I was not a happy camper this past week.  I switched website and email hosting services about two months back but didn’t cancel the old service.  Since there was a month left on the contract and I had pre-paid for a year, it wasn’t worth my while to cancel it.  Wouldn’t you know it, the old guys went and charged my credit card for a monthly fee instead of letting the contract die.  So I called them up and asked for the old arrangement to be cancelled as I had someone else handling the web and e-mail hosting.  The problem was, though, that I was talking about cancelling the hosting arrangement and the person on the phone thought that I wanted to cancel everything – including my domain name registration which is paid up until 2009.  Because of this assumption (and we all know what happens when we assume), what ensued was the knocking out of my domain name for 5 hours, the loss of all e-mails in that time period (thankfully they at least bounced back to the senders) and a lot of grief. 

Needless to say, I wasn’t pleased.  However, it did provide yet another example of how disputes often occur – through miscommunication or misunderstanding.  Can these be fully prevented?  Realistically, no.  But you can protect your business by doing three things.  The first is to ensure that you and your employees are listening to the customer.  If you ask that extra question, the customer might think you are a little slow off the mark, but that’s better than having an irate customer later on.  Second, if you are the customer and the matter is significant, whatever the arrangement, put it in writing – even through a simple e-mail.  Third, ensure that you keep tabs on the arrangement.  As the customer, make sure that the vendor / supplier / provider has done what it promised.  As the vendor, etc., set a follow-up deadline to ensure that the item is taken care of.  So, in my case I did not have the arrangement in writing, but I did keep relatively close tabs on the situation and the damage was minimized.  In the end, could I sue the Internet company?  Sure.  Would it be a worthwhile endeavour?  No.  I was able to get my voice-mails and faxes the next day from my VOIP company.  The e-mails bounced back, but anything important was re-sent by the senders – usually with a message saying “I tried to send this before, what happened?”.  Anything that didn’t make it through was likely not worthwhile – or at least nobody complained.

But if the old website host had listened to what I wanted, the problem could have been avoided in the first place, it would have avoided a potential (although in this case not likely) lawsuit … and, more importantly for them, I wouldn’t have marked in my Outlook calendar to look for a new domain registration company next year for when my current registration runs out.

CALC

I have had clients in the past who have used payday loan companies to help them with temporary cash flow problems for their small businesses.  While this is not a common occurrence, with the hiccups in the economy recently, I would not be surprised if more small businesses start to look at these lenders as potential short-term solutions to cash flow issues.  This is because many financial institutions will not make “small” (usually $5,000 or less) loans.  The problem, though, is that these companies tend to charge more than commercial banks, for example.

Last week, Ontario’s Minister of Government and Consumer Services introduced Bill 48 which seeks to regulate the payday loan industry.  Among the measures being sought are regulation of the payday loan lenders and a whole raft of disclosure requirements and procedural measures.  There are two aspects, though, which are sure to cause a fight from the industry as it will seek to change provisions of the legislation before it is finalized and made law.

The first issue will be the proposed Section 32 by which the Ministry (with the Cabinet’s approval) can establish by regulation a cap on the interest rate which can be charged by these lenders.  At present, the only cap which can be charged is 60% interest per year in accordance with the Criminal Code.  However, since this is a situation of (a) supply and demand (for example, I REALLY need money right now and payday isn’t until next week) and (b) the people going to payday loan companies tend to be people who are not the best credit risks in the world, the industry is not going to appreciate being dictated to in terms of how much interest it can charge – especially when this does not happen for other financial lenders in most instances.

The second, and perhaps more controversial, issue will be the proposed Section 30 which permits a borrower to cancel the loan within two business days.  If the borrower decides to cancel, he/she has to repay the borrowed money and the loan is treated as if it never existed. (See Section 43)  More importantly, there is no requirement for the borrower to pay any interest which has accrued.  The potential result?  A ton of “quick bridge” loans in which Person A gets a payday loan of, say $1,000, and then two days later pays it back but has the use of that money for the two days.  Now, let’s suppose that Person A decides to “daisy chain” and borrows $1,000 from Lender A on Monday morning, $1,000 from Lender B on Tuesday afternoon, cancels and pays off Lender A on Wednesday morning, borrows $1,000 from Lender C on Thursday morning, pays back Lender B on Thursday afternoon, etc., etc.  While it would involve a little work, but not be overly burdensome, Person A could effect an interest free bridge loan until he ran out of willing lenders.  Also, could Lender A subsequently refuse to loan to Person A because Person A cancelled the prior loan?  I’m not sure.  There is nothing which expressly prohibits it, but it wouldn’t be too much of a stretch to find that this restriction is implicit in the fact that the first loan would be deemed to have never occurred at all upon its cancellation.

I expect that there will be some quite lively debate over this legislation in the weeks to come between the payday loan industry and poverty advocates (who argue that payday loans are usurious and prey on the poor).  Stay tuned to see how this turns out.

CALC

Part of my past work at the big firms, and part of my continuing work today, is representing financial institutions of all sizes.  In representing the banks and credit unions, one thing I have come to realize is that most lawsuits by plaintiffs against financial institutions are wastes of time and money.  The belief is that the financial institution will pay at least something to make the lawsuit go away – which is often not the case.  Alternatively, the plaintiff believes that he/she/it has been “done wrong” but then the financial institution’s defence is delivered and the plaintiff realizes that whatever the complaint was, it is covered by the account opening agreement (or credit cardholder agreement) which expressly permitted the financial institution to do whatever it did.  And if the plaintiff had ever actually read the agreement at the time the account was opened (or the credit card was obtained) or if the plaintiff read the agreement before the lawsuit was started, the plaintiff would have realized that he/she/it had the same chances of winning as a snowball’s chances in Hell of not melting.

For example, did you know that you only have 30 days to dispute an error on your bank account statement?  If you do not notify the bank of your dispute within that time, you are deemed to have accepted the information from the bank as being correct.  Similarly, did you know that if there is a problem on your credit card statement (for example, the $15 item you purchased was recorded as being a $25 purchase on your statement) that this is usually something that has to be taken up between you and the merchant and that the credit card division will not get involved – and you still have to pay the credit card bill and then seek reimbursement (in this example, a reimbursement of $10) from the merchant?  These and many other terms are in the agreements which very few people ever bother to read.

Unfortunately for the plaintiffs, they do not come to such a realization until after the litigation has started and the parties have gone a fair amount of the way toward the trial and a mediation or settlement conference is held.  At this point, the plaintiff needs to get out of the losing lawsuit but cannot do so without having to pay some costs to the financial institution.

An alternative that you might want to think about the next time you have a dispute is to use the services of the independent Ombudsman for Banking Services and Investments.  They offer a complaint process that is non-binding.  Whatever the decision, neither party is stuck with that decision and a customer, for example, could still decide to sue if he/she/it so wished.  However, it might be worthwhile to consider this alternative first as it may save you time, money and effort to make a complaint to the Ombudsman’s office and learn that your complaint is a “loser” without having to pay money to the financial institution that you would have to pay if you found out the same thing in a lawsuit.

The only caution I would make before you use the Ombudsman’s services is to consider how much time you have left to sue.  In most instances, Ontario customers will have two years from the date of the problem to sue their financial institution.  You cannot use the Ombudsman’s services if you have sued the financial institution.  So, you must use the Ombudsman’s services sooner rather than later so that you leave enough time for a decision to be made and, if you should still decide to sue, that you have enough time left to get the paperwork prepared to start the lawsuit.

CALC

I saw an interesting story on ABC’s World News Tonight this evening.  The full story is here:

http://abcnews.go.com/Video/playerIndex?id=4569626

It is interesting because, just as GPS trackers and items like the “Boomerang” are helping to prevent cars from being stolen, similar devices are helping to ensure that car payments are made.  If you have seen the devices used to ensure that drunk drivers stay sober while driving – for example, before the car ignition will start, the person has to blow into an “on-board breathalyzer” – the same thing is at work here.  If a payment is not made, the equivalent of the GPS signalling device turns red and the car will not start.  Make your payment, the device turns green and away you go.

I have a former colleague who does a lot of collection work for the financing arm of one of the big North American auto-makers.  If she’s reading this post – it’s time to start looking at other sources of work! 

But it makes you think about how you can apply this concept to your own small business.  Perhaps the easiest way is to try and introduce the concept of milestones and periodic payments.  If, for example, 25% of the price is paid on completing 25% of the work, then if the amount is paid you will continue on with the project.  Conversely, if you are not paid the first 25%, it’s usually a sign that you are likely to get stiffed for the balance if you keep working, so it’s better to be stiffed only 25% rather than 100%.

Of course, this works great if you have a longer-term project.  What if it’s only a “one time sale” or something similar?  In that instance, try to determine what collateral you have.  For example, no payment, no product.

The best solution would be to not have to extend credit at all.  But if you find that you have little choice, then try to think of some ways that you can “pull the plug” earlier rather than later.  If the total value of the work or product isn’t enough to justify suing for the non-payment, then it’s better to stop the bleeding sooner rather than having to either take a larger hit or being forced to sue later on.

CALC