IFA's Ironic Twist To New Consumer Legislation
The International Franchise Association (IFA) has once again flexed its muscles influencing legislation affecting franchising on several fronts. While franchisees continue to sit on the sidelines expecting divine intervention to change their plight, franchisors, through the IFA, forged ahead by effectively removing any chance for better oversight and regulation of franchising - leaving franchising's imprint on Americans' financial stability unchecked.
The IFA was instrumental in changing legislation incorporated in the new "Restoring American Financial Stability Act". Two issues, specifically, limiting ""swipe" fees credit card companies and banks charge merchants and retailers," and requiring the CFPB (Consumer Financial Protection Board) to consider the ramifications any new regulations will have on small businesses to "ensure new rules do not unfairly impact this important economic sector" will most likely help franchisees. However, the most important issue "regarding the expansion of regulatory authority for both the Federal Trade Commission and the newly created Bureau of Consumer Financial Protection (CFPB) over franchised businesses" was removed.
IFA President Steven Caldiera said "that the conferees rejection of an attempt to expand the regulatory authority of the Federal Trade Commission was a significant victory for all sectors of the franchise business community." The FTC "would have been granted sweeping new authorities to issue regulations impacting virtually any retail business" under the original House version.
To read more click: IFA Press Release
Oldsword "Old Saw"
IFA and FranPac are legitimately lobbying congress on behalf members.
In fact the vast majority of the issues like SBA liquidity crisis, Card Check, Cap and Trade are beneficial to current and potential franchisees. The IFA/FranPac legislative issues are plainly listed on the IFA website http://www.franchise.org/IndustrySecondary.aspx?id=10070
Keep working on that "Hobby Horse" of yours, good luck.
IFA Continues Fight to Stop Regulating Fraud
Not questioning the legal aspects of their lobbying. Yes, it is legal. However, perhaps simplifying my comments into more elementary terms may help you understand the argument better.
Others on this site have questioned the need for additional regulations. I am merely pointing out that the IFA does not want more regulations because, as things stand, franchisors can do what they wish in regard to manipulation and fraud. As long as it is in the contract they can legally get away with it. Canada's Quiznos franchisees have found a loophole. That loophole will be closed very quickly and the overcharging for supplies will become a legitimate business expense under the terms of the new contract thereby allowing the fleecing of new franchisees. The IFA is afraid of more regulations and disclosure, and apparently, so are those associated with franchisors. It may not prevent the initial fraud but will provide judicial (criminal/civil) ramifications that currently franchisors do not face (unless you find a loophole).
As for "the SBA liquidity crisis", since when does lowering the debt coverage ratio standards for loans that are guaranteed at 90% "good" for franchisees? This will allow (and has) the proliferation of fraudulent franchises since it will now take even less lying on the SBA loan application than before. Original debt coverage ratio requirements were between 1.2x's and 1.5x's. The new requirements are only 1x's. SBA loans distort the true marketplace and allow fraudulent franchises - which would NEVER get financing from banks without the guarantee - to continue in business.
SBA franchise loans are failing at a record pace. But why let the facts interfere with your argument?
Re: IFA Continues Fight to Stop Regulating Fraud
SBA lending is nonexistent for many franchisees and while standards for loans was loose before the recession it was loose for housing, consumer credit, commercial lending as well as SBA lending in the franchise space.
Currently it is next to impossible to get a start-up franchise loan and irrespective of your comments regarding debt coverage ratios, banks when they actually approve an SBA loan are requiring as much as 50% borrower equity in the deal.
As for increased franchise legislation and regulation the IFA/FranPac do a terrific job of keeping the bureaucrats less involved and not more. If you think increased legislation will protect fools from poor franchise investments you're the fool, All increased regulation will do is make franchises more expensive for franchise buyers and make franchise attorneys richer by creating more work in compliance and contract drafting.
Oldsword be careful not to fall off your "Hobby Horse".
There is a difference
There is a difference between ‘increased’ and ‘better’. IFA proponents always throw out ‘increased’ and the feared cost of ‘better’ regulation ignoring the costly problems in franchising that can be deterred at no cost to those franchises that don’t cheat investors. With deterrent value in legislation you could expect less conflict but that doesn’t appear to appeal to IFA.
As far as increasing the costs of franchising for franchisee investors that is a a fear mongering furphy playing on imagined legislative enhancement content. Relying almost totally on the obvious argument that fools cannot and should not be protected is a boring distraction from the existence of abusive franchising schemes and practices that should be deterred and penalized.
Legislative deterrents against abuse within other sectors seems to be acceptable but it is almost as if IFA and associates rely on conflict as they jump up and down whenever there is a mere mention of possible conflict reduction. All legislation is up for refinement when it is found that it can and should be made better. I thought that was one of the jobs of government and one of the reasons why we vote for our choice of candidate.
IFA Continues Fight to Stop Regulating Fraud Part ll
Next to impossible to get a start up franchise loan? As of March 31, 2010 SBA 7a loans are on pace to beat 2006 - which was the second highest year ever for 7a loans. On top of that, the SBA's portion of franchise loans has DOUBLED from 15% of all franchise loans to 30% in the last year or two. Let's see, second highest ever loan amount for SBA 7a loans and the doubling of franchise loans during that same time period, and, well yes, I can see how difficult it must be.
Let's not forget that SBA loans have increased by 90% since this new program started (the 90% guarantee with no fees) from prior to the program (which, yes, I acknowledge, was a very low point in lending).
Guest, this argument is not about lending - which is clearly no where near as bad as the picture you tried to paint (I can provide specific numbers if you wish directly from the SBA reports).
This is about people talking about the Nanny state. We ask for better regulations and all the franchisor apologists come out of the woodwork with derisive remarks about wanting our hands held. YET, the IFA is doing not only the same thing but MUCH MORE OF IT!! Tell me, what scares all of you so much about better regulation and oversight? Why does the IFA go into panic mode when legislation is discussed to level the playing field for franchisees? Be honest, how difficult would it be to sell most franchise systems if the buyers actually knew the real financial "benefits" of these programs?
Better yet, in this press release the IFA actually acknowledges that franchisees work on very thin margins. Given the 400% increase in SBA franchise loan defaults in the past year or so those "margins" are thinner than even the IFA is willing to admit (but it was a good start for them).
How would you explain this article, Oldsword?
Floyd Furry Franchise
Franchisors Continue Fight to Stop Regulating Fraud Part lll
Ahhh, yes, FranData. The same organization that gave the Wall St. Journal my franchisor's name as one of "The Top 25 Franchises in America". When I called FranData and asked HOW they could have done so they answered they used the information in the FDD. No other research, just the FDD - that alone should tell you how useless the information is - courtesy of the FTC and the franchisor lawyers that sit on that commission.
From the article you suggested I read: "The SBA Franchise Registry provides a dual benefit for lenders: It facilitates the SBA loan review process–a process which lowers risk to lenders automatically–and it validates that a brand is established and legitimate in terms of SBA requirements." Established and legitimate? Yes, but not in the way most would infer. It simply means that the FDD was written in compliance with FTC requirements which, in turn, are SBA requirements. With regard to financial viability the Franchise Registry means absolutely nothing. Don't believe me? Call FranData.
"SBA loans made to franchisees of a specific brand can be under-reported." FranData, in its article is claiming that loan loss statistics specific to a franchise is overstated. Actually, all the research reports commissioned by or performed by the SBA claim the numbers are understated. But here's a question for you guest. If the SBA, with total access to all the loan documents for each and every loan they guarantee, can't come up with true and correct information after taking a year to collect the info and analyze it - a claim YOU and the IFA have made when presented with these research reports - then how the hell can a franchisee perform "due diligence" in 15 days? Isn't that your favorite fallback argument, Guest? Franchisees need to perform 'due diligence' and they are incompetent because they didn't? Yet, the federal government, after 4 detailed and methodical reports, according to you and your friends, still can't come up with the correct data. Interesting.
Lastly, here is a link you should look at: http://www.sba.gov/aboutsba/budgetsplans/SBA_BUDGETS_LOANPERFORMANCE.html
Go thru each database - especially #2. Fiscal year begins Q4 2009 so March 31 is 6 months in to the year. Near record amount of SBA loan guarantees and a doubling of SBA franchise loans at the same time. I guess FranData must know the SBA's numbers better than the SBA. They must be using the FDD.
Franchise Loan Data on SBA Site?
I looked at the SBA link you provided to the eleven SBA reports and couldn't find one of them that breaks out franchise loan data?
It is next to impossible to get a SBA 7A franchise loan for $150K or less.
SBA 504 loans piggyback with SBA 7A loans which are used for projects that include the purchase of real estate are available on limited basis and conditioned on as much as 50% borrower capital contribution.
SBA loan securitization market has not rebounded and creates an illiquid capital environment for new SBA loans.
Re: Franchise Loan Data
The loan money is there - the SBA is on target for its 2nd highest year ever in loan dollars. If the banks are unwilling to write an almost riskless loan with lower standards than ever before, perhaps it says something about the franchise systems being applied for.
The banks are becoming more aware of the real financial viability of these businesses. Franchises are not individual businesses, they are standardized business models with mostly standardized business revenues. Instead of only looking at the top 1 or 2 percent at the very edge of the bell curve as revenue 'examples' for the projections, it is in the banks best interest to look at the averages - where 70-80% of the franchise revenues fall. At which point, in most systems, they don't qualify for even the lower standards.
You have no clue Oldsaw, only guesses
You have no visibility on the state of franchise lending and are in no position to opine or analyze the availability of franchise funding or terms/conditions upon placed on franchise loans.
You are talking out your butt and your mission is hurt franchising since you perceive franchising hurt you. Please let us know if and when you get your satisfaction.
The mission is to profit
For as long as the SBA charade can be maintained. Your dedication to Oldsword suggests you have a mission; a ‘hobby horse’ if you like. Or perhaps it is self-interest or a straight out pay packet.
SBA is a wasteful topic. A topic of government waste but while you are on it CSBF should be canned as well. Government attempting to pick small business winners and the losers are … not the banks or the senate.
70-83 reasons to shut down SBA loans
if the SBA fell dead in the economic forest, few people not on its dole would feel it crash. Dr. Bean .. U.S. Senate subcommittee hearing
How is the dole ….
Will more transparency hurt franchise sellers?
It is entertaining to watch people call others names when logic fails them.
Guest writes to Oldsword: "your mission is hurt franchising
There are a lot of assumptions that are brought into the above phrase.
Question: Do you think bringing more transparency and accountability to SBA and franchise lending will hurt franchising?
Bob - If you're going to
Bob - If you're going to quote me, use the whole thing.
My comment to Oldsaw -
"You are talking out your butt and your mission is hurt franchising since you perceive franchising hurt you"
Waiting for your answer
And your answer is.... ???
we are all waiting
That is a clever question.
- You're not just a pretty face.
Do you think bringing more transparency and accountability to SBA and franchise lending will hurt franchising? And the answer is ....
SBA 7a and SBA 504 lending is one of the better government programs, which in my opinion makes it the best of the worst. The SBA does a terrible job of tracking SBA franchise loans since many go untracked because the loans lack a franchise identifier number and not to mention the franchise loans that are not SBA backed.
I wish we lived in an economic environment whereby banks made sound housing, student and business/franchise loans without government guarantees. And for my wish to come true we'd have restructure the whole government and banking construct.
You surprised me. This is a very thoughtful answer. I find myself largely agreeing.
As you hint, one wonders how many glitches and tracking problems there are - not just with SBA-backed loans but nowadays with conventional loans too. If a bank's staff errs on whether a loan went to a franchise, the brand's failure rate numbers are off. Come to think of it, I'm assuming that a lender even has such a form.The SBA may be the only one mining this particular data.
An individual lender's database of franchise systems, like Bank of America or CIT's, would be considerably smaller than what the Small Business Administration has, since now nearly 30% of all franchise loans are SBA-backed (assuming FranData's figures on this are correct.) So those SBA failure figures are probably the best there is, despite our knowledge of clerical problems.
I too wish we lived in an era in which banks and the government made sound decisions.
Unfortunately, they don't.
There is a growing crisis of community banks throughout the country that are on the brink of failure for their bad commercial property loans.
Surprised Bob, but why?
I'm tired of the "Hobby Horse" rider, Oldsaw. His hyperbole is self-serving.
If Oldsaw cared for anyone but himself he'd make use of this forum to inform people of his personal franchise experience to educate and illuminate.
Some things must be left unsaid
You sound like an independent business operator.
Your request is not a fair one to ask of a franchise owner. I doubt Oldsword is free to publicly discuss his/her franchise -- other than the message that it's great and you should buy one.
Loose lips could land him in some serious doo-doo.
Maybe Oldsaw could explain instead of making assumptions?
Re: Bob F. "Some things must be left unsaid"
Bob, Ray and Michael and others, thanks for your commentary here. I was away and unable to respond. Bob, correct, can't give specifics. The franchisor will sue forcing me to hire counsel ruining my finances further. To show how franchisors react to negative information I put forth the following:
I am in contact with multiple high ranking public officials. One, whom if you google their name will light up your computer, responded to my concern of how franchisors might attack them and wrote this to me (I deleted a portion because it identified another government official): "Today we met with the person who ('second' government official), who warned us about the franchisor community, . . ."
This second gov't official had direct dealings with the franchisor community and received a lashing by this community for their "crime" - they provided information, aka - 'transparency'. This is what the IFA fights against. We are talking government officials, not franchisees, being verbally abused by the franchisor community for this "transgression". I don't need to tell you how they go after franchisees with much less power.
Using 10 words when 3 will do
Oldsword and Ray:
I enjoy reading your comments but both of you need to figure out the art of writing three words instead of ten. With the utmost respect for both parties, edit, please!
- Short bullet points
- Everything doesn't need to be self-contained in a comment. Hyperlink so that readers can choose to read more
- Highlight a few key words by making them bold
If you think you need a sub-title, then your comment is too long. Make the section another comment instead.
If only you had invested as much energy in due diligence
as you have on BMM when bought your franchise then maybe you might have avoided your franchise failure? But probably not, since you seem prone to exaggeration, hyperbole, misinformation and self-delusion.
Heck you might be interested in Board Stretchers International. We have an unlimited market potential and free royalties...that's right FREE ROYALTIES for life.
Call (202) 326-2222 today to get the help you need.
Franchisors Continue Fight to Stop Regulating Fraud Part IV
Read my comments in Part III. You guys are great at the "due diligence" argument but with the same information franchisees get, FranData can't even figure it out. Better yet, with all the loan documents at their disposal neither can the SBA.
No wonder why you guys continue to fight against transparency.
It is you that has said FRANdata can't figure it out, so it is your opinion and not a statement of fact.
My question to you is when will potential franchisees actually read FDDs and hire competent legal advice?
If the SBA was proud of its loan performance to franchisees then I would think there would not be a problem with transparency. Isn’t this really about franchises that can’t grow without government backed [costing US taxpayers] higher rate loans where traditional lending rejects the either the business model or the franchise model’s selection processes.
I would think that the acceleration rate of failing CSBF loans at 3 ½ times that of traditional lending would be a pointer to what could be expected from SBA loans to franchising.
If Oldsword is guessing then what the hell are you doing … ‘exaggeration, hyperbole, misinformation and’ deluding others for a buck. This isn’t rocket science … people being conned into government backed rubbish and the banks clean up at everyone’s expense. Are you suggesting that SBA shouldn't at least be tougher on [franchise] loan applications?
Oldsword is assisting people with their due diligence; if they come across his efforts than perhaps they will look beyond the pitch. His homework is what the self-interested must deny and while distraction from the core issues doesn't necessarily work here I'll give you a 10 for effort.
Please OldRay defender of Oldsaw
Oldsaw is not providing a public service here on BMM, he is out for his "pound of flesh" for what happened with his franchise failure. You'd think he have the decency to offer insight on what happened to him and what franchise he bought.
What the FTC did not get
This a good overview of what the FTC did not get. The IFA is happy that they have increased the costs of government, and decreased the benefits of regulation, exactly why again?
"The proposed “Dodd-Frank Wall Street Reform and Consumer Protection Act” does not include language, which appeared in the House-approved “Wall Street Reform and Consumer Protection Act,” that would have streamlined FTC rulemaking procedures and enabled the agency to pursue civil penalties in court actions for FTC Act violations. The bill passed by the Senate did not include similar amendments to the FTC Act.
The House proposal would have granted the FTC the authority to promulgate rules using Administrative Procedure Act (APA) “notice and comment” rulemaking procedures. The new APA procedures would have replaced the FTC's current Magnuson-Moss rulemaking procedures, which are far more time-consuming.
In addition, the bill would have made it an unfair or deceptive act or practice to knowingly or recklessly provide substantial assistance to another in violating unfair or deceptive acts or practices prohibitions of the FTC Act.
The reform bill also does not include a provision that would have authorized the FTC to seek civil penalties in federal court actions for violations of Sec. 5 of the FTC Act. Currently, the agency must first present actions seeking civil penalties for violations of Sec. 5 of the FTC Act to the Department of Justice so that it can decide whether to file the suit."
So the increased costs of rulemaking stay, the increased costs of seeking authority for the Justice Department for civil fines stays, but knowing or reckless assistance to a party who violates the FTC Act goes.
We should be happy that the IFA supported this, again, for what reason?
IFA and sound reasons
This is a similar outcome to a number of Australian government legislative initiatives. Our Consumer Law was just one hit. In Australia now daily citizen reports refer to all tax as the new Incompetency Tax indicating a naïve sense of the operation of government. A few frills on dirty knickers and the play hesitates for a second. IFA simply didn’t want real deterrents for breaches of Law. But why?
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The Nanny State Revisited
As some on this site continue to comment that stronger oversight and regulation is unnecessary and akin to "The Nanny State", the IFA is in Washington DC, rubbing elbows and buying influence to ensure no additional oversight occurs. Those so vehemently against additional regulations may want to use some critical thinking skills and answer why the IFA continues to spend millions of lobbying dollars to prevent increased oversight.
One went so far as to state that we do not see franchisee "protection" with current legislation so why would we want more? Current laws are too weak, with loopholes so large you could drive a tank through them (and franchisors do) plus, allowing franchisor law firms to essentially legalize fraud by contractually binding the franchisee to such behavior, calls for such judicial relief.
Again, franchisors are trying to kill additional oversight for a reason. They understand they currently have carte blanche to do whatever they want. Little to no regulation/oversight and full ability to legalize any fraulent activity. If the Canadian Courts rule in favor of the franchisees, you will see new contractual language allowing for the 'fixing' of supply prices making perfectly legal to fleece their victims.