Also known as: finance companies
Written by attorneys · grounded in primary & secondary sources — see below
A nonbank company that deals in loans either by making them or by purchasing notes from another company that makes the loans directly to borrowers. The company may advance funds against goods or documents of title or intervene between seller and buyer to make or collect payment due under a contract for sale.
MedFlow Devices needed cash before shipping ventilators to CityCare Hospital. Apex Funding, a finance company, purchased MedFlow's time draft at a discount and undertook collection from the hospital. Apex advanced the funds in its ordinary course of handling payment instruments between seller and buyer.
Panama Finance Company held contract rights against a Haitian corporation. It assigned the rights to an attorney for one dollar solely to create diversity jurisdiction in federal court. The finance company's assignment was scrutinized for improper collusion.
Select any source to read its text and confirm it supports the definition.
Philadelphia National Bank proposed a merger that would combine substantial commercial lending operations. A finance company that routinely purchased installment paper from retailers challenged the merger on antitrust grounds because the combined entity would dominate local financing markets.
A finance company arranged financing for a closely held corporation's stock purchase. Directors failed to disclose material facts about the company's finances to minority shareholders. The finance company's involvement in the transaction raised questions about fiduciary obligations tied to the loan.
A finance company extended credit to an individual who later filed for bankruptcy. The debtor sought waiver of filing fees on indigency grounds. The finance company's security interest in household goods became relevant to whether the debtor could proceed without paying the required fees.
A finance company is a nonbank entity that makes loans or purchases notes from originators. Banks are depository institutions subject to separate regulatory regimes. The UCC definition of financing agency expressly lists finance companies alongside banks as entities that advance funds against goods or intervene in payment collection.
Supporting sources
A finance company qualifies when it makes advances against goods or documents of title in the ordinary course or intervenes by arrangement with seller or buyer to pay or collect on drafts. Execution of agreements with both parties and actual payment or collection on the seller's draft satisfy the definition even if the arrangement originated with the buyer alone.
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Yes. The UCC definition expressly includes a person who merely takes the seller's draft for collection whether or not documents of title accompany the draft. Regular participation in such collection activities in the ordinary course of business satisfies the statutory test.
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No. Merchant status requires dealing in goods of the kind or holding oneself out as having specialized knowledge or skill about the goods. Financing activities alone do not confer merchant status even when the finance company advances funds against inventory or documents.
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…said: “It may be that our holding here will require some changes in business methods and will impose a greater burden on the finance companies. We think the buyer — Mr. & Mrs. General Public — should have some protection somewhere along the line. We believe the finance company is better able to bear the risk of the dealer’s…