Lend360 Was All Business, Ethical Business
The 2014 Lend360 conference in New Orleans brought consumer lenders and business lenders together for a three-day event that set attendees off on a collaborative mission, to do what’s best for the customer.
Heavy hitters from both sides of the lending aisle coalesced with industry renowned attorneys, politicians, and institutional investment groups. Lend360 at its core was a brain trust for standards and best practices.
Two industry captains, David Goldin of AmeriMerchant and Jeremy Brown of RapidAdvance, walked the crowd of nearly 500 people through the history and methodologies of merchant cash advance financing. Several consumer lenders described the two-man panel as a wake up call. “Wow, there’s a real market there,” said a lead generator who asked not to be identified. Goldin and Brown were up on stage twice at the conference.
“We don’t really consider banks as a competitor,” Goldin explained. Much like the consumer lenders in attendance, merchant cash advance companies described helping the underbanked, customers that can’t get a bank loan.
Brown, who like Goldin is also a founding member of the North American Merchant Advance Association, believes there are similarities in both industries up to a point. “Past a certain dollar amount, we want an underwriter,” Brown said in response to a question about whether underwriting should be fully computerized.
Brown doesn’t want to be in an environment with no human involvement in underwriting. “The deals are too big and the assets are less tangible,” he explained. That stood in stark contrast to the belief held by some of the small dollar consumer lenders on the panel whose customers prefer a completely automated experience.
Indeed, the conference hosted many short term installment lenders, some of whom make loans to consumers for less than $1,000. A full manual human evaluation of such loans would increase the costs of them astronomically, and this in an industry that is already criticized for its high costs.
One couldn’t help but notice that merchant cash advance companies face a similar dilemma, pricey financing and constant criticism. The products aren’t the same, nor is the customer base, but the phrase oft-repeated at Lend360 by consumers lenders to the merchant cash advance crowd was, “you guys are where we were seven years ago.”
The attitude from a regulatory preparedness perspective, is that merchant cash advance companies aren’t ready to take on governmental agencies when the assault eventually comes. There’s been a torrent of debate regarding action the CFPB might invoke under Section 1071 of the Dodd-Frank Act, but attorney Robert Cook of Hudson Cook, LLP informed a packed room that contrary to what everyone thinks, the industry is already regulated by a different agency, the FTC.
“The FTC already has the right to punish unfair or deceptive products and marketing,” Cook said. And deception could be a matter of common sense. “Talk to merchants like they’re very unsophisticated,” Cook added.
When pressed for an example on deception, Cook warned, “If you only advertise the factor rate and not the other fees upfront, that is deceptive and the FTC might be interested in that.”
The seven year spread is not entirely predicated on the regulatory environment. There were consumer lead generators in attendance that claimed to be funding a loan almost every second of the day. Operating on that level, one wonders if the volume could be duplicated in the business lending world. A recent article by Businessweek cast the cost of an exclusive merchant cash advance lead to be around $200, not far off from the premium price of consumer loan leads.
Leads were a big conversation on the second day, when the agenda was dominated by business lending sessions and merchant cash advance panels. Some of the speakers walked off stage after having mentioned doing hundreds of millions of dollars in funding and they were getting scooped up by the curious lead generators who had overheard them from their booths.
It’s probably no coincidence that an afternoon breakout session on business lending was standing room only. There, Jared Weitz, CEO of United Capital Source, and Mark Cerminaro, CRO of RapidAdvance, broke down the specifics on the type of clients best suited for their products. Tim Graczewski of Creditera, a company that helps small businesses build their actual business credit scores, provided some excellent insight into why such businesses are not actually bankable.
While both sides talked business, three guests talked politics. Governor Bobby Jindal gave his stump speech but told the crowd that it was entrepreneurs like them that created opportunities, that they were the ones that gave everyone a shot to achieve their dream. Congressman Sean Duffy of Wisconsin on the other hand couldn’t be there in person so he videotaped an address to the Lend360 crowd to show his support.
Senator David Vitter of Lousiana talked about the nuts and bolts of Operation Choke Point with attendees over breakfast and the realities of what would be possible with a republican controlled Senate. An attendee asked him if the CFPB could be completely unfunded and Dodd-Frank dismantled, but Vitter told him he’d probably need to adjust his expectations.
The political presence at Lend360 all the way up the governor level was a testament to the Online Lenders Alliance‘s strength as a trade group but perhaps more so it validates the organization’s efforts to adhere to ethical practices.
The resounding consensus by conference attendees was to be a role model. Ryan McCurry, the president of ACH Works, made it a point to say that they only want to work with reputable companies. Heather Francis, EVP of Merchant Cash Group and Jim Salters, CEO of The Business Backer painted a sobering picture of how much effort they put in to being good citizens and doing right by their customers.
Francis and Salters ran a breakout session with Robert Cook, and together the three of them sounded like they were ready to draft up a merchant cash advance constitution. Francis advised everyone in the business not just to have legal aid available but to have legal counsel on staff. “Conduct spot checks,” Francis said. “That includes spot checks on merchant interviews to find out what the ISOs told them,” she added.
Cook seconded that. “Drop bad ISOs that misrepresent your product,” he warned.
Meanwhile Salters’ own experience in the industry has convinced him that there needs to be more than just transparency over certain practices, but the actual elimination of some. Of note was his stance on refis and a methodology he calls double dipping. Using a second advance to satisfy part of the balance of the first advance is unethical according to a video his company published on youtube. In that same video, Salters’ company describes double dipping as paying for an entire tank of gas when your gas tank is already half full.
And as for stacking, Cook advised, “Don’t stack. It hurts you, the merchant and the industry.”
The constant reinforcement of ethical practices inspired several attendees to collaborate further, beyond the conference. “Anything we can do to participate in the longevity of the industry, let us know,” said the partners of Florida-based Fusion Capital to DailyFunder.
OLA members advised the merchant cash advance crowd to be customer-focused even without impending regulatory scrutiny. Having weathered many storms themselves, their advice holds weight. OLA’s standards extend from the lenders all the way to the lead generators. That should interest merchant cash advance ISOs operating under the belief that they have impunity as middlemen.
Lend360 proved how much in common both industries have with each other. This phrase echoed over and over again, “You guys are where we were seven years ago.” That means incredible opportunities await and there’s a chance to dictate how the future will play out. Lend360 was absolutely about business, but above all, ethical business.
Are you doing your part to be an industry good citizen?
See all the photos from the event on Flickr
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