FinTech 2017: The Changing World of Financial Services and Customer Expectations. A Primer about the FinTech Influence.

By: Jack Easterbrook, Esq.

Financial technology companies, or FinTechs, have experienced a meteoric rise over the last five years. During that period, the amount of investment funneled into FinTechs has risen from $1.5 billion to about $24 billion. They received another shot in the arm several months ago when the Comptroller of the Currency (OCC) announced plans for a new type of license that will allow FinTech companies to provide services nationally under a Special Purpose National Bank Charter, and thereby avoid the arduous process of individual state licensing. To be eligible for this coveted charter, the FinTech Company will have to be engaged in at least one of the following banking functions: receiving deposits, paying checks or lending money.

At the moment, the FinTech occupy only a small part of the overall banking market in the U.S., particularly in the commercial or wholesale markets. However, we have already seen how technology is directly reshaping or disrupting economic sectors including retail, ride sharing (taxi services) and vacation rentals/ travel among them. There is little doubt the FinTechs will have a significant influence on banking services in the future. We may not know yet exactly how, or how fast, but it appears changes are coming.

At Strategy Law, we spend much of our “working day” addressing banking issues, structuring debt transactions, and negotiation and drafting all manner of loan documents. While it is far from clear how FinTech companies will affect the wholesale banking sector in the future, most of the action thus far being on the consumer side of things, one must anticipate that inroads will be made.

One development at the government level, which may have a profound effect, is the new Special Purpose National Bank Charter, which could be a boon for FinTech companies as they will not be required to obtain a license in every state in which they wish to operate, and where regulatory and compliance costs could otherwise amount to between $2 and $5 million a year per company, based on some estimates. Companies can instead operate nationally under a Special Purpose National Bank Charter. However, FinTech companies are not getting off without regulation. Like their more traditional counterparts, they will still be required to, among other things, address financial inclusion as part of a three-year business plan (a standard regulatory requirement), develop a formal plan for failure and have a hands-on board of directors.

It also is likely new battles will be fought in the political realm concerning the activities of the FinTechs, with or without the Special Purpose National Bank Charters. Traditional banks generally don’t espouse an encouraging view on FinTech companies. Camden R. Fine, Chief Executive of the Independent Community Bankers, said, “A FinTech charter poses risks to taxpayers and the financial system by endowing these nonbank companies with a federal bank charter.” Another nebulous cloud lingering over FinTech companies is the status of the deposit insurance offered by the Federal Deposit Insurance Corporation. A further concern expressed by banks and consumer advocates is the possibility that a national charter for FinTech companies could allow new online lenders to evade state caps on interest rates and other local rules designed to cut down on predatory lending. All such topics are certain to be debated going forward.

Time will determine whether FinTech companies actually develop into the powerhouses their proponents claim as their destiny. Regardless of their future, they have already begun affecting the consumer finance industry as they have, according to many experts, changed the expectations consumers have of financial institutions. The online and app-centric models of FinTechs, sometimes offer customers real convenience in conducting banking activities. Importantly, however, they also create and actively market the image that they are friendlier and more convenient. Banks are investing heavily to compete in these areas as well. This begs the obvious question of whether the traditional banks will be at the forefront of utilizing the best techniques the FinTechs offer, incorporating those innovations into their own business practices. For individuals involved in the wholesale areas of debt financing, a related question is whether or how the application of FinTech led technologies will be incorporated into the wholesale sector.

Several years from now when we look back at the effect the current FinTech period has had on the banking sector, the ability of FinTech companies to alter customer attitudes about financial services may be the point that is most remembered.

The information appearing in this blog does not constitute legal advice or opinion. Such advice and opinions are provided by the firm only upon engagement with respect to specific factual situations. Specific questions related to this article should be addressed directly to Strategy Law, LLP.

Online Filing Available for LLC Statements of Information

The California Secretary of State has recently updated their process for filing Statements of Information for Limited Liability Companies. Statements of Information can now be filed online using the following link. https://llcbizfile.sos.ca.gov/ The Secretary of State has been processing Statements of Information online for corporations for several years now.

Please note that you will need to have a credit card available to pay the filing fee.

A word of warning from the Secretary of State – all filings and information contained in the filings is public record. Frequently asked questions regarding the public information contained in Statements of Information can be found at http://www.sos.ca.gov/business-programs/pi-faqs/

This is also a good reminder to go online to the Secretary of State’s website http://businesssearch.sos.ca.gov to look at your latest filings. Check that your entity’s last “complete” Statement of Information, (rather than a “no change” filing) has accurate and up-to-date information.

The information appearing in this blog does not constitute legal advice or opinion. Such advice and opinions are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to Strategy Law, LLP.

Serge Filatov was named a 2017 Northern California Rising Star

Congratulations to Serge Filatov for being chosen to the 2017 Northern California SuperLawyers Rising Stars List! Here is a link to the full press release.

Big Changes Are Happening to California Tax Law

By: Tamara B. Pow, Esq.

As of July 1 st , important changes are now being implemented regarding the administrative side of California tax law. The state Legislature has restructured the Board of Equalization (BOE) into three separate entities: the BOE, the California Department of Tax and Fee Administration (CDTFA), and the Office of Tax Appeals (OTA). This change is a result of the recently enacted Taxpayer Transparency and Fairness Act of 2017, signed into law by Governor Jerry Brown during the last week of June.

The reason for this new look, as described in the bill itself, came from a review by the Attorney General, the California State Auditor’s Office, and the State Personnel Board, which determined that the BOE’s workplace culture and practices severely hindered its ability to report exact and reliable information to the public, the administration, and the state Legislature.

Under the new law, the CDTFA will assume the BOE’s administrative and regulatory duties for managing programs involving sales and use taxes, and other business taxes and fees. The CDTFA will be housed within the Government Operations Agency, where the BOE used to be operated, and taxpayer and fee payer account information services and deadlines will remain the same until further notice. Governor Brown has appointed David Botelho, of San Leandro, as the Acting Director of the CDTFA. The BOE, on the other hand, will continue to administer property taxes, alcoholic beverage taxes, and insurance taxes as an independent agency.

The other important change is the creation of the OTA, which will hear tax appeals from the Franchise Tax Board, the BOE, and other tax collecting agencies. The OTA, which will be formed as an independent entity, has also been established as of July 1 st , 2017, but will not begin full operation and hearing appeals until January 1 st , 2018. In the meantime, a Director for the organization will be appointed from within the OTA and the governance structure will need to be established. Stakeholder meetings will be scheduled as the OTA takes form and prepares to take over cases for which the BOE will no longer have jurisdiction after December 31, 2017. The OTA will set up numerous three-member panels of Administrative Law Judges to hear tax appeals in Sacramento, Fresno, and Los Angeles. The number of panels set up within each city will depend on the volume of cases occurring in each geographical location.

More transition information can be found for the new department on its website, www.cdtfa.ca.gov and on www.boe.ca.gov .

Urgent LLC Alert – Erroneous Tax Refunds

By: Tamara B. Pow, Esq.

Very recently, the Franchise Tax Board (FTB) has had to notify certain California limited liability companies (LLCs) that their 2017 LLC annual tax/estimated fee payment were misapplied to the 2016 tax year, which resulted in the FTB mistakenly sending out refund checks to some LLCs. This issue arose due to a glitch in the software of some tax software companies.

While it is not known how the software glitch occurred, what has been determined is that the software incorrectly applied the Account Period Begin on the 2017 LLC annual tax/fee payment as 01.01.16 instead of the correct begin date, 01.01.17. The Account Period End date was correctly applied as 12.31.17.

In essence, the erroneous refund checks issued by the FTB due to the glitch are based on last year’s estimated income return rather than this year. As a result, LLC payments for this year must be resubmitted by July 15 th , 2017 in order to avoid accruing additional interest and facing penalties. If a refund check has been received, cash the check and then resubmit the payment by the same July 15 deadline . Affected accounts will be reviewed by the FTB after July 15 th and applicable adjustments will be made at that time.

Tamara B. Pow is a founding partner of Strategy Law, LLP in downtown San Jose, California where she practices business and real estate law including representing real estate LLCs and other business entities. Her personal experience managing and investing in real estate limited liability companies as well as her MBA and real estate brokers license help her in advising owners of limited liability companies and other business entities.

The information appearing in this blog does not constitute legal advice or opinion. Such advice and opinions are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to Strategy Law, LLP.