[bked]

I know that most MCA lenders structure the transaction as a purchase of future receivables, but OnDeck promotes their lending as a traditional loan on their website, despite the high and technically usurious interest rates.

Does anyone know how they do not violate usury laws by doing so? I thought this was one of the big problems that AdvanceMe faced.

Any guidance or help would be appreciated. Doing research for a legal article. Thanks.

[Sean Cash]

I know that most MCA lenders structure the transaction as a purchase of future receivables, but OnDeck promotes their lending as a traditional loan on their website, despite the high and technically usurious interest rates.

Does anyone know how they do not violate usury laws by doing so? I thought this was one of the big problems that AdvanceMe faced.

Any guidance or help would be appreciated. Doing research for a legal article. Thanks.

A company that buys future receivables is not a lender but rather a purchaser.

As for OnDeck, many states do not have usury caps on commercial loans and for ones that do, I suggest you read up on the rate export model to understand how financial institutions can lend in states at rates that exceed state laws.

State-chartered, federally insured banks claim the right to export home state interest rates. They issue the loans and then immediately sell them to the non-bank "lenders" to service.

This is standard operating procedure in the lending world.

[anonymous]

I've wondered about that too, any insight would be great.

nvm, didn't see that it had already been answered.

[bked]

A company that buys future receivables is not a lender but rather a purchaser.

As for OnDeck, many states do not have usury caps on commercial loans and for ones that do, I suggest you read up on the rate export model to understand how financial institutions can lend in states at rates that exceed state laws.

State-chartered, federally insured banks claim the right to export home state interest rates. They issue the loans and then immediately sell them to the non-bank "lenders" to service.

This is standard operating procedure in the lending world.

Thanks for the info, I understand the rate export, but it seems that even with that the rates are still usurious by the standards I'm seeing for the states they claim to originate loans in (CA and VA). Do you have any sources you can point me towards?

[Chambo]

Thanks for the info, I understand the rate export, but it seems that even with that the rates are still usurious by the standards I'm seeing for the states they claim to originate loans in (CA and VA). Do you have any sources you can point me towards?

They lend the money at standard rates, but then have third party fees that create the total cost to merchant.

[bked]

They lend the money at standard rates, but then have third party fees that create the total cost to merchant.

Chambo,

Thanks for the info. Just so I understand, the rates for the loans are within the limits of the usury laws, but the fees rolled into the loan increase the interest rate above the usury limit? Any additional information is greatly appreciated. I'm doing a research project so any sources or explanations would be very helpful.

Thanks for the info!

BK

[Sean Cash]

Chambo,

Thanks for the info. Just so I understand, the rates for the loans are within the limits of the usury laws, but the fees rolled into the loan increase the interest rate above the usury limit? Any additional information is greatly appreciated. I'm doing a research project so any sources or explanations would be very helpful.

Thanks for the info!

BK

This is the part where you hire a good lawyer with specific subject matter expertise.

[bked]

This is the part where you hire a good lawyer with specific subject matter expertise.

Unfortunately, my budget for this research paper is nothing since it's for a class I'm taking. I would appreciate any sources that I can put in a research paper though. Hiring a lawyer doesn't seem like the source I'm looking for.

[J.Celifarco]

Chambo,

Any additional information is greatly appreciated. I'm doing a research project so any sources or explanations would be very helpful.

Thanks for the info!

BK

When you say research project do you really mean trying to figure out how to make contracts for your new lending company???? Just saying because these are some odd questions for a research project??

[bked]

This is the part where you hire a good lawyer with specific subject matter expertise.

Unfortunately, my budget for this research paper is nothing since it's for a class I'm taking. I would appreciate any sources that I can put in a research paper though. Hiring a lawyer seems like great info, but I might as well hire someone to just write the paper given the cost of a lawyer's time.

I've looked for some detailed explanations from online sources, but forums like seem to be the most helpful. If you know of any sources Sean, please let me know.

Thanks.

[Sean Cash]

Unfortunately, my budget for this research paper is nothing since it's for a class I'm taking. I would appreciate any sources that I can put in a research paper though. Hiring a lawyer seems like great info, but I might as well hire someone to just write the paper given the cost of a lawyer's time.

I've looked for some detailed explanations from online sources, but forums like seem to be the most helpful. If you know of any sources Sean, please let me know.

Thanks.

There's a little bit about OnDeck's banking relationships in this public prospectus: http://dailyfunder.com/dbrsondeck.pdf

Beyond OnDeck, there's plenty of information online about Lending Club's relationship with Utah-based WebBank to export consumer loan rates.

[bked]

When you say research project do you really mean trying to figure out how to make contracts for your new lending company???? Just saying because these are some odd questions for a research project??

No I'm doing research on alternative lending sources like MCA, P2P, microloans, etc. One aspect I'm exploring is the differences in these forms of financing and why they are becoming more prevalent in the business marketplace. MCAs seems to be the murkiness so I'm trying to understand the transactions better and how they are avoiding violating usury laws.

Not sure what this has to do with lending contracts. What's so odd about my questions? I thought they were pretty straightforward.

[bked]

There's a little bit about OnDeck's banking relationships in this public prospectus: http://dailyfunder.com/dbrsondeck.pdf

Beyond OnDeck, there's plenty of information online about Lending Club's relationship with Utah-based WebBank to export consumer loan rates.

Awesome, thanks so much.

[Sean Cash]

No I'm doing research on alternative lending sources like MCA, P2P, microloans, etc. One aspect I'm exploring is the differences in these forms of financing and why they are becoming more prevalent in the business marketplace. MCAs seems to be the murkiness so I'm trying to understand the transactions better and how they are avoiding violating usury laws.

Not sure what this has to do with lending contracts. What's so odd about my questions? I thought they were pretty straightforward.

One thing OnDeck will tell you is that they are NOT a merchant cash advance company

[bked]

One thing OnDeck will tell you is that they are NOT a merchant cash advance company

Good point, I definitely noticed that, but I also noticed plenty of other MCA lenders that do the absolute reverse and highlight that their products are not "loans" to avoid regulatory scrutiny. That's what got me on this path I'm on now looking into OnDeck. It seems odd because OnDeck's loans are advertised as half of MCAs, but are still way above traditional financing routes.

[Sean Cash]

Good point, I definitely noticed that, but I also noticed plenty of other MCA lenders that do the absolute reverse and highlight that their products are not "loans" to avoid regulatory scrutiny. That's what got me on this path I'm on now looking into OnDeck. It seems odd because OnDeck's loans are advertised as half of MCAs, but are still way above traditional financing routes.

MCA companies don't have to highlight anything to avoid regulatory scrutiny. They buy future revenue streams and along with that, they accept types of risks that a lender would never accept, such as no recourse in the eventuality the business fails. Traditional MCA companies also collect their asset on an unpredictable basis that is entirely dependent on the future performance of a business. There is no predetermined term or deadline. It's not that MCA companies are choosing to call their product by a different name to "avoid" something, but rather they are actually engaged in a unique set of transactions that do not have the characteristics of a loan.

OnDeck's APRs come off high because of the daily amortizing nature of their structure. Listen to Noah Breslow talk about that while sitting next to the head of the Small Business Administration in the video here: http://www.merchantprocessingresourc...se-of-reality/

[bked]

MCA companies don't have to highlight anything to avoid regulatory scrutiny. They buy future revenue streams and along with that, they accept types of risks that a lender would never accept, such as no recourse in the eventuality the business fails. Traditional MCA companies also collect their asset on an unpredictable basis that is entirely dependent on the future performance of a business. There is no predetermined term or deadline. It's not that MCA companies are choosing to call their product by a different name to "avoid" something, but rather they are actually engaged in a unique set of transactions that do not have the characteristics of a loan.

OnDeck's APRs come off high because of the daily amortizing nature of their structure. Listen to Noah Breslow talk about that while sitting next to the head of the Small Business Administration in the video here: http://www.merchantprocessingresourc...se-of-reality/

I understand what you are saying, but from my research it seems AdvanceMe was claiming the same thing essentially and the California courts didn't buy it. I believe the highlighting is more towards the borrower as to not create false impressions that they are receiving a loan as opposed to an advance.

Thanks for the link, will check it out.