California Eliminates The Disclosure Law’s Sunset Date
September 25, 2023When California passed its landmark commercial financing disclosure law in 2018, some theorized that it was all just a five-year experiment. That’s because legislators wrote into the statute that the APR component of disclosures would only be required until January 1, 2024 and would then automatically be repealed. Then something unexpected happened, it took four years just to put the law into effect. And so with the clock ticking down toward repeal, California’s legislature passed a law last week that removes that line from the statute entirely. Now there is no sunset date. It’s permanent.
Although AltFinanceDaily has learned that many providers are complying with the disclosure law, not everyone believes that doing so helps business owners or that its requirements are constitutional.
Meanwhile, California also passed ANOTHER commercial financing bill last week, Senate Bill 666, which you can read about here.
Small Business Financing Industry Representatives Testified in New York Senate Hearing on Licensing
April 26, 2023Several representatives from across the small business finance industry testified in a New York State Senate hearing on Tuesday. Up for debate was Senate Bill S1450, which would require a license to engage in commercial financing. As part of that, Banking Committee Chairman Senator James Sanders Jr. fielded testimony and asked questions about bad actors, usury caps, non-compliance penalties, and more. Those called upon at the hearing included:
- Natalie Pappas, Deputy General Counsel, Rapid Finance, on behalf of the SBFA
- Amy Carpenter Holmes, Deputy Counsel, Kapitus
- Chris Grimm, Head of State Government Relations, ILPA
- Katherine C. Fisher, Esq., Partner at Hudson Cook, LLP, on behalf of the RBFC
- Phil Goldfeder, CEO, American Fintech Council
- Chuck Bell, Programs Director of Advocacy, Consumer Reports
Almost all of the organizations were in favor of some form of licensing system in New York except for the Innovative Lending Platform Association (ILPA). The ILPA, more famously known for its previous SMART Box initiative, explained that high compliance costs, inflation, and rising interest rates were putting significant pressure on its member’s businesses.
The video below, which curates just the relevant parts of the day, consists of two separate panels on the same subject. Be sure to watch them both.
California DFPI Seeks to Dismiss Commercial Financing Disclosure Lawsuit
March 17, 2023Clothilde Hewlett, in her official capacity as Commissioner of the California Department of Financial Protection and Innovation, has asked the Court to dismiss the lawsuit over commercial financing disclosures brought by the Small Business Finance Association (SBFA). Both sides have entered in all their arguments (the DPFI filed its reply on March 13th.) It is now up to the Court to decide if the claims survive this stage of litigation.
Regulators Seek to Shore Up Potential Hole in Commercial Financing Disclosure Rules
January 25, 2023
After a trade association sued the Commissioner of the California Department of Financial Protection and Innovation over its allegedly unlawful disclosure rules, regulators appear to be scrambling to cover their bases. In particular the SBFA, as plaintiff, has argued that California’s prescribed APR formulas are actually preempted by the federal Truth in Lending Act (TILA) and thus irrelevant.
Within 24 hours of the lawsuit becoming public, a federal agency, the CFPB, coincidentally asked the public to comment on whether or not the disclosure law of a separate state (New York) should be preempted by TILA.
“The CFPB is requesting comment on whether it should finalize its preliminary determination that the New York law – as well as potentially similar laws in California, Utah, and Virginia – are not preempted,” the agency said.
It is of the CFPB’s opinion that such state laws are not preempted and it has proposed to codify such in an official ruling. On January 20th the Attorney General for the State of California praised the CFPB for this initiative.
“…if TILA were to preempt the CFDL’s commercial financing disclosures, there would be no required disclosures at all for commercial credit in California, undermining TILA’s purpose in promoting uniform information and eliminating protections for small businesses and entrepreneurs in California,” said AG Rob Bonta.
The disclosure rules in California went into effect on January 1st despite the lawsuit being filed in December. The SBFA did not attempt to obtain a temporary injunction so there was no anticipation of a delay. The only thing that has happened in the case thus far is that California has asked for an extension to answer the lawsuit. The State now has until February 21st to submit it. In the meantime, the comment period for the CFPB’s proposed rule ended on January 20th, which now potentially puts the agency on course to quickly invent a rule to head off the challenge in California and other states.
Funding Companies Sue California Regulator Over Looming Disclosure Law
December 6, 2022
The alarm bells sounded over California’s commercial financing disclosure law were more than rhetorical bluster. This past Friday, a trade association representing dozens of small business finance companies filed a lawsuit against the Commissioner of the California Department of Financial Protection and Innovation (DFPI) on the basis that the regulations scheduled to go into effect on December 9th are unlawful.
The suit, filed by the Small Business Finance Association, makes two claims.
First, that the regulations violate the First Amendment on the premise that they compel the group’s members to make inaccurate disclosures to customers while at the same time prohibiting members from engaging in communications that could be used to clarify or correct the required false or misleading information to customers. This in part refers to the requirement that funders assign misleading and/or false APRs to purchase transactions while being forced to use language and terminology that contradicts the contracts themselves.
Second, that APR disclosures are defined and governed at the federal level by the Truth in Lending Act and that California’s custom formulas and disclosures would only serve to confuse customers. The SBFA argues that the regulations are “preempted” by TILA.
These controversies, which have been the subject of debate for years, are not new information, but enforcement of the law is finally slated to begin in just 3 days. The complaint argues that compliance with the law may expose its members to civil and criminal liability and thus they are left with no choice but to proceed accordingly. Given the circumstances, however, there does not appear to be hard feelings about the situation.
“The SBFA enjoys a great working relationship with the DFPI and share their commitment to providing meaningful disclosures to small business owners,” said SBFA Executive Director Steve Denis when asked what this lawsuit meant.
He continued:
“We recognize the challenges involved in implementing SB 1235 and appreciate the effort and transparency the DFPI provided during the regulatory process. This is a complex issue and our lawsuit reflects the comments we have made during the regulatory process. We believe there are significant issues with the regulation that not only makes it difficult for us to accurately comply, but are inconsistent, create liability, and will provide further confusion for our small business customers. Again, we appreciate the effort by the DFPI and look forward to continuing our work together as the matter is resolved.”
The actual complaint is available for download here.
The law is scheduled to go into effect on December 9th.
Just Jump In: Three Women Making Their Mark in The Industry
November 29, 2022Forty-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.
Initiative to Push Maryland Commercial Financing Disclosure Bill Points to New York and California
March 14, 2022
Maryland State Senate bill SB0825 was put up for contentious debate last week. The bill is Maryland’s latest attempt to impose restrictions on a subset of commercial finance transactions.
State Senator Ben Kramer spoke at length before the Finance Committee, arguing that opposition to the 2022 version of the bill would be fruitless because it was modeled after passed legislation in New York and California. Apparently operating under the impression that such states had settled the issue of calculating an APR on a purchase transaction, Kramer appeared unaware (perhaps intentionally) that both states have been unable to enact their legislations because of critical flaws in their mathematical assumptions. In the case of California, for example, implementation of its disclosure law has been delayed for almost 4 years.
The corresponding Maryland House Bill of this legislation (HB1211) has since been withdrawn.
Senator Kramer has led the push for regulation for three years straight, beginning in 2020 when a related bill he introduced was called “Merchant Cash Advance Prohibition.”
Not Just For Salespeople: Becoming a Certified Small Business Finance Professional
November 23, 2021
Its aim is to become an industry standard. The newly launched Certified Small Business Finance Professional (CSBFP) program will first become available at Broker Fair in New York City on December 6th.
But what’s the difference between this one and others? Steve Denis, Executive Director of the Small Business Finance Association (SBFA), says that his organization’s backing of the CSBFP makes all the difference.
“We’re the largest trade group in the space without question,” Denis said, adding that the group has about 30 members, several of which are among the largest in the country.
“It’s going to be a signal that you’re doing things the right way and want to go out of your way to show that you are doing things the right way,” Denis said.
The certification will require applicants to complete a course centered on understanding products, laws governing the industry, and compliance. The certification exam will focus on testing applicants’ ability to understand key concepts and best practices.
This course is designed to be taken in person. While it will be available at Broker Fair, Denis said that they plan to partner with other events as well.
“We’re going to focus on as many in-person training sessions as possible,” he said.
And it’s not just salespeople they’re targeting. Underwriters, collectors, support staff, and more are not only all welcome to obtain their certification, but are also encouraged.
“It’s open to anyone in the industry,” Denis said. “The more the better. […] It will send a very strong message that there is a diverse group of people that want to take a certification and take it very seriously.”
In the official announcement, it was stated that it would be more than just a stamp and that certified professionals would also be provided with “a way to connect, learn and grow beyond the initial education process.”
Denis compared the CSBFP standard to CFPs (Certified Financial Planners) in the financial advisor space.
Attendees of Broker Fair 2021 can take the course at the event at no extra charge.
