SAN FRANCISCO

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THURSDAY, JUNE 4, 2015

Banking on Change
After working at a brand new government agency, Neil M.
Peretz landed at a fintech startup.

AN FRANCISCO Twenty years ago

Neil M. Peretz, the general counsel of
financial technology startup Better
Finance Inc., was launching a startup of his
own. In subsequent years he went on to advise a handful of early stage companies and
eventually brought that body of knowledge
to Project Catalyst, an effort by the Consumer
Finance Protection Bureau to foster innovation
in the wake of the financial crisis.
Aside from a keen interest in technology
and innovation, Peretzs resume winds through
business, government and legal jobs. He first
worked as an investment banker and then went
to work in China for the Department of Commerce. After his startup stint, Peretz graduated
from the UCLA School of Law in 2006, and
worked for the DOJ for a few years before he
joined the CFPB when it was formed in 2011.
Peretz jumped back into startups in 2013
when he joined BillFloat Inc., a short-term
online lender that morphed into Better Finance
last year. The startup has two business models.
The first, SmartPay, offers a rent-to-own smartphone program for customers with prepaid
mobile plans. The second, SmartBiz, facilitates
small business loans between lending institutions and borrowers.
As the sole in-house counsel at an emerging
financial services company, Peretz manages
the legal and regulatory wrinkles that come
with strict governmental oversight, whether
from the Securities and Exchange Commission, the Department of the Treasury, the
CFPB, or any one of many state agencies.
Today, Better Finance has roughly 70
employees, has completed four rounds of financing worth close to $40 million and Peretz
said he projects an increase in revenue this
year above the $50 million generated in 2014.
Daily Journal staff writer Banks Albach recently sat down with Peretz at Better Finances
San Francisco headquarters to discuss the
company and the legal challenges of working in
the Better Finances industry. Heres an edited
transcript of their conversation:
Daily Journal: Better Finance has two
business products, SmartPay and SmartBiz. Can you describe the business models
for each?
Peretz: The challenge with BillFloat was
making money. Through the process, however,
we learned that many of our customers outstanding bills were with cell phone carriers.
Thats what prompted SmartPay. We learned
that the prepaid market for cell phones is huge,
about 25 percent of the cell phone industry
and worth billions every year. None of those
customers get a deal on a phone, so if they
cant afford a smartphone, well buy it for the
customer and lease it to them. We are using our
own capital to buy the phones in bulk and we

Neil M. Peretz

General Counsel
Better Finance Inc.
San Francisco
Size of legal department: 1 attorney
advertise in various dealerships and on carrier
websites. Our partners include T-Mobile,
Sprint and TracFone.
With SmartBiz, we started migrating toward
a line-of-credit product in which people could
borrow money for a longer period of time, and
therefore we could have a more economically
supportable business. We also started talking
to banks about their small-business lending
practices and we realized that there was room
to improve.
Imagine a loan for $20,000. Even if I knew I
wasnt going to lose money on the loan, it still
wouldnt be profitable for me if it costs $2,000
to review the application. So we help small
businesses apply for [Small Business Administration] -guaranteed loans and assist the banks
with the underwriting process, all through our
automated technology. Some of the lenders
we work with are Celtic Bank, Golden Pacific
National Bank and First Home Bank.
DJ: Are you Better Finances first general
counsel and did they approach you?
Peretz: I am. The company did not have
any in-house legal before. I joined in April
of 2013 after some time with the CFPB. One
of the instructions from Congress under the
Dodd-Frank law, which among other things
created the CFPB, was to foster innovation. So
in addition to my day job at the bureau, because
I have experience with startups and an interest
in innovation, I started helping with a side
project there called Project Catalyst. If I was
on vacation in an area with fintech companies,
for instance, I would sometimes sit down and
chat with the founders, try to learn what they
are doing and try to gain some insight for the
bureau, but also get feedback on what these
companies thought about the CFPB. Thats
when I met Ryan Gilbert, the CEO here, who
later asked me to join Better Finance.
DJ: Have you grown Better Finances
legal team?
Peretz: Every few months I aspire to bring
on more attorneys, but we always seem to be
running to get to the next milestone, so Ive
basically had to hold down the fort myself
with two distinct businesses.
DJ: What legal challenges did you face
after joining the company?
Peretz: In financial services, every feature
and function of a product has to be legally
compliant in terms of both the way the product
is defined, as well as how the service around
the product is being delivered. Are we engaged

Banks Albach / Daily Journal

in the proper disclosures up front? Are we

handling our debt collection the right way if
people havent paid us? Are we using credit
reports the right way and are we handling bill
payment the right way? There are all sorts of
rules related to electronic funds transfers, for
example, and many people who havent studied the issue dont realize that you must allow
people to revoke permission to electronically
access their accounts if they want. There were
also a lot of relationships that had been established by the company with third parties that
certainly needed much review, in part because
we are sharing data. I think its only been in
more recent years, with retailer breaches and
such, that this has risen to the current public
scrutiny level. But it was already a significant
concern in financial services.
DJ: What are your ongoing legal challenges?
Peretz: As we grow bigger and we team
up with bigger partners they certainly have
higher standards. Ill give you an example. We
just signed a relationship with SmartBiz and
Sams Club, the warehouse arm of Walmart,
the largest retailer in the world. Sams Club is
very concerned about privacy and data security
as they rightfully should be. Well be helping
Sams Club customers get guaranteed loans
and were very excited about it, but you can
imagine the type of scrutiny that we receive
with respect to data security, privacy, use of
information, et cetera, when youre dealing
with a company that is really at the top of
retail world.
DJ: When do you seek outside counsel
and what firms do you turn to?
Peretz: Immigration is one area. We have
folks here on H-1B visa status and we need to
make sure that they are comfortable with their
immigration status. So weve worked with
Malcolm Goeschl and his firm Goeschl Law
Corp. We currently use Ted Wang at Fenwick
as our outside corporate counsel for financings,
for example, and questions relating to corporate governance. We had to set up a wholly
owned subsidiary for SmartPay, so we use Dan
Wheeler at Bryan Cave for financial services.
Because Bryan Cave is St. Louis-based, we
actually found some folks with expertise that

tended to be more cost-effective. I theorize that

the average billing rate in St. Louis is probably
lower than San Francisco, for the same caliber
of person. For IP, we just started working with
Bill Ahmann, a partner at Sheppard Mullin.
Fortunately for us Ill keep knocking on
a lot of wood I have not had tremendous
employment issues. But I have spoken a bit on
that topic with Amy Hirsh at Arena Hoffmann.
We also work with Robert Cook at Hudson
Cook on consumer finance issues.
DJ: Do you think theres a growing trend
in fintech to hire former regulators?
Peretz: Its quite rare. Its not just that
were coming out of a regulatory body, were
also litigators and generally there are not as
many paths to becoming a GC as a litigator.
Theres also, I think, a general distrust of the
government. Theres a libertarian theme in
Silicon Valley, generally. So when you say
Im here from the government, that doesnt
necessarily inspire some entrepreneurs and
venture capitalist to get excited about spending
more time with you.
But I think there is a growing realization
in some people who are building fintech companies that having someone with regulatory
experience in-house is a good thing, because
butting heads with regulators and not working
within the existing legal framework can get
companies into trouble early on. Its what I
might call enlightened self-interest. Its also
possible that theres a greater interest in hiring
folks from the CFPB rather than other regulatory agencies because it was a new creation.
It was the closest youll ever get to a startup
in the government.
DJ: What are your thoughts on the state
and future of fintech?
Peretz: I think were still in the very early
stages. The amount of volume being done
by LendingClub, which is significant, is tiny
compared to the volume that banks do. If I
were a bank, I wouldnt be exactly quaking yet,
fearing that fintech is going take over my field.
On the other hand, there are tremendous
lessons to be learned. Its obvious that some
fintech companies have found ways to better
serve the customer than the existing lending
institutions.

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