Regulation

New York DFS: The Commercial Financing Disclosure Requirement is Happening

September 21, 2021
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One Commerce Plaza, Albany, NYNew York State’s financial regulator announced that the commercial financing disclosure law is moving forward as planned for the Jan 1, 2022 deadline.

To prepare those that will be subject to it, Acting Superintendent Adrienne A. Harris released a copy of proposed regulations that will be open to comment for 60 days.

Its length, 45 pages, demonstrates the complexity that compliance will require. Anyone involved in commercial or small business financing should take the careful time to read it.

“The Department of Financial Services will then review all received comments and issue a final regulation,” the announcement says.

IRS Snooping Flexes Government Power, but May Drive Crypto

September 14, 2021
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government challengeTo fight tax evasion, the federal government wants the IRS to track any account in the United States that transacts more than $600 in or out over the course of a year. The tracking will apply to banks and other financial institutions. The feds claim that they will use any found tax dollars to help finance the administration’s new $3.5 trillion spending plan.

Such a move could push a suspicious populace into crypto, where records, however openly recorded on blockchains, could potentially obscure the parties involved.

Banks have fought against the government’s push to share account transactions, as they argue it will be a major invasion of privacy. This will undoubtedly create an entire new workload for them as well, as the banks will have to provide intricate details on most of the accounts on their books — an unprecedented task.

“I don’t believe that much is going to change,” said Yoel Wagschal, a CPA. Wagschal stresses to his clients to always live their life as if the government has access to the information about their spending habits for the sake of their wellbeing.

“The issue at hand is how far this is going to [go], how far the government’s reach will be,” said Wagschal. “When a government body gets power, they don’t give it back. Look at the power wagon they are on.”

As crypto becomes more of an avenue to store and invest money, it may also be a new channel for coin holders to keep their finances shrouded behind additional layers from the federal government.

More TCPA Lawsuits Could be Inbound

September 12, 2021
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TCPA rules on cell phonesDespite a significant drop in TCPA cases since 2018, a flurry of new TCPA cases could be on the horizon as TCPA plaintiff attorneys had been telling clients to hold off — pending the reaction of Facebook’s recent Supreme Court case, according to Michael O’Hare, Chairman of Colorado-based Cashyew and operator of the TCPA Litigator List. The Court ultimately narrowed the definition of an autodialer.

O’Hare heads a service that provides names of individuals and their attorneys who have sued under the TCPA law, protecting his clients from what has become an industry in and of itself.

“It’s a fight between free speech and privacy,” said O’Hare, when asked what the hardest part about leading an organization that protects businesses from falling victim to these kinds of suits is. He worries that his clients will be preyed upon by serial litigators that go after businesses searching for some type of settlement. According to O’Hare, some of these cases can cost tens of thousands of dollars to fight in court.

“The government has empowered citizens to become the enforcer,” said O’Hare. The law allows citizens to privately sue unsolicited callers who disrupt their daily lives, subsequently creating an entire industry out of these kinds of suits alone.

“People are making a 6-figure living,” he said.

Since deBanked covered this minefield back in 2016, the TCPA has not changed. Some states like Florida and California have adopted their own versions of the law, but the federal law has gone unchanged for thirty years.

The robocallers have also adapted to the lack of upkeep of the TCPA, as the concept of “spoofing” has become a weird ethical gray area in the telemarketing industry. By showing the area code that’s identical to the number being dialed on that number’s caller ID, the user is believed to be more likely to answer. Not covered by the TCPA, organizations like the FCC have begun to step in and put a stop to the tactic.

This “decentralization of enforcement,” as O’Hare called it, may do more harm than good, giving these serial litigators and their clients more avenues of reason to sue.

The ambiguity of what defines a work phone versus a personal phone is much more prevalent now than it was in 1991. With cell phones, smart watches, and the elimination of the home phone for millions of Americans, the TCPA has become antiquated.

“Do they want us to go back to a rotary phone?” O’Hare sarcastically asked.

O’Hare stressed that lenders respect their clients and abide by basic ethics. “Always be scrubbing,” he said. “Prevention is not expensive, litigation is”.

Besides using services like his, O’Hare suggests using basic ethics and understanding to protect merchants that don’t want their calls. “If someone asks, take them off the list,” he said, “avoid trouble and respect the Do-Not-Call list.”

CFPB Publishes Long Awaited Proposed Rule on Small Business Loan Data Collection

September 1, 2021
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cfpbA 918-page proposed rule published by the Consumer Financial Protection Bureau (if you don’t know what this bureau is, now is a good time to read up), is finally out.

Its application is broad, extending to “loans, lines of credit, credit cards, and merchant cash advances,” the CFPB said today. Initially, the Bureau’s intent was to exclude merchant cash advances, but that has apparently changed. (side note: I predicted this could happen as early as 2014.) Meanwhile, “factoring, leases, consumer-designated credit used for business purposes, and credit secured by certain investment properties” are exempt from the rule.

The rule is designed to assess whether there are disparities in sex, race, and ethnicity, when it comes to small businesses being able to access credit.

Covered financing providers would have to request that applicants disclose these things, which applicants can refuse to answer if they so choose. It could get a bit awkward from there because “if an applicant does not provide any ethnicity, race, or sex information for at least one principal owner, the Bureau is proposing that the financial institution must collect at least one principal owner’s race and ethnicity (but not sex) via visual observation and/or surname if the financial institution meets in person with any principal owners (including meeting via electronic media with an enabled video component).

BUT “minority-owned business status and women-owned business status would only be reported on the basis of information the applicant provides specifically for Section 1071 purposes, and financial institutions would not be permitted or required to report these data points based on visual observation, surname, or any other basis.”

Further, no one involved in the underwriting of the loan or advance would be allowed to know or access the ethnicity, race, or sex of the applicant. However, this would not apply if it isn’t “feasible” to do so.

All of the nuances, which seem to contradict themselves on the surface level, are specified in greater detail in the 918 page document.

When the proposed rule becomes final, lenders and MCA providers would have 18 months before they would be required by law to not only collect this data in the properly established manner, but also be prepared to submit it annually to the CFPB.

This rule will become a standard operating part of the business for companies both large and small whether one agrees with it or not. This law was passed in 2010 and it has taken this long to get to this point. This is a link to the CFPB’s official summary.

NJ Resurrects Small Business Finance Disclosure Bill

July 28, 2021
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New Jersey’s legislature has revived its small business finance disclosure bill. Having languished since last January, the Senate Commerce Committee quietly gave it a favorable report this past June.

New Jersey’s bill is similar to the law that New York is putting into effect on January 1st. As part of it, non-loan products will be required to calculate an APR even if one cannot be mathematically calculated by “estimating” one.

Brokers would be impacted too:

A broker who charges any fees or commission that would be paid by the recipient of the financing shall provide, at the time of extending a specific offer for a commercial financing transaction and in a form and manner prescribed by the commissioner, a written disclosure, in a document separate from the provider’s contract with the recipient, stating the following, if the information is not contained within the disclosure offered by the provider directly to the recipient:

(1) a list of all fees or commissions that would be paid to the broker by the recipient in connection with the commercial financing;

(2) the total dollar amount of charges listed pursuant to the bill;

and

(3) any increase to the annual percentage rate due to the charges listed above and the resulting dollar cost.

You can read the Senate Commerce Committee’s report here.

North Carolina Joins States Proposing Commercial Financing Disclosures

May 12, 2021
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Raleigh North CarolinaNorth Carolina is the latest in a series of states to introduce a commercial financing disclosure bill.

The “Small Business Truth in Financing Act” introduced on May 11th, would cover business loans, factoring, and merchant cash advances.

The language was copy and pasted from bills elsewhere, like the recent one in Connecticut. The “double dipping” term is noticeably absent from this one, however.

The North Carolina bill was introduced by Rep James D. Gailliard (D). If it succeeds in moving forward, it’s written to go into effect on May 1, 2022.

You can read the full text of the bill here.

Yellowstone Capital, FTC Lawsuit Results in Settlement

April 22, 2021
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yellowstone capital doorsThe lawsuit filed by the FTC against Yellowstone Capital et al has resulted in a settlement. The defendants agreed to pay $9,837,000 for the matter to be resolved.

As part of it, the defendants did not admit or deny the allegations of the complaint. They also agreed to have the FTC monitor their compliance with the agreement for varying but long periods of time.

Aside from the cost, the FTC made its point in two areas, the requirement that the defendants comply with a specific system of customer disclosure and that they not debit or cause withdrawals to be made from any customer’s bank account without the customer’s express informed consent. On the former, they must (roughly speaking) disclose clearly and conspicuously the amount and timing of any fees, the specific amount a customer will receive at the time of funding, and the total amount customers will repay.

The announcement coincides with the Supreme Court decision that revoked the agency’s presumed authority to obtain restitution or disgorgement under Section 13(b), the basis that the FTC brought against Yellowstone Capital in August 2020.

The FTC signed and filed the agreement less than 24 hours before the SCOTUS decision.

The full details of the settlement can be downloaded here.

Senators Marco Rubio, Sherrod Brown Renew Campaign to Ban COJs Nationwide

April 15, 2021
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cojsThe Small Business Lending Fairness Act is back. Senators Marco Rubio and Sherrod Brown reintroduced a bill this week that failed to advance the two previous times it was introduced.

One of cornerstone objectives is to outlaw confessions of judgment from being used in business loan transactions nationwide.

“With this bill, we are taking another step toward protecting America’s small businesses—the foundation of our economy—by preserving the right of a business to be heard in a court of law before a potential credit default,” Rubio said. “I remain committed to protecting our small businesses from predatory, out-of-state lenders, and I urge my colleagues to join me in this effort.”

“When we let financial predators harm hardworking Americans through scams like confessions of judgment, we undermine the dignity of work,” Brown said. “This bipartisan bill would protect consumers and small business owners from predatory lenders that use legal tricks to strip away their hard earned money.”

This is not the first swipe at COJs. In 2019, New York passed a law that made it illegal to file a confession of judgment against a non-New York debtor in the New York state court system. However, this does not prevent a party from using another state’s COJ and filing the COJ in that respective state.

The federal bill was previously introduced in 2018 and 2019 and failed to advance both times. The text of the bill can be found here.