment rate could spike to 20%.


Former Labor Secretary Robert Reich has gone Mnuchin one better amid reports that 1.2 Americans had filed for unemployment insurance. In an interview on MSNBC Thursday, Reich said he feared that the unemployment rate is likely to hit that 20% mark in the next two weeks. “Eighty percent of Americans are living paycheck to paycheck,” he declared ominously. “We’re in a national emergency.”

The pandemic and the ensuing economic crisis is also casting a giant shadow over the 2020 presidential election. “It’s a black swan event that wasn’t anticipated by any of the candidates, and the reverberations for the election are going to be huge,” said Richard Murray, a political scientist and elections expert at the University of Houston.

For the past 50 years, political analysts have generally agreed, the condition of the U.S. economy was a key predictor – if not the key predictor – to the outcome of presidential elections. President Jimmy Carter, for example, had the bad fortune to preside over a problematic economy marked by oil-price shocks and energy shortages, mile-long queues at gasoline stations, and sky-high interest rates. There was even a new word — “stagflation” – coined for the phenomenon of stagnant growth and runaway inflation, recalls David Prindle, a government professor and expert on voting behavior at the University of Texas at Austin.

There were, of course, additional negative complications to Carter’s presidency. Most notable was the “Hostage Crisis” in which Iranian students attacked the U.S. Embassy in Teheran in the fall of 1979, held 44 American diplomats and aides captive for more than a year, and made Carter look hapless and helpless. Nonetheless, Ronald Reagan, a former governor of California and longtime matinee idol, hammered Carter mercilessly on the economy, demanding: “Are you better off than you were four years ago?”


Answering that question sent Carter packing to his Georgia peanut business. “In 1980, as in every election, there were multiple causes,” says Prindle, “but the deciding factor was the economy.”

President TrumpA healthy economy can serve as a mighty bulwark against opponents in a president’s bid for a second term. In the mid-1990s, an expanding economy and relentlessly buoyant stock prices – a Dow Jones Industrial Average so robust in the mid-1990’s that Federal Reserve chairman Alan Greenspan famously admonished investors for their “irrational exuberance” – allowed Bill Clinton to sail to re-election. (The good times also buffered Clinton during the ensuing sex scandal involving White House intern Monica Lewinsky.)

As the election year of 2020 dawned, a decently performing economy seemed to be serving President Donald Trump’s cause. Before the World Health Organization declared the coronavirus outbreak a pandemic in early March, the U.S. economy was coming off 10 full years of job growth and the unemployment rate had sunk to 3.5 percent, its lowest level in 50 years. Wages were also rising by nearly 4 percent per annum, noted Aparna Mathur, a labor economist at the business-backed American Enterprise Institute in Washington, D.C. “The economy is not spectacular,” she said, “but everything is moving in the right direction.”

Since then, however, the economy has been slammed as an alarmed country reacted to the pandemic. The NBA and NHL closed down their basketball and hockey seasons. Major League Baseball called a halt to spring training. The NCAA initially declared that “March Madness” would proceed and that hoopsters would perform before empty arenas, but then it pulled the plug. Even professional golf, an outdoor sport, hung up its cleats, announcing that The Masters, played at Augusta (Ga.) National Golf Course in April and the crown jewel of professional golf, would be postponed indefinitely.

empty arenaAlmost overnight, colleges and universities shut down classrooms, emptied their dorms, and opted for online coursework. Some 33 million schoolchildren in 41 states have ceased attending school. Hundreds of companies, including Amazon and Microsoft in Seattle, a city hit hard by the coronavirus, are requiring their employees to “telecommute” by working at home on their laptops.

The CDC at first advised Americans not to cluster in groups of more than 25 people, then cut that figure to 10. Americans are being prodded to engage in “social-distancing” by avoiding shaking hands and separating themselves from others by a separation of three-to-six feet from others. San Francisco has gone still further, grounding cable cars, closing down clubs and bars and restaurants and effectively putting the city on lockdown.

The city of Boston called off its iconic St. Patrick’s Day parade, Broadway theaters dimmed their lights, and Starbucks forbade customers to sit down in its coffee shops. Major events like South by Southwest, the music and cultural festival in Austin, Texas, was canceled, depriving Texas’s capital city of some $350 million in economic activity.

Jilting the festival cuts deeper than the losses to airlines, hotels, bars, restaurants, and music venues, notes Alfred Watkins, a Washington, D.C.-based economist and chairman of the Global Solutions Summit, an international consulting firm. “You have all of these people in Austin who are running events and they’re hiring caterers for sandwiches and refreshments,” he said. “You have independent contractors like videographers and photographers, sound-equipment suppliers, Uber and Lyft drivers, hairstylists, and even freelance entertainment journalists — all of whom are no longer making money. For these entrepreneurs,” he added, “losing this event is a little like retailers missing out on the Christmas season. It’s when they make their money.”

The airline, travel, leisure, and tourism industries are in free-fall. Major cruise lines suspended bookings and cut short voyages after horrific reports of coronavirus outbreaks among passengers trapped at sea, temporarily putting a $38 billion industry in dry dock.

The conventions industry, which has come to a standstill after wholesale cancellations, remains a vastly under-appreciated sector of the U.S. economy, argues George Brennan, former executive vice-president of marketing at Arlington (Va.)-based Interstate Hotels and Resorts, the world’s largest independent hotel management company.

These mass gatherings are an unheralded engine of growth, he says, packing a bigger economic wallop than they get credit for. “Conventions typically draw anywhere from 2,000 to 25,000 people,” he said. “They run 6,000 to 8,000 attendees on average, and most can only be accommodated by the top 10-20 U.S. cities, which include Chicago, San Francisco, Las Vegas, Atlanta, New Orleans and Orlando.

“Conventions are often multi-dimensional,” he added. “Attendees usually spend three to five days in town. They often shop at clothing stores and other retailers. They’ll take in sporting events or, if they’re in New York, a Broadway play. They’ll go to attractions like the San Diego Zoo, or spend an afternoon on a golf course in Florida or California.”

Conventions generate a tremendous amount of commerce and revenues for vendors and exhibitors. As an example, Brennan cites his former employer, the hospitality industry. “At hotel conventions,” he said, “you’ll see people there selling curtains and sheets, soaps and towels.”

In addition, many trade groups – Brennan cites the National Association of Civil Engineers and the American Medical Association as examples – count on the annual convention as an important component of their organization’s annual revenues. “When you pay to attend,” he says, “a significant portion goes back to the association. The convention often covers the yearly salary for a group’s staff.”

nyseAmid the dramatic behavioral changes, the stock market registered several days of panic-selling in March, capped by a record, single-day plunge on March 16: The Dow Jones index plummeted 2,997 points, the third-worst percentage loss in history. After flirting with the level at which the Dow was reading on Inauguration Day Jan. 20, 2017, the market continued see-sawing this week, herky-jerkying between mini-rallies and skids.

Hoping to prevent a coronavirus recession, the U.S. Senate adopted by an overwhelming, 90-8 bipartisan vote a $100 billion bill sent by the Democraticac-led House that expands free testing for the coronavirus, provides for paid sick leave and medical leave for some workers, and an emergency unemployment insurance and food assistance programs. The bill was signed late Wednesday night.

Meanwhile, Congress was taking up a monumental $1 trillion economic rescue plan proposed by the White House on St. Patrick’s Day (March 17) that included a bailout for the hotel and airline industries, help for small businesses, and $500 billion in direct cash payments to Americans households.

“We’re looking at sending checks to Americans immediately,” Treasury Secretary Steve Mnuchin said in a Rose Garden press conference at the White House on St. Patrick’s Day. By immediately, he added, “I’m talking about the next two weeks.”


The Trump Administration’s proposed help for small businesses has a strong supporter in Karen G. Mills, former SBA administrator and senior fellow at Harvard Business School. During her tenure in the Obama Administration, Mills was a troubleshooter in several crises including the Great Recession and Hurricane Sandy. “In a worst-case scenario with this virus contagion, getting loans to people through banks is not going to be fast enough,” she told deBanked just before the White House drew up its rescue plan. “They’ll need direct loans to people and other aid. If we lose our small business economy, it will be catastrophic.”

So how will the pandemic and the state of the economy play out politically in the November, 2020 general election between President Trump and former Vice President Joseph Biden, the presumptive Democratic nominee? The result remains shrouded in the fog of the future, of course, but the election’s contours are coming into focus.


Having seen him through numerous scandals, impeachment, and a trial in the U.S. Senate, Trump’s political and electoral following has been put to the test. Yet his backers remain unshakably loyal in a way not seen in 80 years, observed the University of Houston’s Murray. “More people are dug in now than at any time since the 1930s,” he says, as roughly 43% of the electorate is firmly lodged in Trump’s camp. “Trump’s support has been remarkably stable.”

The business community is a key demographic in the pro-Trump cohort, notes Ray Keating, chief economist at the Small Business & Entrepreneurship Council, a Washington, D.C. advocacy group claiming 100,000 members. “We have not polled our membership,” Keating says, “but when you look at the data they overwhelmingly vote Republican. We find that support for Donald Trump is clear and substantial.”

Richard Yukes, a Las Vegas-based oilman and longtime entrepreneur who votes his pocketbook, will be pulling the lever for Trump in the November election. The reason? Trump not only presided over a robust economy for the past several years, Yukes says, but the president slashed Obama-era regulations imposed on his industry. “Government regulation and bureaucratic regulation often get mishandled and misdirected by federal bureaucrats and Trump is for less regulation,” Yukes says. “I think America works best with less regulation.”

The owner and operator of oil wells in Wyoming, Yukes benefited handsomely last year when Trump’s Environmental Protection Agency relaxed rules governing methane leaks. The oilman reckons that complying with the regulations had been costing him an extra $1,500 per well each year.

No matter how well the economy has performed in the past three years, however, the pandemic economy promises to be a “game-changer,” says political scientist Murray, and history shows that voters are likely to take stern measure of the incumbent president’s performance during any a crisis.

Trump’s initial response to the coronavirus reminds Murray of Woodrow Wilson’s reaction to the Spanish Flu pandemic in 1918 while World War I was still raging. “As the U.S. was approaching climactic battles in Europe, President Wilson suppressed the news of the flu and the story didn’t get out though eventually people knew about it,” Murray says.

Wilson’s deceit hurt Democratic candidates who were battered in the 1918 midterm elections, just a few days before the November 11 armistice. Two years later, after Wilson had a stroke, the Democratic presidential candidate got crushed in the 1920 election by Warren G. Harding, a Republican senator from Ohio.

After war and influenza, Americans voted enthusiastically for Harding’s promise of “normalcy.”

Michael Bloomberg Says Democrats Off Limits From Investigations

December 7, 2019
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BloombergSuspect Bloomberg News might have a bias or an agenda? On Friday, Michael Bloomberg, whose company owns Bloomberg News, told CBS news that his reporters were restricted from investigating Democratic candidates while he runs for President.

“We just have to learn to live with some things. [The reporters] get a paycheck. But with your paycheck comes some restrictions and responsibilities.”

CNN reported that inside the company reporters are frustrated by how difficult this will make their jobs.

Bloomberg is an influential player in politics.

As previously reported by deBanked last year, Bloomberg Senior Editor Robert Friedman thanked a state senator from New York on twitter for proposing legislation in response to a story he oversaw in 2018. When deBanked pointed it out, Friedman quickly deleted the tweet. The democrat-led legislature then went on to pass a law that relied almost entirely on the Bloomberg news story. That law was the restriction of entering Confessions of Judgment in New York against out-of-state debtors.

Bloomberg is Officially Running for President

November 25, 2019
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Michael BloombergFormer NYC Mayor Michael Bloomberg is officially running for President. He announced it over the weekend.

His campaign’s website paints him as a self-made entrepreneur who at 39-years old founded a company in a one-room office with the idea of turning a computer that connects users to a vast network of information and data. Today, Bloomberg LP employs more than 20,000 people and Bloomberg the individual is the 9th richest person on Earth (Forbes).

mike bloomberg 2020His campaign’s website is light on the name Bloomberg and heavy on the name “Mike,” perhaps to cast him as the friendly hegemon next door. One page on his website refers to him as Mike 128 times while the word Bloomberg appears only 12 times and almost entirely in connection with things his businesses have done. Even his logo leads with a soft all-lowercase mike atop BLOOMBERG2020.

Baby apparel for sale on his website goes even further to understate his power by simply stating m 2020.

m 2020

Democratic voters will now have to choose between frontrunners Joe Biden, Elizabeth Warren, Bernie Sanders, and this other dude named mike.

Sanders was quick to voice his displeasure with the new competition:

Trump Attacks Bitcoin and Cryptocurrencies

July 11, 2019
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President Donald Trump and Bitcoin

President Trump revealed his stance on cryptocurrencies over twitter on Thursday, and he’s no advocate.

“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity. Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International. We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!”

Former Mazuma Capital Board Member Considered as Supreme Court Justice

July 2, 2018
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Mike LeeSenator Mike Lee of Utah, who had been on the board of directors of Mazuma Capital, is now being considered by President Trump to replace Justice Kennedy  on the Supreme Court.

Mazuma Capital is an equipment leasing company that finances businesses in the energy, construction, healthcare  and fitness industries, among others. In its more than 12 years in operation, it has funded transactions from $250,000 to $50 million.

Mazuma was acquired by Onset Financial in 2014 and is based in the Salt Lake City area.

Mayor Rahm Emanuel Cuts Ribbon for 160% APR Online Lender

October 11, 2017
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Chicago Mayor Rahm Emanuel cut the ceremonial ribbon at OppLoans’ new headquarters in Chicago this week. The APR of a typical installment loan is 160% APR in many states, according to the OppLoans website. In South Carolina, a typical loan is listed as 199% APR over 9-18 months.

According to a press release, Emanuel said “While for a lot of people outside this room, this may be the first time they’ve heard of OppLoans. There is no doubt in my mind this will not be the last time they’ve heard of OppLoans. I look forward to being back as you scale more mountains, more heights, and continue to grow and to be successful, and to offer financing to a lot of families.”

While OppLoans offers consumer loans, Emanuel has previously attacked small business finance products with lower costs than OppLoans as predatory. Perhaps he has reevaluated his understanding of APR.

Chicago Resumes Call for Protection of Small Business Owners Against Predatory Lenders

February 12, 2016
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Illinois State Capitol BuildingChicago City Treasurer Kurt Summers has picked up where Rahm Emanuel left off a year ago. During a January 25th Illinois Senate Financial Institutions Committee hearing named, Small Businesses, lack of access to capital, and predatory lending practices, Summers called for new legislation to protect small business owners from misleading and dishonest predatory lenders.

OnDeck we mean you

Spencer M. Cowan, Senior Vice President for Research, Woodstock Institute, also testified during the hearing and referenced OnDeck specifically. “The terms do not, without calculations that few people can make, let the borrower know that the loan will take a full year to repay with an effective interest rate of just under 70 percent,” he said. Cowan’s position was that banks need to lend more so that small businesses don’t need such alternatives. “If businesses do not have access to loans from banks, then they are probably going to resort to the same types of strategies as consumers who can’t get small loans from banks,” he said.

Cowan cited a report he prepared 18 months ago that examined the relationship between banks and the racial makeup of the small business owners they lend to. The sources he cited about alternative lending were blog posts written by industry critic Ami Kassar.

Treasurer Summers meanwhile recommended the following measures be included in draft legislation to protect small business owners:

  • Require loan terms to be clear and unequivocal. Loan terms should be clearly stated using straightforward language and the interest rate should be clearly disclosed as an annualized interest rate or an annual percentage rate (APR).
  • Loans should be free from traps. Borrowers should not be hit with new fees on existing principal if they refinance or modify a loan. Borrowers should not be charged interest or periodic costs for the remaining period of the loan if they pay it off early.
  • Lenders should be required to display information about the results of their previous loans. This information could be anonymous and in the aggregate, but would give borrowers important data points as they determine whether or not to use a particular lender. If borrowers are able to see that a lender has a pattern of providing loans that are not paid back or have caused businesses to fail, they will be more likely to choose a more reputable lender.
  • Conflicts of interest should be disclosed to borrowers. Borrowers should know what types of incentives are driving the lender and whether the broker will receive higher fees for using certain lenders or types of loans.
  • Because many of these loans are made online, lenders must take substantial steps to protect the data privacy of loan applicants. Borrower data should not be allowed to be sent to third parties without the written consent of the borrower and lenders should be required to take steps to ensure that the data is encrypted and protected from breaches.

Unsurprisingly, the Illinois Bankers Association (IBA), who was not even invited to the hearing, felt compelled to issue a public statement. In a letter addressed to Chairperson Jacqueline Collins, the IBA was rather protective of their own interests. “We share the Committee’s concern with the proliferation of these under-regulated lenders, sometimes known as ‘fintech’ companies,” they stated. “This relatively new ‘shadow banking’ industry — unlike traditional financial institutions — is in many respects unregulated. Consequently, some bad actors are engaging in predatory lending practices with repayment terms that too often are forcing small business customers into cycles of debt.”

However they tapered down the rhetoric and made a technology-forward plea. “We do think it is important for lawmakers to preserve the benefits of lending innovations, and to ensure that mainstream financial institutions are not prevented from adopting technologies that result in better customer service,” they said. “For example, mobile lending interfaces and faster loan approvals, with appropriate safeguards, provide many potential benefits and match changing customer needs and expectations. We should seek to preserve these innovative solutions that benefit entrepreneurs and small businesses, while at the same time curbing abusive lending practices.”

A public digital transcript of the hearing is not currently available.

Former Bizfi Manager is Making a Splash in Delaware State Senate Contest

February 7, 2016
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James Spadola Delaware State Senate CandidateA former Bizfi manager is underwriting a new kind of 4-year deal. Thirty-two year old James Spadola, who lives in Wilmington, is bringing an impressive resumé to the Delaware state Senate contest for District 1.

The world knows him as #HugACop after an outreach campaign he spearheaded for the Newark, Delaware police department went viral and inspired a new era of positive policing. Spadola has served as an officer there for more than 7 years.

He attended the University of Delaware, an experience that was interrupted when he was called up by the U.S. Army Reserve to take a tour of duty. Deployed in March 2003 for a year, he served as a prison guard and as his battalion commander’s gunner and driver in Iraq. He received the Combat Action Badge when his convoy was hit with an IED.

After returning home and graduating, Spadola moved to New York City and got a job at a hot new fintech startup named Merchant Cash and Capital (MCC). That was in February 2007, making him one of the company’s first ten employees. MCC Changed their name to Bizfi in September of 2015.

#hugacop James Spadola at right

As an underwriter, Spadola was tasked with evaluating working capital applications submitted by small businesses. He was quickly promoted to Team Leader and later to Underwriting Manager, a senior departmental position.

Spadola told deBanked of his time there, “I had a great experience at Bizfi and learned an enormous amount about the private sector and the troubles and challenges that small business owners deal with everyday.”

Bizfi General Manager Seth Broman, said of him, “having worked closely with James for several years, it was apparent to me and all those around him that James has a knack for helping those in need.”

After almost two years there, he moved to Delaware to join the Newark Police Department, where he’s been ever since. He still managed to find the time to get his MBA from Wilmington University in 2014.

Today, Spadola is underwriting a new kind of challenge, competing against incumbent state legislator Harris McDowell who has been in office since 1976. Running as a Republican in a blue state, Spadola thinks it’s time for new blood.

“I look forward to putting those business lessons, coupled with what I’ve learned through my other professional experiences, into practical application down at Legislative Hall,” he told deBanked.

You can support James Spadola in his campaign for Delaware State Senate below:

Visit his campaign Facebook page.

E-mail james@jamesspadola.com for further information.

Bernie Sanders Poses Bad Lending Question

December 27, 2015
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Two loans: one with collateral, the other without any. All else being the same, which one do you think would have the higher interest rate?

Given his tweet, Socialist (Democrat) candidate Bernie Sanders might not understand the question.

The twitterverse was quick to pounce on him for it:

To be fair, student loans might be unsecured debt but they can’t be discharged in bankruptcy. There’s also ways for debt collectors to garnish a paycheck to pay them back. That’s entirely dependent on the borrower generating income though and likely means a substantially longer repayment period. In a famous op-ed by Lee Siegel in the NY Times titled, Why I Defaulted on My Student Loans however, it is apparently possible to just avoid the debt altogether (and apparently feel okay about it).

With stories like that it’s easy to understand why a loan secured by a home would cost less than a loan secured by someone’s willingness and ability to pay. And in the case of Bernie Sanders, a candidate who believes college should be free for everyone, it’s tough to say if his question was really just rhetoric meant to stir up his base or a serious one in which he really doesn’t understand how the underwriting of loans work.

Either way, many people are worried:

A Student Cash Advance?

October 27, 2015
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Student Cash AdvanceSome interesting legislation was introduced last Tuesday by Senator Marco Rubio. The bill entitled “Investing in Student Success Act of 2015” would allow individuals to enter into Income Share Agreements that bear some of the characteristics of merchant cash advances. The bill defines an Income Share Agreement as,

[A]n agreement between an individual and any other person under which the individual commits to pay a specified percentage of the individual’s future income…in exchange for payments to or on behalf of such individual for postsecondary education, workforce development, or other purposes.

Sound familiar?

The bill goes on to state other aspects of a Income Share Agreement: “the agreement is not a debt instrument, and…the amount the individual will be required to pay under the agreement…may be more or less than the amount provided to the individual; and…will vary in proportion to the individual’s future income…” That last part differs from merchant cash advances in that there is no cap on the total amount an individual could be required to pay pursuant to an Income Share Agreement.

There are, however, a number of restrictions contained in the bill. The total percentage of income a person may be required to pay under an agreement—the split—may not exceed 15%. If a person’s income dips below $15,000 in any year, that person would not be required to pay any portion of their income. Also, the agreement may not exceed a term of 30 years, though the agreement may be extended for a term equal to the number of years the person was not required to pay because their income did not exceed $15,000.

Many states have enacted bans on income assignment agreements that would seem to prohibit the type of agreement proposed by the legislation. To address these laws, the bill contains a preemption provision: “Any income share agreement that complies with the requirements of [the bill] shall be a valid, binding, and enforceable contract notwithstanding any State law limiting or otherwise regulating assignments of future wages or other income.”

Additionally, because there is potential that a funder could receive an amount from an individual in a time period that would translate to a rate that exceeds state usury laws (as some merchant cash advances do, depending on the business’ performance) the bill also provides for preemption of state usury laws: “Income share agreements shall not be subject to State usury laws.”

So will Student Cash Advances be the next big thing in educational finance? Maybe, maybe not. For now, the bill has been referred to the Senate Finance Committee for further review.

You can read the full text of the bill here.

Chairman of House Financial Services Committee Requests Information from CFPB on Fair Lending Enforcement Actions, Requests Interview with Director of Fair Lending Office

October 18, 2015
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capitol hillEarlier this month, the Chairman of the House Financial Services Committee, Rep. Jeb Hensarling (R., Texas), sent a letter to the CFPB requesting information related to the Bureau’s recent investigations in to alleged fair lending law violations by auto lenders. This information may be helpful in understanding how the Bureau conducts fair lending focused exams and investigations. The Bureau recently announced plans to conduct its first small business lending focused exams within the next year.

Chairman Hensarling’s letter was co-signed by Rep. Sean Duffy (R., Wis.) and requests emails and other records that document how the Bureau built its recent cases against Ally Financial, American Honda Finance Corp and Fifth Third Bancorp. In each of these cases the CFPB alleged that the companies pricing policies resulted in minorities being charged more than white borrowers. In the three actions, the lenders did not admit or deny wrongdoing.

Chairman Hensarling’s letter also asks if the Bureau will make the director of the CFPB’s Office of Fair Lending and Equal Opportunity, Patrice Ficklin, available for a transcribed interview. An interview may provide lawmakers additional insight in to the Bureau’s efforts to address allegedly discriminatory pricing policies.

Ms. Ficklin recently spoke at the ABA’s Consumer Financial Services Institute where she explained that she expects the Bureau’s upcoming small business lending focused exams to provide the CFPB with useful information about small business loan underwriting criteria. Ms. Ficklin said that this information will assist the Bureau as it begins its work on the small business lending data collection regulations required by Section 1071 of Dodd-Frank.

Chairman Hensarling’s letter requested a response on Ms. Ficklin’s availability by Oct. 13 and the other requested documents by Oct. 20.

Coalition for Responsible Business Finance Submitted RFI on Behalf of Both Funders and Small Businesses

October 1, 2015
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coalition for responsible business financeIf you haven’t heard of the Coalition for Responsible Business Finance (not to be confused with the Responsible Business Lending Coalition), I recommend paying attention to it.

“The CRBF is a group of businesses and service providers that advocate for the value of alternative financing opportunities for small businesses,” they said in their response to the Treasury RFI. “We created the coalition to help educate Congress, Treasury, and other federal departments and agencies on how technology and innovation are providing small businesses access to capital that is necessary for growth.” Simply put, this coalition allows lenders, funders, and small businesses to have a unified voice to educate policymakers.

And yes, merchant cash advance companies are welcome, though representation is very diverse.

“Small business owners value choice and speed when looking at alternative finance and lending options,” the CRBF says in their response. “Any federal approach needs to balance new regulatory requirements with the impact on the alternative finance and lending sector and on the sector’s small business customers.”

The overall message in the submission is that regulators need not feel shy about opening a dialogue with those most likely to be affected by any change in policy.

For those reasons, CRBF recommends that Treasury create an alternative finance and lending interagency working group that will meet on a quarterly basis. We suggest that twice a year the working group meet as a group comprised solely of governmental personnel, with officials from SEC, SBA, FTC, Federal Reserve, OCC, and other relevant agencies. And, we suggest that twice a year the working group meet with business leaders from across the alternative finance and business lending spectrum including representatives from lead generators, aggregators, merchant cash advance professionals, peer-to-peer lenders, risk analytics services, direct lenders, marketplace lenders, and others. Meeting with different groups of businesses throughout the life span of an interagency working group will allow Treasury to keep up with a rapidly evolving business sector and will help ensure that any federal approach is sensitive to its impact on the sector and on its small business customers.

CRBF is committed to educate federal authorities on how alternative lending and finance benefits small business and the economy. We would certainly help Treasury establish any working group that serves the same purpose.

As I am currently an advisory board member of this coalition, I encourage you to consider the organization’s mission and purpose by visiting the website at http://www.responsiblefinance.com. If you’d like to learn more or consider support for it, email me at sean@debanked.com.

You can download the full response here.

Dodd-Frank and More Paperwork Make Lending Harder

September 19, 2015
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Dodd Frank PaperworkIt’s not just alternative lenders that have concerns about Dodd-Frank, Section 1071 and the CFPB. Several community bankers recently testified in front of The House Committee on Small Business Subcommittee on Economic Growth, Tax and Capital Access to explain just how detrimental regulations have been to their lending operations.

While the discussion encompassed all types of lending including consumer mortgages, B. Doyle Mitchell Jr, the CEO of Industrial Bank said that, “Dodd-Frank was intended for maybe 50 to 100 institutions. It was not intended for mainstream institutions, minority banks around the country.” Mitchell was speaking on behalf of the Independent Community Bankers of America (ICBA).

While repeatedly making the case about how important community banks were to local communities, he explained that Dodd-Frank had not helped them achieve their goals. “It has only increased our costs,” he testified.

Mitchell also expressed a feeling of perpetual anxiety over the loans they make, worrying that a regulator will not like them.

Dixies FCU CEO Scott Eagerton, who was there speaking on behalf of the National Association of Federal Credit Unions (NAFCU) said, “I really feel like we’re getting away from helping people and making sure that we make the loans that Washington agrees with and I think that needs to change.”

While alternative lenders were not on the agenda, the subject of government mandated transparency and its intent to help make things easier for borrowers is both timely and relevant. Referencing some of the new disclosures required in loan documents by Dodd-Frank and/or the CFPB, Congressman Trent Kelly asked if all the added pages to loan agreements make it easier for their customers to understand.

“Do they understand what they’re signing?” he asked.

Mitchell responded that they do not. “It is not any more clear,” he answered. “In fact it is even more cumbersome for them now.”

Regulators should pay special attention to this especially in light of a Federal Reserve study that came to the same conclusion. In Alternative lending: through the eyes of “Mom & Pop” Small-Business Owners, small business owners were asked if they understood financing terms offered by typical online lenders. The feedback was overwhelmingly positive that they did. But when asked a trick question about annual percentage rates, most got confused. While some advocacy groups interpreted this to mean that small business owners are confused by online lenders, it actually offers pretty compelling evidence to the contrary. A future standard of government mandated transparency as it relates to annual percentage rates would only serve to make it harder for small businesses to understand contracts, not easier.

Dodd Frank PaperworkBoth Eagerton and Mitchell made the case that increased compliance costs undermined the ability of community banks to grow the economy. “You cannot expect a trillion dollar institution to focus on hundred thousand dollar loans,” Mitchell said. And Subcommittee Chairman Tom Rice said, “the burdens created by Dodd-Frank are causing many small financial institutions to merge with larger entities or shut their doors completely, resulting in far fewer options where there were already not many options to choose from.”

Eagerton argued that,”lawmakers and regulators readily agree that credit unions did not participate in the reckless activities that led to the financial crisis, so they shouldn’t be caught in the crosshairs of regulations aimed at those entities that did. Unfortunately, that has not been the case thus far. Accordingly, finding ways to cut-down on burdensome and unnecessary regulatory compliance costs is a chief priority of NAFCU members.”

But Congressman Donald Payne, Jr wondered why the ICBA was objecting to Section 1071 of Dodd-Frank, the part that grants the CFPB authority to collect certain pieces of data from financial institutions. Regulation B of Section 1071, for those that aren’t aware, was intended to study gender, racial and ethnic discrimination in small business lending.

Payne likened the law to The Home Mortgage Disclosure Act (HMDA), pronounced HUM-DUH, in which raw data is disclosed to the public but no penalties are specifically imposed if the data leans one way or another.

Mitchell responded to that by saying HMDA was a good example of something that was already very burdensome and another reason why Section 1071 was a bad idea. “While there is a clear need to outlaw discrimination at any level, I don’t think [this law is] necessary for community institutions,” he said. He pointed out that his bank could suffer reputational damage in the community by disclosing the gender and racial statistics of their business loans to the public at large.

While he did not expand on what he meant by reputational risk, one could fill in the blank that he meant the context that such data would lack. For example, if 75% of Hispanic-owned businesses were declined for business loans while only 25% of African-American-owned businesses were declined for business loans, one might infer from that raw data that there is potential discrimination taking place. Since small business loans are less FICO driven than consumer lending and focused more on the story of the business and the projected financial future, it is impossible to infer anything from raw data as it relates to discrimination.

“Simply put, Dodd-Frank needs to be streamlined,” said Marshall Lux, Cambridge, MA, John F. Kennedy School of Government, Harvard University.

And “the problem with Dodd-Frank,” Mitchell voiced, “is you cannot outlaw and you cannot regulate a corporation’s motivation to drive profit at all costs so while it had a lot of great intentions in over a thousand pages it has not helped us serve our customers any better.”

You can watch the full hearing below:

What Would Barney Frank Say?

July 16, 2014
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While crowd funders navigate the JOBS Act and a possible revision to what constitutes an accredited investor, non-bank business lenders are raising eyebrows with sky high interest rates. Annual Percentage Rates (APRs) are reaching into the triple digits and critics are reaching for their megaphones to say something about it.

Unfortunately APRs don’t spell out the true dollar for dollar cost, a flaw pointed out by OnDeck Capital CEO Noah Breslow in regards to daily amortizing loans. In the June Access to Capital Small Business Panel, Breslow explained that a 60% APR loan could actually only cost 15% on a dollar for dollar basis over 6 months simply because of daily amortizing.

Still, the figures make for enticing headlines and it is to be expected that they will come under greater public scrutiny as time goes on.

In an opportunity I got to speak one-on-one with former Congressman Barney Frank in June, he offered some pretty interesting thoughts on the governance of business to business transactions.

Former Congressman Barney FrankFrank, who was the key author of the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law in 2010, was a longtime champion of consumer financial protections. But he sings a different tune when it’s all about business. Many people may not realize that he opposed the Durbin Amendment of the Dodd-Frank Act, the addition that placed caps and restrictions on debit card interchange fees. Federal restrictions on how much a business can charge another business? Not his thing…

Unsurprisingly then when I asked him if he’d be in favor of a federal cap on business loan interest rates, he sternly replied, “no.” He went on to say that he supported transparency in business loan transactions, such that the borrower should be easily able to identify the terms, but that the premise behind consumer loan protections was that consumers were less sophisticated.

Curiously, there are a few states that impose caps on commercial interest rates, making the regional landscape for high rate business lenders a little bit tricky. In a recent publication by financial law firm Hudson Cook, they spelled out federal laws that already govern business loans.

To date there has been no legislative activity related to merchant cash advance or alternative business lenders. If such discussion did arise though, it’s ironic to say that one of the most liberal congressmen of the last decade, a man who wrecked Wall Street, would stand to make an excellent champion of the alternative business lending cause.

I never thought I’d say this, but too bad the guy retired.

Merchant Cash Advance Term Used Before Congress

December 18, 2013
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capitol buildingI’d like to think that the term, merchant cash advance, is mainstream enough that a congressman would know what it was. I have no idea if that’s the case though. What I do know is that Renaud Laplanche, the CEO of Lending Club gave testimony before the Committee on Small Business of the United States House of Representatives on December 5, 2013.


In it, he argued that small businesses have insufficient access to capital and that the situation is getting worse. We knew that already. However, he went on to explain that alternative sources such as merchant cash advance companies are the fastest growing segment of the SMB loan market, but issued caution that some of them are not as transparent about their costs as they could be.

The big takeaway here is that he didn’t say they are charging too much, but rather that some business owners may not understand the true cost. I often defend the high costs charged in the merchant cash advance industry, but I’ll acknowledge that historically there have been a few companies that have been weak in the disclosure department. That said, the industry as a whole has matured a lot and there is a lot less confusion about how these financial products work.

Typically in the context Laplanche used, transparency is code for “please put a big box on your contract that states the specific Annual Percentage Rate” of the deal. That’s good advice for a lender and in many cases the law, but for transactions that explicitly are not loans, filling in a number to make people feel good would be a mistake and probably jeopardize the sale transaction itself. If I went to Best Buy and paid $2,000 in advance for a $3,000 Sony big screen TV that would be shipped to me in 3 months when it comes out, should I have to disclose to Best Buy that the 50% discount for pre-ordering 3 months in advance is equivalent to them paying 200% APR?

This is what happened: I advanced them $2,000 in return for a $3,000 piece of merchandise at a later date.

I got a discount on my purchase and they got cash upfront to use as they see fit. Follow me?

Now instead of buying a TV, I give Best Buy $2,000 today and in return am buying $3,000 worth of future proceeds they make from selling TVs. That’s buying future proceeds at a discounted price and paying for them today. As people buy TVs from the store, I’ll get a small % of each sale until I get the $3,000 I purchased. If a TV buying frenzy occurs, it could take me 6 months to get the $3,000 that I bought. But if the Sony models are defective and hardly anyone is buying TVs, it could take me 18 months until i get the $3,000 back.

In the first situation, if the TV never ships I get my $2,000 back. In the second situation if the TV sales never happen, I don’t get the 3 grand or the 2 grand. I’ll just have to live with whatever I got back up until the point the TV sales stopped, even if that number is a big fat ZERO.

Best Buy is worse off in the first situation, but critics pounce on the 2nd situation. APR, it’s not fair! Transparency, high rate, etc.

Imagine if every retailer that ever had a 30% off sale or half price sale one day woke up and realized the sale they had was too expensive and not transparent enough for them to understand what they were doing. If only consumers had given the cashiers a receipt of their own that explained that they would actually only be getting half the money because of their 50% off sale, then perhaps the store owners would have reconsidered the whole thing. 50% off over the course of 1 day?! My God, that’s practically like paying 18,250% interest!!!

To argue that a business owner might not understand what it means to sell something for a discount is like saying that a food critic has no idea what a mouth is used for.

I will acknowledge that issues could potentially occur if an unscrupulous company marketed their purchase of future sales as if it were a loan. That could lead to confusion as to what the withholding % represents and why it was not reported to credit bureaus. I’m all in favor of increasing the transparency of purchases as purchases and loans as loans, but let’s not go calling purchases, loans. Americans should understand what it means to buy something or sell something. Macy’s knows what they’re doing when they have a Black Friday Sale. They do a lot of business at less than retail price. They are happy with the result or disappointed with it. They’re business people engaged in business. End of the story.

In recent years, the term, merchant cash advance, has become synonymous with short term business financing, whether by way of selling future revenues or lending. When testimony was entered that many merchant cash advance providers charge annual percentage rates in excess of 40%, I do hope that Laplanche was speaking only about transactions that are actually loans. As for any fees outside of the core transaction, those should be clear as day for both purchases and loans. I think many companies are doing a good job with disclosure on that end already.

Part 2

The other case that Laplanche made was brilliant. Underwriting businesses is more expensive than it is to underwrite consumers. Consumer loan? Easy, check the FICO score and call it a day. That methodology doesn’t even come close to working with businesses. He stated:

These figures show that absolute loan performance is not the main issue of declining SMB loan issuances; we believe a larger part of the issue lies in high underwriting costs. SMBs are a heterogeneous group and therefore the underwriting and processing of these loans is not as cost efficient as underwriting consumers, a more homogenous population. Business loan underwriting requires an understanding of the business plan and financials and interviews with management that result in higher underwriting costs, which make smaller loans (under $1M and especially under $250k) less attractive to lenders.

Read the full transcript:

LendingClub CEO Renaud Laplanche Testimony For House Committee On Small Business

Merchant Cash Advance just echoed through the halls of Capitol Hill. And so it’s become just a little bit more mainstream, perhaps too maninstream.


What Debit Card Interchange Reform?!

August 1, 2013
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debit cardAfter years of debating over the law to cap debit card interchange fees and its eventual enactment, a federal court has struck it down. The 21 cent cap is gone but not because it was deemed unfair to banks but because the court thinks the cap should be even lower.

Story about it on CNN

I wrote about the law several times over the last couple years. In the beginning, it was unclear as to what a debit card fee cap really meant, as I myself even explained it incorrectly the first time or two. The majority of folks believed the cap applied to the end user, the merchant, which helped to encourage small businesses,journalists, and even consumers to rally around it.

But when the law actually went into place, not much really changed because it didn’t have much to do with small businesses at all. The debit card reform law capped the amount of interchange fees that an acquiring bank pays a card issuing bank. The merchant wasn’t even involved although the acquirer can pass their new savings on to the merchant, but they don’t have to.

Many acquirers did pass some of the savings on but merchants went and did the opposite of what they promised. Their call to have their swipe fees lowered initially was so that they could lower their retail prices and and pass the savings on to consumers. Consumers believed this logic and supported small businesses to get this law implemented. A study by the Electronic Payments Coalition however, found that 67% of small businesses kept their prices the same or raised them.

There was clearly a lot of misinformation around this law and now it’s been struck down.

Two big misconceptions:
merchants will pay a maximum 21 cent debit swipe fee: Wrong
small businesses will turn their debit card fee savings into lower prices for consumers: wrong

My previous articles about debit card reform:

The Winners and Losers of the Debit Card Fee Ruling