Payments Law Tool Kit

Venable / 22 21 / Venable Lending In particular, companies that support bank loan origination programs and purchase or participate in the originated loans have been the target of “true lender” lawsuits in recent years. Given these challenges, it is critical for payments companies that are seeking to include financing options in their products and services to make sure they have a firm understanding of the applicable regulatory framework and a compliance program tailored for ensuring compliance and minimizing potential risks. While payments companies have traditionally focused on facilitating card transactions and other payment methods, many companies are expanding into commercial financing activities. For some companies, financing programs are a natural outgrowth of assisting their customers in acquiring necessary card processing equipment. For others, financing programs are an additional component, along with payments, of an overall commercial financial services business model. Although not as heavily regulated as consumer financial services (i.e., credit extended for personal, family, or household purposes), commercial finance activities, particularly for small businesses, remain subject to a number of regulatory requirements under federal and state law. Commercial financing programs can be structured in several different ways. These programs may include loans, installment sales, receivables purchases, merchant cash advances, or other credit-related products. In many cases, the requirements that apply may depend on the type of financing a company chooses to offer, including: • Federal and state laws prohibiting unfair and deceptive acts and practices • Federal laws governing credit, including the Equal Credit Opportunity Act (ECOA) and Fair Credit and Reporting Act (FCRA) • Federal laws governing anti-money laundering and economic sanctions • State laws governing credit, including those relating to lending licenses, usury limits, and debt collection Understanding this legal framework is important because the application of laws and regulations can vary, depending on the type of program and the relationship with a partner bank. In this regard, many companies partner with a bank to extend commercial credit to borrowers. There are a number of issues that impact non-bank companies extending commercial credit through a bank partner model, including state licensing requirements and usury limitations.