An Insightful Conversation with Steve Denis of the SBFA: Regulations, Trends, and What’s to Come in 2024
The Small Business Finance Association (SBFA) is a non-profit advocacy organization dedicated to ensuring small businesses have access to the capital they need to grow and strengthen the economy. The SBFA’s mission is to educate policymakers and regulators about the technology-driven platforms emerging in the small business lending market. Elevate Funding is a member of the SBFA and can attest to the pivotal work the organization is doing.
The Elevate team recently sat down with Steve Denis, Executive Director of the SBFA, to reflect on 2023 and discuss what’s to come for our space in 2024.
Q: Can you talk a little about all the state disclosure regulations that went into effect in 2023?
A: The California APR disclosure law was enacted in December 2022. Still, they released final rules on the Department of Financial Protection and Innovation ramped up UDAAP authority that could impact every broker and funder. The new rules apply to both licensed and non-licensed entities. The New York APR disclosure law was enacted in August, and Florida and Georgia passed total cost disclosure bills that only apply to MCA products. Lastly, Connecticut passed a total cost disclosure requirement that will go into effect in the summer of next year.
Q: What new state regulations are coming down the line in 2024?
A: It’s still very early in the 2024 legislative cycle. State legislatures start to meet now to prep for the busy and usually condensed sessions before an election year. We monitor every state but actively work on disclosure legislation in New Jersey, Maryland, Illinois, Pennsylvania, and North Carolina. We expect Connecticut to reconsider its total cost disclosure law and add an APR requirement. The California legislature is considering a bill that would create a fiduciary standard for brokers, expand their licensing requirements, and monitor a bill in Massachusetts that would create a mini-Section 1071 data collection requirement.
Q: Have any new regulations gone into effect on a federal level in 2023? Are there any you’re keeping an eye on for 2024?
A: The CFPB released final rules for implementing Section 1071 of Dodd-Frank that would require finance providers to collect and report demographic data. Compliance starts in October 2024 for most companies. In the final rule, the CFPB included revenue-based financing products as covered entities, so everyone in the industry should start to prepare. There is a lot of litigation surrounding this rule, including a Supreme Court case challenging the constitutionality of the CFPB. Still, compliance will be a major focus for the SBFA in 2024.
Q: What do you say to the brokers who may think these incoming regulations do not impact them?
A: They do. I travel around the country speaking with policymakers in every one of the states mentioned above, and there is a new focus on the broker side of the industry. Many of the issues merchants have that cause legislative action result from a broker. California’s proposed licensing and fiduciary legislation is aimed directly at brokers in our space and will soon become a national trend.
Q: What other trends did you see across the industry in 2023?
A: I think the industry has become much more conservative. From a funding perspective, I’m hearing a lot of our members have pulled back and are more cautious in their underwriting. Also, companies are cautious regarding compliance with the new laws and considering how to approach the future. For example, many funding companies have decided to exit California. I’ve also been hearing a lot about internal and external fraud.
Q: What big picture changes are you expecting for the industry in 2024?
A: The new disclosure laws enacted this year will help mature the industry and focus companies on building a positive, long-term industry narrative. There is this perception that our industry is “payday lending for business,” and it’s perpetuated through the actions of a few companies and groups. Our members have a great story to tell. We are helping small businesses access capital. If we follow the same path as payday lending, making the narrative around rates and bad practices, we will lose.
Q: Suppose someone has never heard of SBFA’s Broker Council. Can you give them an idea of what to expect upon joining the council?
A: The Broker Council is designed to represent brokers’ interests inside the SBFA and with policymakers. Our focus is to make sure decision-makers understand the role brokers play in the industry and the value they add to merchants. We also help brokers understand and comply with all the new laws and registration requirements.
Q: Can you give us a brief overview of what the SBFA is up to moving into the new year?
A: Again, sales-based financing has been unfairly labeled as “payday lending for businesses.” We will spend a lot of time working on reputational management and public relations. We must shift our focus away from disclosure or rate and more about the benefits our industry provides small business owners.
Q: Do you have any advice or recommendations for brokers (or funders) moving into the new year?
A: Focus on compliance and best practices. Understand that regulators are watching, and every interaction with a customer could lead to enforcement action or new legislation. Only partner or interact with companies that are good actors because you never know when the next big article or enforcement action will come out and who will be the target.
Steve Denis
Executive Director, SBFA
To join the SBFA or inquire about the Broker Council, please contact Steve directly at sdenis@sbfassociation.org.
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