Innovative Lending Platform Association promoting transparency

A representative of one of the founding companies behind the Innovative Lending Platform Association said their efforts are helping consumers make sense of what can be a confusing sea of lending options.

OnDeck vice president of external affairs and general counsel Daniel Gorfine said OnDeck, Kabbage and Can Capital came together in partnership with with the Association for Enterprise Opportunity to help small business owners make apples to apples comparisons between a variety of products, each with their own merits and situations where they are the best options for customers.

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Each SMART Box disclosure sheet includes basic elements such as financed amount, funds disbursed, total repayment amount, expected term and payback frequency (as applicable). It assumes a loan is paid back in full. Four common pricing metrics are also used:

1. Total cost of capital (TCC) consolidates all interest and fees which are a condition of receiving capital. It states the option’s total dollar cost.
2. Annual percentage rate (APR) provides the cost of capital (including applicable fees) as a yearly rate. It is not the applied interest rate, nor is it used to calculate the option’s total dollar cost. External firm Navigant Consulting will ensure APR calculation methodologies are consistent with principles of Regulation Z from the Truth in Lending Act.
3. Average monthly payment captures the average monthly cash flow impact of repaying a particular option, regardless of whether that option has daily, weekly or monthly options.
4. Cents on the dollar captures the amount of interest (or Loan Fees as applicable) paid per dollar borrowed. It is exclusive of all other fees to allow for comparison with other pricing metrics in commercial finance such as factor rate, simple interest and total interest percentage.

SMART Box also presents the applicant with two questions regarding the prepayment policy applicable to a specific option:

1. Will prepayment result in new fees or charges? If yes, there must be a cross-reference to clear and conspicuous disclosure in the lender’s documents describing them.
2. Will prepayment result in any interest or fee reduction? If yes, SMART Box mandates a cross-reference to a clear and conspicuous disclosure stating the amount.

“We really do think this industry is in its early innings,” Mr. Gorfine said. “The move to standardization and best practices allows the industry to move forward. It’s a display of maturity.”