On September 3, 2021, Jonathan Pompan was quoted in Law360 on the Consumer Financial Protection Bureau’s (CFPB) recent rulemaking proposal, which, if finalized, would create a sweeping data reporting framework that would broadly apply to banks, credit unions, nonbanks, and other lenders regardless of size, as long as they have originated at least 25 small business credit transactions in each of the previous two years. The proposal notably expanded covered credit transactions to include merchant cash advances (MCAs).
Pompan told Law360 that this change immediately caught his attention. "Merchant cash advances usually aren't considered credit," Pompan said, alluding to the way that MCAs are structured as purchases of future receivables rather than loans.
According to the article, the MCA industry has faced growing scrutiny at the state and federal levels, where regulators, including the Federal Trade Commission (FTC), have accused providers of engaging in hardball collection tactics and offering high-cost loans disguised to avoid usury laws and other borrower protections.
Pompan noted the potential for this change to create friction with the MCA industry, which has not historically considered itself part of the traditional lender ecosystem. As a result, many MCA providers may not already have the technology and processes in place to readily adapt to the new proposed reporting requirements, according to Pompan.
"The inclusion of merchant cash advances suggests the CFPB agrees with the concerns raised by the FTC and is taking a precautionary, presumptive approach by including them in the scope of the rule," Pompan said.
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