[BankComplianceGuy]

Any thoughts on this from the MCA community?

The Innovative Lending Platform Association, in partnership with the Association for Enterprise Opportunity, is launching a pricing comparison tools initiative predicated on creating a model small business lending disclosure called SMART (Straightforward Metrics Around Rate and Total Cost) Box. The SMART Box will present a small business with a chart of standardized pricing comparison tools and explanations, including various total dollar cost metrics and an APR that enables an “all-in” pricing comparison of loans of equivalent duration.

And before every Johnny Cochrane chimes in and says a MCA is not a loan, I get it, but the MCA product is always compared to the daily ACH loan, I would have to imagine this could impact MCA, if not legally, reputationally.

http://finance.yahoo.com/news/nation...110100896.html

[WhoisKingsley]

I actually think this is a good thing and I have so many thoughts. I figured the community would too but we're too busy talking about lawsuits and politics than to be innovative and change things.

[jotucker1983]

I love the idea of providing more open transparency and education, but I'm not for something that tries to standardize pricing/costs across the board.

- Assuming they are only going to include short-term alternative products into the SMART Box....because every deal in our space is priced differently based on the risk that it carries, I'm wondering how are they truly going to make pricing/costs comparisons?

- An "A Paper" 6 month payback deal is going to look completely different in pricing compared to a "D Paper" 6 month deal. So is the matrix going to reveal underwriting risk components and paper grades in some sort of standardized format to show what an A Paper deal would look like versus what a D Paper deal would look like? If so, would that not just confuse the hell out of the merchant even more?

- In our space, A Paper is pretty much A Paper across the board, but every lender doesn't price A Paper the same. Some places you can get a A Paper 6 month deal with a 1.06 buyrate, some places have buyrates at 1.18 for the same 6 month deal. Also just because it's A Paper with the low buyrate, does not mean the internal agent or external broker selling the deal will price it as A Paper.

- Some places can complete that entire A Paper deal through an automated closing process within 1 hour, some places it would take 2 - 5 business days to wrap said closing process up due to heavy manual underwriting involvement.

- The deal is still A Paper, but the pricing/cost matrix as well as the underwriting/closing formats are not the same from one lender/funder to another based on the "unique formula" for lending and profitability created by each lender/funder.

- So I'm all for something that educates merchants on the different products at their disposal, but I'm totally against something that tries to standardize pricing/costs because, you just cannot do that across the board with the different types of variables at play.

[Sean Cash]

Any thoughts on this from the MCA community?

The Innovative Lending Platform Association, in partnership with the Association for Enterprise Opportunity, is launching a pricing comparison tools initiative predicated on creating a model small business lending disclosure called SMART (Straightforward Metrics Around Rate and Total Cost) Box. The SMART Box will present a small business with a chart of standardized pricing comparison tools and explanations, including various total dollar cost metrics and an APR that enables an “all-in” pricing comparison of loans of equivalent duration.

And before every Johnny Cochrane chimes in and says a MCA is not a loan, I get it, but the MCA product is always compared to the daily ACH loan, I would have to imagine this could impact MCA, if not legally, reputationally.

http://finance.yahoo.com/news/nation...110100896.html

The part you bolded doesn't exist in the actual text. Nowhere does it say that an APR will be disclosed. It alludes to the inclusion of annual percentage rate "metrics" which could be certain itemized costs which may be able to be explained in annualized terms. I know that every major news media outlet had a brain explosion today in announcing that this was all about APR disclosures. Nothing in the actual announcement says that. I reached out to the companies about this nuance this morning and lo and behold they are still "preparing" their answers. Doesn't mean they didn't mean APR, but they clearly did not say what every news outlet thinks they said.

[Sean Cash]

they just got back to me on this

[Cfairbank]

I love the idea of providing more open transparency and education, but I'm not for something that tries to standardize pricing/costs across the board.

- Assuming they are only going to include short-term alternative products into the SMART Box....because every deal in our space is priced differently based on the risk that it carries, I'm wondering how are they truly going to make pricing/costs comparisons?

- An "A Paper" 6 month payback deal is going to look completely different in pricing compared to a "D Paper" 6 month deal. So is the matrix going to reveal underwriting risk components and paper grades in some sort of standardized format to show what an A Paper deal would look like versus what a D Paper deal would look like? If so, would that not just confuse the hell out of the merchant even more?

- In our space, A Paper is pretty much A Paper across the board, but every lender doesn't price A Paper the same. Some places you can get a A Paper 6 month deal with a 1.06 buyrate, some places have buyrates at 1.18 for the same 6 month deal. Also just because it's A Paper with the low buyrate, does not mean the internal agent or external broker selling the deal will price it as A Paper.

- Some places can complete that entire A Paper deal through an automated closing process within 1 hour, some places it would take 2 - 5 business days to wrap said closing process up due to heavy manual underwriting involvement.

- The deal is still A Paper, but the pricing/cost matrix as well as the underwriting/closing formats are not the same from one lender/funder to another based on the "unique formula" for lending and profitability created by each lender/funder.

- So I'm all for something that educates merchants on the different products at their disposal, but I'm totally against something that tries to standardize pricing/costs because, you just cannot do that across the board with the different types of variables at play.

John,

Not sure I understand why paper grade or lender would have anything to do with calculating an APR or associated metric. Disclosing APR may make it harder to sell the product, but we are operating in a space with as much information asymmetry as I have ever seen. And it's like everything else -- yes there are variables that dictate price and term, but the output is the output -- even if there is no "APR" on a cash advance, there is an effective APR (if comparing it to the option of a credit product) or IRR once it's repaid or renewed. If so many folks in this space didn't encourage renewals and cycle merchants on high cost capital (especially magnified in the "subordinate" segment of the mkt that offers the merchant-killing 4 month 1.45x stacks with a double dip), we wouldn't even be having this discussion.

Also something to note: all the folks that are anti-APR on short term capital (loans or cash advance), they should be grateful that that calculation won't include the heavy extra cost of a double dip that greatly increases the effective APR on every transaction -- taking that into consideration, these calculators are much more likely to understate the ultimate effective APR than overstate it.

Again, I fully understand and agree that there is not APR on a cash advance (it's not a credit product and there's no set term). That said, it's clear where the industry is going to end up from a disclosure perspective and it seems like an "innovative" industry or company would being able to develop a way that enables merchants to compare products even if you don't think it's the right metric for your product -- and right now, the best folks have come up with is APR -- I strongly encourage anyone concerned with APR to develop a better metric that can be used universally (and total payback doesnt work for long term loans with early payment options). Worst comes to worst, for cash advances, show a table of effective APR (with a huge disclaimer that it's for illustrative purposes only, is not a loan/credit product, etc.) at varying payback periods.

[Duff]

The problem with an algorithm processing an application for multiple lenders is incorporating exceptions.

If you publish a lenders underwriting criteria which is protected as IP and clearly defined as such in all ISO agreements you will be sued in a heart beat.

You won't be able to incorporate exceptions with out revealing IP and you won't win very many deals with out exceptions.

[BankComplianceGuy]

The part you bolded doesn't exist in the actual text. Nowhere does it say that an APR will be disclosed. It alludes to the inclusion of annual percentage rate "metrics" which could be certain itemized costs which may be able to be explained in annualized terms. I know that every major news media outlet had a brain explosion today in announcing that this was all about APR disclosures. Nothing in the actual announcement says that. I reached out to the companies about this nuance this morning and lo and behold they are still "preparing" their answers. Doesn't mean they didn't mean APR, but they clearly did not say what every news outlet thinks they said.

That quote is from the group's site, innovativelending.org

[BankComplianceGuy]

John,

Don't think it's about disclosing pricing of different "grades" of credit. Banks have been doing this for years for consumers, and regulations have only recently been introduced to disclose that the rate and terms offered were based on a credit score, see Risk-Based Pricing Notice or Credit Score Disclosure.

It's more to provide a merchant with standard information to help them choose an offer, whether they get just one, or if they are comparing multiple offers.

Carl,

Can't agree with you more regarding the cost of renewing. That killed payday lending and if regulators or lawmakers are led to believe that these products are offered to keep a merchant in debt while the lender/broker rakes in fees each time, they will be set on killing this industry.