January 30, 2023

Regulators, Mount Up!

Happy Tuesday, friends! Today I want to focus on something a little different: regulation. Regulation is a funny word; it evokes anger, comfort, and everything in between. I'll be blunt with you regarding my beliefs on regulation: I think that in our industry, regulation should simply level the playing field for entrepreneurs, forcing funders to do no harm, a concept I've talked about before.

In most cases, I think regulators are doing that, and for the most part, I think regulators are doing their best to be in front of financial innovation that could (and does) threaten entrepreneurs with predatory credit products. I think it's fair for a lender (whether they admit to being a lender or not) to disclose APR, to commit to a maximum APR, etc. California has a regulatory framework that makes sense, I think. Sure, it's cumbersome, but the goal is the protection of entrepreneurs, and I'm all for that.

So when I see articles saying that seven state legislatures are introducing new bills for consideration this year, I get interested, but not panicked. The challenge that each of these states will have is to ensure that the regulations are designed jointly by funders and entrepreneurs, and not by legislators who don't understand the capital markets at all. That way, founders are protected and funders are able to keep providing capital in a fair (and probably more transparent) way.

I do, however, get a little worried when I see articles like this one. The Revenue Based Financing Coalition, which is basically a bunch of MCA providers pretending to be RBF lenders, just sued the CFPB to protect their ability to do...well, I guess to do whatever they please.

This troubles me. You may recall in a prior newsletter I wondered who these Coalition folks actually were. I never was able to make contact with the CEO of the group or to find a common connection. They definitely appear to be the tip of the "pretend we're RBF even though we are obviously extractive MCA" spear though.

You may also recall that I've lamented for a couple of years the fact that MCA providers have hijacked the term "revenue-based" to make what they do seem less extractive or usurious. As a group, we've been talking about this for a little while.

While I don't relish the thought of having regulators scrutinizing what alternative capital providers do (notwithstanding my earlier comments), I relish even less the notion that this group is taking up the mantle in the name of RBF providers.

Here is where the Association that we have discussed and that I think we can get some Foundation help with, can come in to help. Organizing, and developing lobbying support, is becoming an urgent need. To that end, you'll hear more from me soon on how this can and should take shape.

Does this bother anyone else? Am I thinking about this wrong?