[StealMyDeal]

How is this supposed to apply to merchant cash advances when there is no fixed term length that can be used to calculate APR? As soon as the merchant bounces 1 payment or requests a day off, the entire calculation changes. Especially when you start thinking about Split/Lockbox deals where the term length is completely dependent on how much the merchant is batching...

It appears they have considered this and provided a mechanism for estimating APR, per the text of the bill:

55 (c) The estimated annual percentage rate, using the words annual
56 percentage rate or the abbreviation "APR", expressed as a yearly rate,
(f) any person or provider who makes no more than five commercial financing transactions in this state in a twelve-month period; or
(g) an individual commercial financing transaction in an amount over

A. 10118--A 4
1 inclusive of any fees and finance charges, and calculated in accordance 2 with the federal Truth in Lending Act, Regulation Z, 12 C.F.R. §
3 1026.22, based on the estimated term of repayment and the projected
4 periodic payment amounts. The estimated term of repayment and the
5 projected periodic payment amounts shall be calculated based on the
6 projection of the recipient's sales, called the projected sales volume. 7 The projected sales volume may be calculated using the historical method 8 or the opt-in method. The provider shall provide notice to the super-
9 intendent on which method they intend to use across all instances of
10 sales-based financing offered in calculating estimated annual percentage 11 rate pursuant to this section.
12 (i) The provider using the historical method shall use an average
13 historical volume of sales or revenue by which the financing's payment
14 amounts are based and the estimated annual percentage rate is calcu-
15 lated. The provider shall fix the historical time period used to calcu-
16 late the average historical volume and use such period for all disclo-
17 sure purposes for all sales-based financing products offered. The fixed
18 historical time period shall either be the preceding time period from 19 the specific offer or, alternatively, the provider may use average sales 20 for the same number of months with the highest sales volume within the 21 past twelve months. The fixed historical time period shall be no less 22 than one month and not exceed twelve months.
23 (ii) The provider using the opt-in method shall determine the esti- 24 mated annual percentage rate, the estimated term, and the projected
25 payments, using a projected sales volume that the provider elects for 26 each disclosure, provided, that they participate in a review process 27 prescribed by the superintendent. A provider shall, on an annual basis, 28 report data to the superintendent of estimated annual percentage rates 29 disclosed to the recipient and actual retrospective annual percentage 30 rates of completed transactions. The report shall contain such informa- 31 tion as the superintendent, by rule or regulation, may prescribe as
32 necessary or appropriate for the purpose of making a determination of 33 whether the deviation between the estimated annual percentage rate and 34 actual retrospective annual percentage rates of completed transactions 35 was reasonable. The superintendent shall establish the method of report- 36 ing and may, upon a finding that the use of projected sales volume by 37 the provider has resulted in an unacceptable deviation between estimated 38 and actual annual percentage rate, require the provider to use the
39 historical method. The superintendent may consider unusual and extraor-
40 dinary circumstances impacting the provider's deviation between esti-
41 mated and actual annual percentage rate in the determination of such 42 finding.

[Yankeeman07]

Projected Sales Volume - Therefore the funder needs to be a mind reader

[Nunya]

Projected Sales Volume - Therefore the funder needs to be a mind reader

Hardly a "mind reader". Everyone has an idea or estimate of sales volume when they underwrite, price and fund a deal. Estimates can be incorrect but they do exist. To deny that would be ignorant.

[Yankeeman07]

Hardly a "mind reader". Everyone has an idea or estimate of sales volume when they underwrite, price and fund a deal. Estimates can be incorrect but they do exist. To deny that would be ignorant.

An estimate that turns out to be incorrect will be an overestimate if the estimate exceeded the actual result, and an underestimate if the estimate fell short of the actual result.


This law, if signed, is meaningless for a merchant accepting MCA $$$

[Chambo]

An estimate that turns out to be incorrect will be an overestimate if the estimate exceeded the actual result, and an underestimate if the estimate fell short of the actual result.


This law, if signed, is meaningless for a merchant accepting MCA $$$

Unfortunately, that is not true. I don't think you want to be the example the AG uses to make a point.

You will simply be making estimations on APR, much like mutual fund companies talk about projected performance. there will be disclaimers that past performance doesn't guarantee....etc, etc.

Once his law passes however, that whiny argument "but there isn't APR on MCA" will get laughed out of court

[OC Funder]

Unfortunately, that is not true. I don't think you want to be the example the AG uses to make a point.

You will simply be making estimations on APR, much like mutual fund companies talk about projected performance. there will be disclaimers that past performance doesn't guarantee....etc, etc.

Once his law passes however, that whiny argument "but there isn't APR on MCA" will get laughed out of court

I agree with Chambo. Issuing MCAs at usurious "rates" without a CFL cost Advanceme a LOT of money in litigation... The "it's not a loan" defense did not hold up, and it set the precedent for why a lot of members here can't fund in California. Not exactly the same set of circumstances but I think it'll be the same result.