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Monday, August 1, 2016
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Top Stories: July 25 - July 29
(1) Too Many Complaints about Leasing Companies
(2) Interim Rent: Proper Accounting Function for
(3) Monthly Leasing Business Up 47% June from May
(4) Archives: July 29, 2009
(5) New Hires---Promotions in the Leasing Business
(6) Companies Who Utilize Evergreen Clauses
(7) Accountant Suspended Over Failure to Spot Fraud
(8) June, 2016 --The List
(9) Facts for Pricing
(10) New Mission
((Please Click on Bulletin Board to learn more information))
National Funding Deploys $1.5 Billion,
By Srividya Kalyanaraman, debanked.com
California-based small business lender National Funding said that it has deployed $1.5 billion in capital, funding small businesses with short-term working capital loans.
The 17-year-old company funded $152 million in loans in the first quarter of 2016, up 45 percent from the same period last year. The company’s customers include general contractors, medical services and trucking companies that average about $1 million in sales annually.
While 80 percent of the loans are for working capital, the company has seen demand for equipment leasing slowly resurge after the financial crisis.
“After 2008, the market turned negative in LA and we had to shrink our company,” said CEO Dave Gilbert.
The company is also preparing for a technology overhaul, trying to get access to data pools to automate underwriting. “We need to be tech driven,” he said. “As deals get smaller, we need to automate them to make it affordable.”
National Funding generates 25 percent of its loan volume through brokers. “Given everything that’s happening in the industry, a lot of lenders will be forced to become balance sheet lenders,” he said.
The company hired Geoff Howard from Intuit to lead its technology efforts and aims to automate underwriting for 40 percent of its deals, doubling up from its present rate of 20 percent.
The average size of its loans is $50,000 and the company also plans to launch its first long-term loan product later this year.
Introducing Jeff Hilzinger, President and CEO/His Plans
Marlin Reports $4.5MM Net Income Second Quarter
"It is a privilege to speak to you today on my first earnings conference call as President and Chief Executive Officer of Marlin Business Services. At a high-level, Marlin is uniquely positioned in a large and highly fragmented market and I look forward to building on the fundamental strengths of our Company to take Marlin to the next level of growth and profitability. Our management team is energized, excited and working with a sense of urgency to capitalize on the significant opportunities we see as a provider of credit products and services to small and mid-sized businesses nationwide. With the recent changes in Marlin’s leadership, we’re taking a fresh look at how we operate and we’re looking to empower our employees to better serve our customers. I believe the actions we are taking today will help significantly expand our market share and drive profitable growth in the quarters and years ahead...
"I've been on the job for nearly two months and bring a fresh perspective to Marlin coupled with many years of relevant experience. I've spent my entire 35 year career in the commercial finance industry, including the last four years as President of EverBank Commercial Finance, a business that my team and I grew to a $4 billion diversified commercial finance platform. Before that, I co-founded US Express Leasing, a small ticket vendor finance startup that merged with Tygris Commercial Finance Group and ultimately merged with EverBank to form the basis of what is now EverBank Commercial Finance.
"Prior to this, I've spent more than 20 years at Heller Financial under a variety of leadership positions. In each of my roles, I developed a deep appreciation for the middle market and the importance that access to credit has on small and mid-sized business’s ability to grow. I look forward to working with the Marlin team, as we deepen our commitment to helping small and mid-sized businesses grow while also taking advantage of a dynamic and rapidly changing commercial finance marketplace.
"...if you take out transportation and franchise which have low approval rates today because they’re new in their markets and they’re being tested by market in terms of what Marlin's credit box is and Marlin is trying to figure out exactly what its credit box needs to be in those segments as well. So there is a lot of warning going on there. We had a 65% approval rate in the second quarter which is, that’s pretty good, I mean it's good for Marlin and relative to its historical approval rates and that's a good approval rate for really any kind of micro-ticket or small tickets, I mean outstanding approval rates which means you’re optimized all your flows and you are sort of the number one referral source would be in the low 70s, so actually we are at the mid-60s is I think is to me that we’re positioned well within our referral sources we are getting good looks and that we are not seeing any deterioration and sort of the credit quality is coming through the door at this point."
"I think that we need to be careful here that investment spending is not a project, for a business like this to grow it needs to constantly be investing back in the business in terms of automation, in terms of new platforms, in terms of expanding existing platforms. So that's going to, that has to continue. I think the question is how do we pay for it, so that when you net it all together, we have improving operating efficiency and improving ROE, while all that activity is going on and that's going to absolutely happen. We’re just in the process of working through exactly how that's going to look through this revisioning process."
"I think the Marlin’s sales force is doing a great job right now, and so that's on, it’s in my list to reevaluate and it'll probably happen as part of the business planning process that we’ll begin probably sometime in September, early October."
Marlin Business Services Earnings Conference Call (14 pages)
* MARLIN form 8-k (11 Pages)
I have been in the interviewing process and have been asked twice about my teamwork experience [working in a team successfully]. How should I handle this line of questioning?
Almost every role, from entry level to management level, requires the ability to communicate and collaborate with others. Employers want to hire “team players,” so you will want to demonstrate your experience, your ability to work well with others and give at least two examples.
To prepare for this line of questioning, look back on your career and note when you worked as part of a team and be able to recite specific examples (if you are entry level, reference your volunteer work or extracurricular activities)
Let the interviewer know a bit about the team and what the goals were, e.g. the number of team members, your role, and involvement. Share team accomplishments or challenges that were faced and overcome
Career Crossroads Previous Columns
Leasing Industry Help Wanted
I have written before about the need to inspect your leased equipment to protect your residuals and confirm location for tax status, however with the discussions on the table about rule changes, the need to establish your equipment inspection/inquiry program has become more important. To make a difference between disguised conditional sales contracts and true leases there appears to be a movement to establish requirements that put the responsibility on the Lessor to “prove” that they are acting like an equipment owner and not a money lender.
This is as important in Capital Leases and Equipment Finance Agreements or business loans where the collateral may have value in offsetting a loss.
If you are not in a position to make equipment inspections then at lease send an inquiry letter once a year requesting information on the location and condition of your equipment.
Inquiry letters need to be constructed so that the questions on equipment condition are tied to the equipment itself. Clearly all types of equipment are different and require different question and will have different answers. I know this is a lot of work because when the inquiry’s come back someone needs to review them and compare them to information supplied with the lease application. It only takes one problem to be solved early, due to this procedure, to pay for the exercise. Of course this assumes you obtained an equipment “use and description” form in the beginning
In larger leases, especially construction equipment, it is a good idea to require an annual inspection with a basic fee for this cost.
One of the most talked about problems I see in bankruptcy court has to do with the lackadaisical manner in which Lessor’s handle their knowledge about the equipment use. Another problem is the lack of change in rental requirements if there is a change in equipment use. Many lessee’s use our equipment differently than originally thought at the start of the lease. Some even alter the equipment by changing it and taking parts off or making physical adjustments.
Some allow others to use it or sublease it without our permission. I cannot tell you how often a Lessor is “surprised” when equipment is over used or abused by the lessee or sold or subleased. Just because you do not take a residual does not excuse you from acting like an equipment owner. You need to get involved in protecting your portfolio.
Previous #102 Columns:
Third Circuit Upholds Class Acton Against Bank which
Reyes v NetDeposit 802 F.3d 469 (2015)
Today’s case is about banks overseeing the operations of its subsidiary ACH processor and whether a bank can turn a blind eye to fraudulent ACH returns. The Third Circuit Court of Appeals reversed a trial court’s denial of class action certification, which now means the bank is now fully immersed in a class action for processing payments for a fraudster. The facts follow.
Reynaldo Reyes was contacted by a telemarketer working for NHS Systems who offered him a free government grant if he would provide bank account information to the fraudster which he did.
Telemarketers such as NHS Systems cannot readily obtain funds directly from bank accounts because most banks are reluctant to allow them to debit accounts directly, so the fraudsters contract with payment processing entities process ACH debits on its behalf. NHS contracted with Modern Payments, a third-party payment processor and subsidiary of Zions Bank.
Modern Payments debited Reyes’ account for $29.95 and another for $299.95. Both were fraudulent. Reyes initiated a class action lawsuit Modern Payments and also sued Zion’s bank for overseeing the process. Reyes sued under racketeering acts (RICO), and his claim was tossed out by the trial court, due mainly to the ruling that Reyes was required to prove actual fraud and discounting many of the banking experts’ testimony that suggested such knowledge. The trial court required actual, first hand, knowledge of the fraud by the Bank, and tossed the case out.
On appeal, the Third Circuit reversed, finding that the bank and its subsidiary might be involved in a racketeering scheme, and it ordered the matter back to the trial court for a further evidentiary hearing, in light of the enormous return rates incurred by the Bank and the plethora of banking experts which testified that the return rates and emails from the bank implied actual knowledge.
Reyes pointed out that the normal, average return rate (including insufficient funds or a customer complaint regarding the transaction) for ACH debits is about 1.25%. Modern Payments incurred a return rate of over 25-50%, resulting in a slurry of damning emails from the processor and bank calling the returns “staggering,” fearing “money laundering, and expressed fear of a FTC investigation. Yet, Zions and Modern Payment Systems continued processing the debits.
Another damning fact was the miscoding of the ACHs by NHS Systems, of which the processor Modern Payment Systems had direct knowledge.
NACHA a bank organization which oversees and governs ACH payments, requires that users code the ACH debit in one of three ways, WEB,” “TEL,” or “PPD” referring to web based transactions, telemarketing transactions, and pre-authorized transactions with a signed writing. Most of NHS Systems ACH debits were wrongly coded as PPD, and the evidence showed that the Bank may have knowledge of the miscoding but blamed the problem on its software.
Also dog-piling on Zions Bank was the Federal Trade Commission receiver, who was installed to take over the company after the Feds discovered the fraud, and who expressed damaging opinions concerning the Bank’s knowledge.
The Court of Appeals was sympathetic to Reyes, observing that class actions are the only check against this wide spread mass-marketing scheme. Class action permits the victims to economically pool claims which would otherwise not be raised. The Appellate Court did not find the Bank committed fraud, merely that the trial court did not consider all the evidence concerning the enormous return rates and the testimony of banking experts. Consequently, the Court of Appeals sent the case back to the trial court requiring the trial court to re-hear the evidence in light of the possible RICO violations.
Reyes won the chance to re-litigate the matter before the trial court, and the Bank lost its victory.
What are the lessons here for those entities which use ACH debits, process ACH debits, or oversee ACH debits?
• First, return rates are a big deal. Many banks have no returns whatsoever, so a 50% return rate should have altered the payment processor and the Bank within a few weeks. .
• Second, armed with the knowledge of extraordinarily high return rates, the Bank should not have been fretting over the situation with emails, it should have shut down NHS Systems. This scam went on for over a year before being shut down.
• Third, class action cases are usually summarily thrown out or settled. There are very few that progress to this stage. I wondered what the dollar values of the ACH debits were, and whether it might have made more sense for the Bank to throw some money at these guys to make the case go away. Having the word “fraud” next to your bank name is not terribly good publicity.
The bottom line to this case is about minding the store. When extraordinary, off the chart bad things are happening, don’t send emails—do something. If you don’t, a plaintiff’s lawyer will.
Reyes vs. Netdeposit (26 pages)
Tom McCurnin is a partner at Barton, Klugman & Oetting
Previous Tom McCurnin Articles:
##### Press Release ############################
A Turnaround from the Previous Months Trends
Mirroring the volatility in the economy, the July report of the Credit Managers’ Index (CMI) from the National Association of Credit Management (NACM) saw some factors gain while others declined.
“We saw job creation numbers crash to levels not seen since the recession in May and jump back to nearly record levels in June,” noted NACM Economist Chris Kuehl, Ph.D. “The latest durable goods numbers are down due to the reduction in export activity, but the housing sector is showing more strength than it has since before the downturn. Now we see some of that back and forth in the CMI data as well.”
The combined (manufacturing and service sectors) score regained some momentum in July and is now at 53.5 after having been down to 52.7 last month. Most of the extreme activity, however, is seen in the various subcategories. The combined index of favorable factors improved enough to get back into the 60 range where it has been three times in the past year. Its strength shows up in growth through all four of its categories, which are in the high 50s or low 60s. This is a trend that needs to continue if there is to be any progress in the economy overall.
The combined index of unfavorable factors showed more distress as this is the second-consecutive month with a sub-50 reading. Of the six subcategories, only two, rejections of credit applications and filings for bankruptcies, are above the line (50) that divides contraction from expansion.
Concerning credit applications, Kuehl commented, “the fact that applications are up but approvals are down indicates that there are more companies in trouble and hoping they find a supplier that will give them credit regardless. There are not that many gullible companies out there these days; and therefore, there are more rejections.”
As for the other four unfavorable categories, they are hovering below 50. Volatility is evident as shown in both the favorable and unfavorable indexes of all categories with the first trending upward and the other downward in each case.
For a full breakdown of the manufacturing and service sector data and graphics, view the complete July 2016 report at http://web.nacm.org/CMI/PDF/CMIcurrent.pdf. CMI archives may also be viewed on NACM’s website at http://www.nacm.org/cmi/cmi-archive.html.
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### Press Release ############################
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This Day in American History
1498 - Italian explorer Christopher Columbus sets foot on the American mainland for the first time, at the Paria Peninsula in present-day Venezuela. Thinking it an island, he christened it Isla Santa and claimed it for Spain. He explored the Orinoco River of Venezuela and, given its scope, soon realized he had stumbled upon another continent. Columbus, a deeply religious man, decided after careful thought that Venezuela was the outer regions of the Garden of Eden. Returning to Hispaniola, he found that conditions on the island had deteriorated under the rule of his brothers, Diego and Bartholomew. Columbus' efforts to restore order were marked by brutality, and his rule came to be deeply resented by both the colonists and the native Taino chiefs. In 1500, Spanish chief justice Francisco de Bobadilla arrived at Hispaniola, sent by Isabella and Ferdinand to investigate complaints, and Columbus and his brothers were sent back to Spain in chains. He was immediately released upon his return, and Ferdinand and Isabella agreed to finance a fourth voyage, in which he was to search for the earthly paradise and the realms of gold said to lie nearby. He was also to continue looking for a passage to India. In May 1502, Columbus left Cýdiz on his fourth and final voyage to the New World. After returning to Hispaniola, against his patrons' wishes, he explored the coast of Central America looking for a strait and for gold. Attempting to return to Hispaniola, his ships, in poor condition, had to be beached on Jamaica. Columbus and his men were marooned, but two of his captains succeed in canoeing the 450 miles to Hispaniola. Columbus was a castaway on Jamaica for a year before a rescue ship arrived. In November 1504, Columbus returned to Spain. Queen Isabella, his chief patron, died less than three weeks later. Although Columbus enjoyed substantial revenue from Hispaniola gold during the last years of his life, he repeatedly attempted (unsuccessfully) to gain an audience with King Ferdinand, whom he felt owed him further redress. Columbus died in Valladolid on May 20, 1506, without realizing the great scope of his achievement: He had discovered for Europe the New World, whose riches over the next century would help make Spain the wealthiest and most powerful nation on earth.
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