legislation Archives - Lend Academy

Fintechs Saved PPP and Should Be Included in the State Small Business Credit Initiative

Participation in the State Small Business Credit Initiative (SSBCI) must be extended to fintech lenders, who reached more of the smallest, underserved and minority-owned businesses through the Paycheck Protection Program than traditional financial institutions.

March 8, 2021 By Peter Renton Leave a Comment

[Editor’s note: This is a guest post from Ryan Metcalf, Head of Public Policy & Social Impact at Funding Circle.]

Fintech lenders have forged access to Paycheck Protection Program (PPP) relief funds for underserved and the smallest of small businesses. However, after March 31st—barring an extension of the PPP—there will no longer be any federal relief funds available for fintechs to lend. The imminent end of federal funds available to fintech lenders tees up yet another mounting obstacle to recovery for underserved and the smallest of small businesses, especially as COVID-19 and its economic impact persists.

In its first weekly PPP Report of 2021, the U.S. Small Business Administration (SBA) concluded that “non-bank lenders are reaching underserved businesses with a larger proportion of their loans” despite “large institutions…driving the majority of PPP lending.” 34.32% of fintech PPP loans have gone to businesses in low-moderate income areas and 69.75% of fintech PPP loans are for less than $150,000—percentages that are well above the program averages among all lender types, according to the report.

The outsized impact fintech lenders have had on reaching underserved and the smallest of small business borrowers is not unique to PPP loans made this year. Six fintech members of the Innovative Lending Platform Association, including Funding Circle, provided PPP loans totaling $16.5 billion and saved more than 2 million jobs in 2020. A New York University study of 2020 PPP lending concluded that, fintech lenders not only “originated much smaller loans than other lenders,” but also “appear to have played an important role in extending PPP loans to Black-and Hispanic-owned businesses.”

Small businesses continue to disproportionately bear the brunt of pandemic-related business challenges and economic devastation. In the recently-released results of the Federal Reserve’s Small Business Credit Survey (SBCS), conducted in September and October of 2020, 95% of surveyed businesses reported that the pandemic had impacted their business, with 80% experiencing financial challenges during the previous 12 months. Minority-owned businesses had been especially impacted. 57% of all surveyed small businesses described their financial condition as “fair” or “poor,” with this figure jumping to 79% for Asian-owned businesses and 77% for Black-owned businesses. Despite nearly all surveyed small businesses reporting being affected by the pandemic, only 77% of those who applied to receive PPP funds reported receiving all of the funding they sought.

Even more illuminating, among the report’s results about access to PPP funds, 95% of surveyed small businesses who sought PPP loans from large banks had an existing relationship with that bank. Traditional banks in large part restricted PPP access to existing customers at larger loan sizes, with many financial institutions simply not lending or accepting new customers during this round of PPP. Fintech lenders on the other hand bridged the gap by extending PPP loans to small businesses regardless of whether they had an existing relationship or not, and in 2021 when more than 300 banks opted to not process applications for first draw and or second draw loans, fintechs stepped up to fill the void.

Without fintech lenders like Funding Circle, PPP funds would not have reached the small businesses needing it the most to the degree that they have. To ensure this segment of borrowers that fintechs are serving will still have access to critical funds after the March 31st PPP deadline, state licensed and regulated lenders and those approved by the SBA and U.S. Treasury to offer PPP loans should be eligible to participate in lending an estimated $10 billion in State Small Business Credit Initiative (SSBCI) relief funds anticipated as part of the pending $1.9 trillion stimulus package. Despite being able to offer PPP loans, fintechs will not be able to participate in lending these SSBCI funds, which are restricted to “community development financial institutions” as defined by a law passed nearly thirty years ago in 1994 that only includes banks, credit unions and CDFIs. It is fair to say that a lot has changed since 1994 and so should the laws and programs that Congress implements to help small businesses recover from this crisis.

Support for fintech inclusion in Federal SMB loan programs has received broad bipartisan support from the SBA and Congress. Small Business Administrator Nominee Isabella Casillas Guzman recently remarked that the “adoption of Fintech across the banking sector is critical and expanding distribution will improve access and that we need to…keep them engaged in 7(a) programs…and take advantage of that.” In February, Congressman Barry Loudermilk of Georgia introduced an amendment to pending COVID-19 relief legislation that would extend SSBCI eligibility to all PPP-approved lenders, but the House did not include it in the bill sent to the Senate. However, Senator Tim Scott of South Carolina has since introduced an identical amendment in the Senate.

If state licensed and regulated fintech lenders can offer government guaranteed PPP & 7(a) loans and are serving the smallest and most underserved small businesses, then there is no reason to exclude them from SSBCI. As eligibility requirements are considered, Congress should reflect on the unique vulnerability of underserved and the smallest of small businesses during COVID-19; the impact that fintech lenders have had on making sure PPP funds have reached these borrowers; and the overdue necessity to modernize eligibility requirements that reflect a bygone pre-fintech era. With the end of PPP mere weeks away, I urge Congress to pass Senator Tim Scott’s amendment. Time is truly of the essence.

Bipartisan “Madden Fix” Bill Passes the House

The Protecting Consumers’ Access to Credit Act of 2017 was passed by the US House of Representatives

February 14, 2018 By Peter Renton 1 Comment

We have been covering the Madden issue for several years here on Lend Academy (the full list of coverage is here). Today, marked an important day on this issue as the United States Congress passed the Protecting Consumers’ Access to Credit Act of 2017 (HR 3299), otherwise known as the “Madden Fix” bill.

This is a bipartisan bill that was introduced by Congressman Patrick McHenry (R-NC) and co-sponsored by Congressman Gregory Meeks (D-NY). It passed the house this evening by a margin of 245 – 171 meaning it picked up some support from Democrats (16 votes to be precise).

This bill would restore the “Valid when Made” doctrine meaning that if a loan was valid when it was made it does not become invalid when assigned to another party regardless of state usury laws. The Second Circuit Court of Appeals ruled on a case that meant loans made in Second Circuit states (NY, CT, VT) are exempt from this Valid when Made doctrine and theoretically, loans that are to be transferred from originating banks to non-banks would need to adhere to Second Circuit state interest rate caps. This has led to a significant drop in lending activity in those three states as investors and online lending platforms shy away from making and invest in loans there. This is why a fix is needed.

To get more perspective on what the vote today means we reached out to Nat Hoopes, the Executive Director of the Marketplace Lending Association who had this to say about the bill’s passage:

Over the past decade, borrowers across America have used marketplace loans to start new businesses and save billions of dollars through lower interest rates and more transparent products. Today’s action by the House will help ensure that small businesses and consumers can continue to access these affordable credit products online. This legislation simply restores the law of the land as it stood as recently as 2015, providing greater certainty for responsible, well-regulated and supervised partnerships between traditional banks and their fintech partners.

Gilles Gade, the CEO of Cross River Bank, also gave his perspective:

As a partner to many marketplace lending platforms, Cross River combines the trust, security and established expertise of a community bank with cutting edge technology to facilitate innovation, making responsible credit more accessible and affordable. Today’s bipartisan passage in the House is a positive step towards restoring confidence in the secondary markets and promoting lower cost, more efficient access to credit, particularly in communities who have had more limited access to traditional banking services. We look forward to working with Senators Warner (D-Virginia) and Toomey (R-Pennsylvania) to ensure this access continues while appropriate borrower protection is maintained.

Of course, this bill is still a long way from becoming law and it would need 60 votes in the Senate and then the President’s signature before that happens. Many people view that as unlikely but there are other ways it could become law by attaching it to another bill for example. But that is a story for another day. Today, is a positive first step in the legislative process for the Madden fix.

Bills Being Introduced to “Fix” Decision in Madden v. Midland

We report on the updates to the Madden v. Midland case and get perspectives from a top law firm and the Marketplace Lending Association.

August 30, 2017 By Peter Renton Leave a Comment

The Madden v. Midland case has been a topic many lenders have been following closely for over two years. Our last update was in June 2016 when the Supreme Court denied a petition to hear the case which left the case unresolved. Now bills are being introduced in hopes to fix the ambiguity around this case.

For a historical perspective you can read our coverage of the case at the below links:

Supreme Court Denies Petition to Hear Madden v Midland (June, 2016)
An Update on Madden vs. Midland Funding (May, 2016)
Madden Tells SCOTUS That Marketplace Lenders Should Not Worry About Madden (February, 2016)
Madden 2015 Has Nothing to Do With Football (August, 2015)

An article in American Banker this week from Adam Levitin, professor of law at Georgetown University, provides his perspective on what the bills mean for the case. Levitin expresses concern over the bills, believing that the bills being introduced are overly broad and will facilitate predatory lending.

Nat Hoopes, Executive Director of the Marketplace Lending Association disagreed with Levitin’s assessment. Here is what he had to say:

These bills are strongly pro-consumer. They will help ensure that consumers can continue to refinance their higher interest rate debts, saving consumers significant amounts of money through lower interest costs. Furthermore, these bills clearly cannot facilitate predatory lending because they do not change the rate or terms on which any entity in this country (regulated at the state or federal level) can lawfully lend money. The language of the bills simply reaffirms one of the fundamental principles of contract law — that valid loan contracts can be sold on the secondary market.

[Read more…]

New Government Report Coming on P2P Lending

December 8, 2010 By Peter Renton 6 Comments

Last week, Alex Brill, a fellow at the American Enterprise Institute (AEI) published a report detailing the regulatory challenges that have faced the peer to peer (p2p) lending industry. The report was prompted by the new financial regulatory reform law that was enacted this past summer called the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Apparently this new law contained some very important provisions that could have a huge impact on the p2p lending industry. The gist of it is this. The law requires the Government Accountability Office (GAO) to conduct a study of P2P lending and offer recommendations on how federal regulation of the industry should be structured in the future. This study needs to be presented to congress by July 21, 2011. [Read more…]