In our recent webinar, “The Consumerization of Small Business Lending: Significant Developments and Trends,” Ballard attorneys were joined by special guest Malini Mithal, Associate Director of the Federal Trade Commission’s Division of Financial Practices. Mark Furletti, Co-Chair of the firm’s Consumer Financial Services Group also participated in the webinar, together with John Socknat, a partner in the CFS Group, and Aileen Ng, an associate in the Group. Alan Kaplinsky, Senior Counsel in the Group, moderated the webinar.
Ms. Mithal discussed the FTC’s use of its enforcement authority to protect small businesses. Ballard attorneys discussed the application of various federal and state consumer protection laws to small businesses and new state disclosure laws that apply to commercial transactions.
Highlights of the webinar include the following:
- FTC Enforcement. Ms. Mithal discussed the FTC’s increasing use of Section 5 of the FTC Act to protect small businesses from unfair or deceptive practices. She indicated that with small business financing practices, companies should not assume that small businesses are more sophisticated than individual consumers. Ms. Mithal noted the FTC’s focus on merchant cash advances and highlighted practices used by MCA providers that the FTC has cited as unfair or deceptive in its enforcement cases. Such practices included making false or misleading representations regarding financing terms to induce small businesses to use the provider’s services, charging fees that were not clearly or conspicuously disclosed, and using confessions of judgment. Ms. Mithal noted that guidance on how to make disclosures clearly and conspicuously is available on the FTC’s website.
- Federal laws. Mark Furletti discussed how various federal laws other than Section 5 can impact small business financing. Such laws include the Equal Credit Opportunity Act, Fair Credit Reporting Act, Telephone Consumer Protection Act, Servicemember Civil Relief Act, Truth in Lending Act, and the Electronic Fund Transfer Act.
- State disclosure laws. Aileen Ng discussed the new laws enacted by New York and California that require consumer-like disclosures for commercial financing transactions and the steps being taken to implement those laws.
- Other state laws. John Socknat discussed the types of state laws that do not distinguish between consumer and commercial transactions and therefore could apply equally to both kinds of transactions. He observed that the nature of a product or transaction (i.e. how it actually operates and its terms), rather than how it is labeled, will determine its treatment under state law. John identified laws dealing with licensing, disclosures, and product terms as the primary types of state laws that need to be considered. He indicated that commercial financing could require up to four parties involved in a product or transaction to be licensed: a broker or other referral source, a lender, a servicer, and a purchaser of closed transactions. John noted that debt collector licensing could also come into play.
- Interest and Usury. Mark Furletti also discussed the potential application of state usury laws to commercial transactions. Mark identified various factors that could determine if state usury laws apply to a particular transaction, such as the type of transaction, the amount involved, the charges imposed on the transaction, the type of entity contracting with the borrower, and whether the borrower has an absolute obligation to repay.