[TheUnderwritingProdigy]

Is it just me or are any of you a little concerned with the direction of how things in the MCA industry are moving with all of these new laws being passed?

First, it was the removal of the COJ.
Second, we have these new APR Disclosure Laws coming into effect with more and more states jumping on the bandwagon.
Now, we have states like Utah and Virginia saying that cash advance funders will be required to be licensed in those states in order to operate.

Thankfully, UT and VA make up a very small % of the overall submissions we're seeing, but it's a bit concerning to me that funders will now need to be licensed in those states, with each state having its own specific requirements.

My worry is that more states will begin following suit when it comes to funders needing to be licensed in those states, similar to how more and more states are going to be requiring APR disclosure on contracts.

If anyone is interested, here's the link to the article referencing the new laws going into effect in UT and VA: https://www.jdsupra.com/legalnews/ut...ation-7549385/

Personally, I operate as a small direct funder with a small team, operating exclusively with my own hard money (no credit facility). I'm concerned that these states requiring licensure may also charge some crazy fee to become licensed. What would happen if each state in the country decided to charge $10-25k to become licensed in that state, and then each state requires contracts to be specific to that state?

I'm sure a lot of the big players with deep pockets will be unaffected but I'm sure you will see a lot of the smaller, boutique providers disappear. Even logistically speaking, if every state required contracts specific to those states, the cost on getting 50 different contracts with state-specific verbiage would be insane, and would also be a logistical nightmare.

What are everyones thoughts on this?

[Olderguy]

Not any different from the mortgage industry after the crash of 2008....We were doing 80/20 home purchases stated income no money down. Option arms paid 4 points on the back end. Enter regulation, licensing and compliance in all states. They introduced the national NMLS and state specific licenses as well. You needed both to be a loan officer. States would come out and audit your operations for compliance with regulations. In my opinion it is the necessary way of things to come. I passed the NMLS on my first try but many of my colleagues failed three times and then had to wait 6 months to retake the test. Most brokers had a license where people would operate under which wasn't legal. You had to have a license to pull credit and quote rates for prospects. The way around it would be "my loan officer ran your credit and you are at ---" and "my loan officer said you would qualify for _____".

Don't kid yourself...everybody lies in this business. My former boss lied more than he told the truth. He would not let me talk to people because I was too honest. Maybe one out of a hundred brokers is a loan officer. The rest are just trying to get the most points and know nothing about loans and what might be in the best interests of the prospect/client. And most don't care. Justifies regulation in the industry.

The short term answer is go through a super broker that is licensed in the state and pay him 2 points or whatever on the deal.

[abfunders]

Well, the good news it that both VA and UT laws are "forgiving" with regards to smaller operations and licenses. In fact, California also allows smaller operations to be unlicensed, as long as they were not involved with 5 commercial transactions in the year.

Apparently California's exception was "sunsetted" https://www.jdsupra.com/legalnews/ex...ender-8086052/ but it came back https://www.consumerfinanceandfintec...-month-period/

(It has to be that way, it puts an unfair barrier in for startup shops that most states would never allow.)

Hopefully some funders will "brokers" who are licensed and are pass-through entities who will pay out sub-brokers, just with a different 1099 at EOY.

BTW, on another note, Virginia's law is interesting: "The provider must pay any arbitration expenses or fees and any other expenses or fees incurred in the conduct of the arbitration proceedings." So if there's a default, you can't sue the business owner and throw your lawyer fees onto them as a scare tactic anymore. That may make some of the MCA providers less aggressive, which is overall good for the business owner, and MCA providers may just have to get used to lower profits.

[TheUnderwritingProdigy]

Well, the good news it that both VA and UT laws are "forgiving" with regards to smaller operations and licenses. In fact, California also allows smaller operations to be unlicensed, as long as they were not involved with 5 commercial transactions in the year.

Apparently California's exception was "sunsetted" https://www.jdsupra.com/legalnews/ex...ender-8086052/ but it came back https://www.consumerfinanceandfintec...-month-period/

(It has to be that way, it puts an unfair barrier in for startup shops that most states would never allow.)

Hopefully some funders will "brokers" who are licensed and are pass-through entities who will pay out sub-brokers, just with a different 1099 at EOY.

BTW, on another note, Virginia's law is interesting: "The provider must pay any arbitration expenses or fees and any other expenses or fees incurred in the conduct of the arbitration proceedings." So if there's a default, you can't sue the business owner and throw your lawyer fees onto them as a scare tactic anymore. That may make some of the MCA providers less aggressive, which is overall good for the business owner, and MCA providers may just have to get used to lower profits.

Realistically, if we're not able to litigate against anyone in VA due to this new law, I don't see us funding in that state any longer.

[Business2122]

With contract language of the mca loan agreements, it’s more important than ever to have actual legal verbiage that allows you to win in court. When I underwrite, with most lenders I’m drafting the loan agreements to cover all vulnerabilities. Two of my files went to court recently and the judge ruled in lender favor and the 2nd was dropped and paid after a few rounds of arbitration.


The new APR disclosure rules won’t slow profits long as the mathematical formula is there. When i underwrite securities the sec always needs “show your work disclosures” for transactions of certain sizes, mca are beginning to have the same watch dogs

Far as lenders getting pushed out, banks are already trying to do that by forming they’re own lending firm, buying defaults and financially backing large firms. Anyone surviving this will probably get the licenses in the states and acquire all the smaller shops that don’t

But to survive these changes without paying top dollar, in my opinion you gotta do that math and the hard reading of legaleses to stay ahead

[alexd12345]

Do these new laws affect brokers? Are brokers needing licneses to operate as well?

[FirstLine Advance]

I'm sure a lot of the big players with deep pockets will be unaffected but I'm sure you will see a lot of the smaller, boutique providers disappear. Even logistically speaking, if every state required contracts specific to those states, the cost on getting 50 different contracts with state-specific verbiage would be insane, and would also be a logistical nightmare.

Honestly I think these laws can give us opportunities. Weeding out some funders wouldn’t be a bad thing.

[mistamca]

Is it just me or are any of you a little concerned with the direction of how things in the MCA industry are moving with all of these new laws being passed?

First, it was the removal of the COJ.
Second, we have these new APR Disclosure Laws coming into effect with more and more states jumping on the bandwagon.
Now, we have states like Utah and Virginia saying that cash advance funders will be required to be licensed in those states in order to operate.

Thankfully, UT and VA make up a very small % of the overall submissions we're seeing, but it's a bit concerning to me that funders will now need to be licensed in those states, with each state having its own specific requirements.

My worry is that more states will begin following suit when it comes to funders needing to be licensed in those states, similar to how more and more states are going to be requiring APR disclosure on contracts.

If anyone is interested, here's the link to the article referencing the new laws going into effect in UT and VA: https://www.jdsupra.com/legalnews/ut...ation-7549385/

Personally, I operate as a small direct funder with a small team, operating exclusively with my own hard money (no credit facility). I'm concerned that these states requiring licensure may also charge some crazy fee to become licensed. What would happen if each state in the country decided to charge $10-25k to become licensed in that state, and then each state requires contracts to be specific to that state?

I'm sure a lot of the big players with deep pockets will be unaffected but I'm sure you will see a lot of the smaller, boutique providers disappear. Even logistically speaking, if every state required contracts specific to those states, the cost on getting 50 different contracts with state-specific verbiage would be insane, and would also be a logistical nightmare.

What are everyones thoughts on this?

I welcome lots of regulation. I see increasing the barrier to entry (especially brokers) as a positive move for everyone involved. The shops that have been pushing out 1.50s without any automation in place will get destroyed. The shops that have been building a scalable operation will thrive. For example, if your contract generation is not automated & cannot handle 10+ difference contracts, then that will definitely impact you if & when regulation happens

[The LCF Group]

Do these new laws affect brokers? Are brokers needing licenses to operate as well?

Yes these laws affect brokers. Brokers need to register. And notably, the Virginia law also requires disclosure of the commission paid to the broker.

Responding to the OP, yes these laws will likely lead to consolidation in the industry. Both for funders and ISOs. Smaller funders and ISOs will have a difficult time keeping up with and staying in compliance with all the patchwork regulations from state to state. And will need to merge or be acquired to survive. Funders face additional risk if one of their brokers breaches one of these new laws, and will be more selective about which ISOs they do business with.

Some funders and ISOs may simply choose to no longer do business in certain states.

[TheUnderwritingProdigy]

I wonder.. what will happen if you have an active deal in one of those states while the law goes into effect? Can you continue to collect since you issued the advance prior to the law going into effect or will you have to pause collection until registering/licensing?