Sorry ... Page Not Found

California Bill Aims to Add Consumer Debt Collection Protections to Commercial Debts

Among several commercial finance bills currently making their way through the legislature in California is SB1286, which would apply consumer debt collection protections to commercial debts.

If this bill were to eventually pass commercial debt collectors would need to obtain the same license currently required under existing law for consumer collectors. In addition, it would be a crime for a collector of a commercial debt “to send a communication that simulates legal or judicial process or that gives the appearance of being authorized, issued, or approved by a governmental agency or attorney if it is not.”

There are still more components that would require compliance as well. Like the fact that under current law a debt collector is required to stop collecting a consumer debt when an alleged debtor provides the debt collector with certain information, including information relating to the debtor’s status as an alleged victim of identity theft. This would also apply to commercial debts. The full language of the bill can be read here.

Another bill moving along right now is SB1482, which would “would impose various duties on commercial financing providers and brokers, including, among other things, prohibiting the taking of a confession of judgment or power of attorney at any time before a default.”

Although both bills were introduced all the way back in February, they are currently being passed through committees.

When $10 Million Was Lost In MCA Deals

David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.

In the high-stakes world of merchant cash advances (MCA), trust is a precious commodity, and when that trust is shattered by a longtime partner, the fallout can be catastrophic. Imagine investing tens of millions in what you believe to be a thriving MCA business, only to discover someone you know is siphoning funds through an intricate web of deceit. This isn’t a hypothetical scenario—it’s a grim reality many MCA investors face, and it serves as a stark warning to us all.

Here’s one story from a couple of years back that an industry friend of mine told me:

The betrayal began innocuously enough. The investor trusted the MCA company he was syndicating deals with well, and the owner seemed competent and trustworthy. But beneath this carefully cultivated facade lurked a sinister scheme. This owner had also secretly established his own ISO and collection agency. With access to insider knowledge and an unchecked commission structure, he was in a prime position to execute a brazen and ongoing theft.

The owner submitted deals to his own funding company through his ISO and then funded them with syndication from investors. Then the deals would default. For months, the ISO maintained an exceptional high default rate. When the investor asked the owner what was going on, the owner would express his own puzzlement. He would show his syndicators how deals looked like they were progressing well initially, before they would inevitably crash out and default. Confident that they were backing the right man for the job, the syndicators kept on giving him money. Yet these deals were doomed from the start and designed to fail. By intentionally backing poor investments, he set the stage for his collection agency to step in once the deals inevitably defaulted.

The brilliance—and the horror—of his scheme lay in its simplicity. He manipulated the commission structure, securing an arrangement where he received full commission if a deal stayed active for just over a week. The deals only needed to appear stable for a short period before crumbling. Once the facade of success faded, the deals were swiftly handed over to his collection agency, ensuring he reaped the benefits from every angle.

In effect, he was stealing from his investors and partners in four ways. The first, he was stealing part of their investments before he ever put it into deals, and then of the deals that worked out, he skimmed off as well. The rest he put it into purposefully bad deals- after collecting a quick commission on- and then promptly stole from his own collections firm to top it all off.

As I delved into this case, the warning signs became glaringly apparent. Unusual commission arrangements should have raised immediate red flags. A commission structure that disproportionately rewards short-term success is ripe for exploitation. Moreover, conflicts of interest, like owning related businesses, should never be overlooked. The funder’s ownership of an ISO and a collection agency created an inherent conflict, one that he deftly exploited.

Another alarming sign was the pattern of poor-performing deals. Consistently funding bad deals isn’t just bad luck; it’s a symptom of deeper issues. High turnover in collections, especially when tied to the same individual, is another glaring indicator. A deeper investigation into these patterns could have unearthed the fraud much sooner.

To identify potential issues with your own ISOs, run a report over a three-month period detailing the total dollar amount and number of deals funded by each ISO. Compare these figures to the defaults from each ISO. If the percentage of defaults from an ISO significantly exceeds their contribution to your portfolio, it indicates a potential problem. Additionally, track the recovery rate from your collection firm; less than 25% recovery may signal issues with the contracts, merchants, or the collection firm itself. Conduct periodic audits to ensure that funded merchants are legitimate and not misrepresented.

Preventing such betrayal demands vigilance and a multi-faceted approach. Background checks should be thorough and updated regularly to catch any emerging conflicts of interest. Transparent and standardized commission policies are essential, avoiding complex arrangements that can be manipulated. Regular audits and monitoring can serve as an early warning system. Advanced analytics and an industry CRM such as Orgmeter or MCA Track can detect irregular patterns, flagging potential issues before they escalate. Beyond the technical measures, fostering a culture of honesty and transparency is vital, and employees should be trained to recognize and report suspicious activities.

This true story of betrayal within this company serves as a dramatic reminder of the dangers lurking within our businesses. Trust, once broken, is difficult to rebuild. By remaining vigilant and proactive, we can protect our companies from those who seek to exploit our trust for their gain. With the right measures, we can safeguard our investments and ensure the integrity of our industry.

Prosper Continues to Chug Along

Prosper originated $512.2M in consumer loans in Q2 of 2024, which was down 14% from the same period last year. This was “primarily due to the reduced usage of our Warehouse Lines to purchase loans, as well as decreased third-party investor demand,” the company said in its quarterly report.

Prosper rates its borrowers from AA (best) to HR (worst). They are AA, A, B, C, D, E, HR. Twenty two percent of their borrowers in the first half of 2024 were given a B rating. 15% had an E rating and only 10% had a AA rating.

Overall, Prosper has been chugging along, generating an insignificant net loss of only $500,000 for the quarter. The fact that it supplies public quarterly reports is unique in that the company is not public but continues to sell notes to retail investors, making it more-or-less the only remaining peer-to-peer lender to remain from what is now a bygone era.

Kris Roglieri Alleged to Have Transferred Assets to Third Parties

The Chapter 7 Trustee managing the personal bankruptcy of Kris Roglieri brought new information to light on Thursday by alleging that Roglieri lied heavily in his original bankruptcy petition. In addition to hiding assets, income, expenses, debts, gifts, and records from the bankruptcy process in part by running them through many business entities he owned, he also moved funds from his personal account into his Commercial Capital Training Group, LLC (CCTG) bank account just weeks before filing for personal Chapter 11 bankruptcy back in February. From there, assets from CCTG and assets from the National Alliance of Commercial Loan Brokers, LLC (NACLB), another business he owned, were transferred to third parties to be preserved as safekeeping for Roglieri’s own benefit.

“[Roglieri] thereafter transferred the assets including without limitation operations, funds, good will, client lists, and other personal property of Commercial Capital Training Group, LLC and the National Alliance of Commercial Loan Brokers, LLC to third parties,” the Trustee wrote. “[Roglieri] facilitated the transfer of assets from the Debtor Entities to dissipate the value of the Debtor membership interest in the Debtor Entities as a potential source of payment to creditors of the Debtor bankruptcy estate.”

On May 15, deBanked reported that the NACLB Conference had changed its name to Commercial Loan Broker Association (CLBA).

“The third parties are preserving the value of the transferred assets for the benefit of the Debtor,” the Trustee wrote. Assets belonging to the Roglieri estate were to have been turned over to the Trustee but were not.

Roglieri allegedly “facilitated the transfer of assets, including operations, funds, goodwill, client lists, and other personal property of Prime Commercial Lending, LLC to third parties” as well.

The Trustee has asked the Court to deny Roglieri a discharge of his bankruptcy. The full complaint can be viewed here.

Shopify Capital’s Funding Business Grows in Q2

Shopify Capital originated ~$700M in business loans and merchant cash advances in Q2. During the earnings call, Shopify CFO Jeff Hoffmeister referred to its Capital division as a “growth business” that had increased in volume. Shopify has otherwise seemed to downplay mention of this division since early last year. In terms of origination volume, the company is still not as big as Enova or Square Loans.

Shopify’s rival, Amazon, used to offer funding to its clients directly as well, but switched to referring its clients to third party lenders earlier this year.

Search Engine Algorithm Changes Impacted NerdWallet’s Small Business Lending Business

“Let’s say, you’re searching for a small business loan. You ideally, I think, want to comparison shop relevant choices, leveraging a brand you trust. And so if you see a government website explaining what a small business loan is, that doesn’t help, neither does a nonprofit website showcasing local grants nor is it helpful to see a regional bank that doesn’t do small business loans, right?”

This hypothetical was posed by NerdWallet CEO Tim Chen during the company’s recent quarterly earnings call. And that’s because a search engine update (which intuitively sounds like Google) actually impacted their SMB loan business in Q2.

“So during Q2, yes, like we said, [there was a] major algorithm update and [it] created meaningful headwinds on our search ads, and to a lesser extent, our traffic,” Chen explained. “So I’d characterize it as saying it’s stabilized and started getting a little better. Generally speaking, we think search is working well when it matches user intent and surfaces the best answers. And by that standard, we and a lot of industry observers felt like things went a bit haywire last quarter. So we think it’s inevitable, some of these kinks get worked out because there are strong commercial incentives for search engines to get it right. They want happy customers who keep coming back so they can sell more search ads.”

NerdWallet is one of the few companies in the business lending space to specifically draw attention to organic search traffic’s impact on its bottom line. NerdWallet, who previously acquired Fundera, has dominated in organic search rankings for top keywords for years. An investigation carried out by deBanked in 2018, for example, showed that NerdWallet and Fundera were consistently the top result(s) for basic business loan queries on Google.

But search wasn’t the only thing on their minds:

“SMB loans, particularly in originations, saw an increasing amount of pressure in Q2 as elevated rates and tighter underwriting persisted, combined with some of the organic search traffic challenges,” said NerdWallet CFO Lauren StClair. “So we continue to drive growth in the quarter with our diversified product offerings for small and midsized businesses in areas such as credit cards and banking. We believe we have a substantial runway for growth in both diversifying SMB subcategories as well as scaling SMB loans over the long run, though expect to face a tougher growth profile in the near term as we await a more robust lending environment.”

NerdWallet also recently laid off 100 employees.

Organic search results from New York at the time of this article

View Post