Regulation
With New York in a State of Emergency, Its Legislators Rush to Regulate Disclosures in the Commercial Finance Industry
March 16, 2020
On March 7th, Governor Cuomo declared a disaster emergency for New York State. Four and 6 days later respectively, legislators in the state Assembly and Senate introduced commercial financing disclosure bills that would regulate all business-to-business financing transactions including secured loans, factoring, and merchant cash advances. The bills intend to create uniform disclosures for comparison purposes while also placing control of the commercial finance industry under the purview of the superintendent of the New York Department of Financial Services (DFS).
The bills also state that merchant cash advance companies may be required to prepare funding reports on all of their deals for the DFS to inspect so that the superintendent can analyze the difference between the estimated anticipated APR and the actual retrospective APR that resulted after the merchants delivered all of the receivables to the funder on each deal.
The bills are said to have been in the works for some time, but the timing of their introduction is awkward given the sudden economic situation that is unfolding in the state.
The bills are actually quite lengthy so you can read them yourselves in full here:
Assembly Bill A10118 – Introduced by Kenneth Zebrowski
Senate Bill S05470A – Introduced by Kevin Thomas
New Jersey Tries Again With a Small Business Finance Disclosure Bill
January 26, 2020
For the third year in a row, New Jersey has a small business finance disclosure bill on the table. S233 is the latest iteration of S2262 from prior years.
Introduced by State Senator Troy Singleton, the proposed law would impose disclosures on loans, factoring, and merchant cash advances on transactions less than $500,000.
In addition to APR requirements, brokers who arrange such financing would be required to disclose their fee to prospective applicants separately from the financing contract and prior to the consummation of the transaction.
Singleton is a Democrat. The Democrats in New Jersey control the Senate, Assembly, and Governor’s office.
New Jersey Firms Up Its Confession of Judgment Bill
January 13, 2020The New Jersey State legislature strengthened its Confession of Judgment (COJ) bill last week by adding language that grants the Attorney General power to enforce monetary penalties against violators.
S3581 would prohibit any provider of business financing from extending financing with a COJ. Business financing is defined as a loan, line of credit, cash advance, factoring, or asset-based transaction for a business purpose.
The bill still needs to pass the Senate and Assembly and be signed off by the Governor in order to become law. The bill’s sponsor, Senator Troy Singleton, is a Democrat, increasing the likelihood that the Democrat-controlled legislature and Democrat Governor Phil Murphy will move it forward.
Dodd-Frank’s Small Business Lending Data Collection Rule Could Still Take Years to Implement
January 12, 2020
Small business lenders: Are you ready to regularly submit loan application data to the Consumer Financial Protection Bureau? No? Good, because almost ten years after Dodd-Frank passed, the provision that requires the CFPB to collect small business lending data still hasn’t been implemented.
And apparently we’re still years away.
Section 1071, as it’s known, modified the Equal Credit Opportunity Act and defined a small business lender as any company that engages in any financial activity. So if you’re wondering if this thing even applies to whatever you do in your corner of small business finance, it probably does.
The rule has taken so long to implement that consumer advocacy groups have actually sued the CFPB over the delay. The CFPB took note followed by initiative and hosted a symposium late last year to discuss how it might go forward. The next steps from here are to convene a panel of small business lenders, have that panel issue a report, propose what the rules on collection will be, collect feedback on the proposal, formulate a final rule, issue a rule, and then set a time for when it will go into effect. That process could mean that the earliest that data collection takes place is in 2023, possibly even longer as the entire financial services industry may need time to develop the infrastructure and human resources to comply.
Beyond that, advocates and critics of Section 1071 do not even entirely agree on what purpose data collection will even serve. Some believe the intent is merely for the government to have access to data it otherwise might not have while others believe that the CFPB could use statistics it deems discriminatory to bring enforcement actions against financial institutions. Sounds like we could use a few more years to get on the same page…
A recording of the 2019 Symposium is below:
Robocalls Targeted by Trump, Cuomo, Michigan Attorney General
January 2, 2020
In what turned out to be a tough week for illegal robocalls, both the President and New York’s Governor have been behind bills set to combat the invasive form of marketing.
On Tuesday, President Trump signed the TRACED (Telephone Robocall Abuse Criminal Enforcement & Deterrence) Act, bringing into effect legislation first introduced to in November 2018. Aiming to crack down on the number of robocalls received by Americans, TRACED increases the fine faced by robocallers, setting it now in the range of $1,500 to $10,000 if caught. As well as this, the bill pushes for the rollout of call-authentication technology by telecommunication companies to identify ‘spoofed’ numbers and block them accordingly.
Such technology was authorized for use by an FCC vote last June. However while it has since been employed by the likes of T-Mobile and AT&T, the authorization did not guarantee all Americans access to the service, as in some cases it has been offered as a premium feature of more expensive phone plans.
Another detail of TRACED is that it extends the FCC’s period of time to collect fines from illegal robocallers from one year to four, a development that is seen optimistically as a path to increasing the number of charges made. According to the FCC, between 2015 and March of 2018, $208.4 million in fines was collected from illegal robocallers.
Historically, the onus has been on the individual to shield themselves from robocalls, with companies such as Hiya and YouMail offering apps to block them. But with this legislation, moves are being made to compel service providers to better protect their customers, and Governor Cuomo’s bill seeks to take this one step further.
Announced on January 1st, one day after Trump’s signing, Cuomo’s robocall bill is part of his 2020 agenda, titled State of the State. Sharing similarities with TRACED, one of the primary differences between the two bills is that Cuomo’s would require telecommunications companies to block robocalls, pinning them with a fine upon failing to do this.
And making it a hat-trick for anti-robocall legal action this week is Michigan’s Attorney General, Dana Nessel, who set up a Robocall Crackdown Team dedicated to charging those partaking in the criminal activity. “The message we want to send loud and clear is if you are engaged in this kind of illegal activity, we are going to come after you,” said Nessel at a press conference. “And we are going to prosecute you to the fullest extent of the law.”
New Jersey is Propelling its Own Confession of Judgment Bill
December 12, 2019The New Jersey legislature has climbed aboard the Confession of Judgment restriction train. On Thursday, the state’s Senate Commerce Committee advanced S3581, a bill that would prohibit the use of COJs in a “business financing” contract with a New Jersey debtor. The bill was introduced in March but had not experienced movement until today.
New Jersey’s COJ bill is similar to the bill advancing through the House of Representatives at the federal level. Meanwhile, New York’s legislature had also proposed a near-identical bill but it did not pass. Instead, New York passed a law that prohibits entering a judgment by confession in New York’s courts against a non-New York debtor.
The New Jersey bill passed through the committee without any debate. The Committee chair said on the record, however, that the New Jersey Credit Union League, an advocacy group for credit unions, was in favor of the bill.
OCC Believes It’s Time To Fix Madden Issue Once And For All
November 18, 2019
If a bank makes a legal loan to a consumer and then later sells the debt to a third party, the terms of the loan are still legal right?
“Yes” should be the obvious answer, but in 2015 a federal appeals court said “no.” The case was Madden v. Midland Funding LLC, which started as a credit card debt owed by a consumer to Bank of America at 27% interest and ended as an allegedly illegal loan once the debt was sold to Midland Funding.
The ruling, which deBanked has covered extensively, shook the consumer and business loan markets in New York, Connecticut, and Vermont with its jurisdictional reach. Midland Funding appealed the ruling to the United States Supreme Court but the Court declined to hear the case.
Congress attempted to bring clarity to the lawfulness of the practice with a bill called the Protecting Consumers’ Access to Credit Act of 2017 but failed when the approved House bill never even came up for a vote in the Senate.
On Monday, the Office of the Comptroller of the Currency (OCC) proposed a rule to clarify the “Valid When Made” Doctrine that had been pierced in Madden. “This proposal will address confusion about the effect of a transfer on a loan’s valid interest rate, including confusion resulting from a recent decision from the U.S. Court of Appeals for the Second Circuit (Madden v. Midland Funding, LLC),” OCC wrote in a statement.
A 60-day public comment period will be open once the proposal is published in the Federal Register. To find out how to comment on the rule, click here.
“Predatory Lenders” Slammed as Bill to Ban Confessions of Judgment Nationwide Advances
November 14, 2019
(Bloomberg is majority owner of Bloomberg News parent Bloomberg LP)
Rep. Nydia Velázquez (D) celebrated the advancement of a bill on Thursday that aims to outlaw confessions of judgment (COJs) in commercial finance transactions nationwide. HR 3490, dubbed the Small Business Lending Fairness Act, made its way through the House Financial Services Committee on a vote of 31-23. The next step will be a floor vote.
Velázquez made direct references to a Bloomberg News story series published last year about “predatory lending” and a NY Times article about Taxi medallion loans as her basis for supporting it. Velázquez said that New York had become a breeding ground for “con artists” that relied on COJs to prey on mom-and-pop businesses. The congresswoman singled out New York because of recent taxi medallion loan outrage and the state’s alleged reputation as a “clearing house” for obtaining fast easy judgments against debtors nationwide. New York took a major step to change that practice earlier this year through a new law that only allows COJs to be filed in the state against New York residents. HR 3490 seeks to prevent them from being filed in every state, including New York.
Ironically then, the bill is at odds with the new New York law in that Velázquez’s bill, if it became federal law, would go so far as to prevent New York’s own courts from entering a COJ against New York’s own residents, if it resulted from a commercial finance transaction.
While momentum in the House could be perceived as a partisan initiative unlikely to survive the Senate, the bill has in fact garnered a degree of Republican support, recently through Rep. Roger W. Marshall, a co-sponsor of the bill, and originally by Senator Marco Rubio who initially sparked the call to action in the Senate last year.
The Financial Svcs Committee approved my bill to end "Confessions of Judgment", contracts that allow for unfair, predatory small business loans & that have been linked to #taximedallion crisis in NYC.
On to the House floor!
Read More: https://t.co/xHaYnLKme4@NYTW @FSCDems
— Rep. Nydia Velazquez (@NydiaVelazquez) November 14, 2019
A co-author of the COJ-centric Bloomberg News stories was quick to take the credit for the advancement of Velázquez’s bill.
the bill was drafted in response to our series Sign Here to Lose Everythinghttps://t.co/lrfIW3P0yi
— Zeke Faux (@ZekeFaux) November 14, 2019
