In late December 2022, California became the first state to see its state disclosure law for commercial finance providers come into effect.
New York is expected to pass its version later this year, and Utah and Virginia have or will pass similar legislation.
Tumulty said that the core elements of those laws depend on each state’s requirements. Some may only address specific types of services. Others will cover lines of credit, merchant cash advances, factoring, and invoice financing.
How to brace for 50 different disclosure laws
As more states pass these laws, some patterns will emerge, Tumulty believes. How does a tech company wanting to serve this new area prepare for what could eventually be 50 unique versions?
It begins with plenty of relationship building. Rapid Finance officials and legal representatives maintain good relationships with state officials. They work with trade associations to reinforce those conversations.
Make sure legislators understand how these products work. He said only then can they pass laws that make sense and do not hurt small businesses.
Should a software provider go it alone and let their legal teams review the issues for each state? If so, they’ll have to keep doing it as more states jump on board.
The fine print will also differ by provider, Tumulty cautioned. Dollar amounts, term, costs, interest rates, and repayment schedules are a few examples. Rapid Finance gets the data fields and tells the client how they have to be matched to the API to get the proper outcomes. That API technology allows lenders to send either HTML or PDF disclosures to their clients. Providers can use a calculator to generate needed disclosures.
“Our service does once you have that quote, you can send all the particulars through an API to us, and we will take the things that are needed. We run those computations, which your legal team will review and agree to. When you have that, we will provide the disclosure. You can have them sign it, but… we create it we send it back to you through an API.”
Using a modular approach for disclosure technology
Tumulty said that the SMB Disclosure Service is one step of Rapid Finance’s modular approach that includes servicing, financing, and technology elements (new offerings are scheduled for multiple points in 2023). They are offered in a lending-as-a-service model for banks, insurance companies, and marketers. As entities across more sectors offer financing, they’ll be looking for tech partners to help them forge deeper customer relationships.
“We can take both the system components that we have, as well as the business process capabilities that we have in technology servicing, and provide the capital lending to bring the pieces to the value chain of the lender that they do not have.
“We’ll do the underwriting and the credit modeling because we know how to do that. And we have the system to do that fast and efficiently.”
Tony is a long-time contributor in the fintech and alt-fi spaces. A two-time LendIt Journalist of the Year nominee and winner in 2018, Tony has written more than 2,000 original articles on the blockchain, peer-to-peer lending, crowdfunding, and emerging technologies over the past seven years. He has hosted panels at LendIt, the CfPA Summit, and DECENT's Unchained, a blockchain exposition in Hong Kong. Email Tony here.