Some unintended consequences began to take shape in late June 2011, when the Federal Reserve (Fed) issued its final rule implementing the law. While its initial proposals suggested that fees between 7 and 12 cents seemed “reasonable and proportional” to the costs incurred, the Fed’s final rule concluded that all future swipe fees would be capped at 21 cents plus .05 percent of the transaction amount to account for fraud losses. This was below the past average debit fee of 44 cents per transaction. However, swipe reform supporters were disappointed at the significant concessions the Fed made to big banks and credit card companies, especially since 44 cents was only an average. They felt there were many other transactions, such as small ticket purchases, that fell well below the average rates.

While the 21-cent-cap decision was higher than expected, many agreed that overall swipe fees would decrease. What no one expected, however, was that the credit card and banking industries would find a way to generate MORE revenue–not less–from imposing swipe fees. Worse, the businesses in which franchisees sold lower-ticket items were the ones that were about to be hit the hardest.

How did MasterCard and Visa manage to profit from regulations intended to lower swipe fees? Prior to oversight by the Fed, the credit card giants were imposing differing fee schedules based on multiple factors like industry segment, size of the transaction and volume processed. As a result, fees on small-ticket transactions were 4 cents plus 1.55 percent. After the Federal Reserve issued the final rule, however, MasterCard and Visa set new rates that treated the 21-cent cap as a floor for debit card fees. That meant that almost ALL transactions, regardless of cost or size, would be subject to a 21-cent fee. Therefore, franchisees selling lower-ticket items would now be paying a much higher percentage of the cost to the credit card companies. The result: every transaction made below $15 on a non-exempt card now has a higher network-imposed interchange fee than it did prior to the law’s enactment. Further, interchange swipe fees on purchases under $2.50 have now tripled in price because of the decisions by participating networks to raise all rates to the cap.

How did this happen? According to the organization primarily responsible for advocating the law’s passage, the Merchants Payments Coalition (MPC), two parties are to blame for this result: the Fed and the credit card companies.

According to MPC, the Fed did not set a truly reasonable and proportional standard and therefore is now allowing banks to collect almost six times the transaction cost in debit swipe fee revenue. Also, because the Fed did not require merchant routing choices on every transaction (i.e., a signature or PIN number), they limited the competition between Visa, MasterCard and the other debit networks. As for the credit card companies, MPC points out that while the 21-cent rates are not required by law, Visa and MasterCard still raised the debit swipe fee to the 21-cent cap, which now serves as more of a floor in the eyes of the networks.

In late November 2011, retailers began fighting back. The National Retail Federation, the Food Marketing Institute, the National Association of Convenience Stores and other organizations filed a suit against the Fed for setting too high of a cap on interchange fees; buckling to pressure from the banking industry; and considering outside expenses, such as fraud, when determining swipe fees. The suit maintains that the Fed’s cap is an “unreasonable interpretation” that exceeds its authority under the law. In addition, the suit contends that the Fed wrongly interpreted another provision in the law—one that requires merchants have a choice of which network handles their transaction.

In the long term, hopefully the networks will begin to face some competitive pressures and swipe fees will decrease. Until that happens, however, franchisees need to write to their members of Congress and relay their personal stories of how the new swipe fee law is hurting–rather than helping–their business.

Fidelity Bank

Based in Central Massachusetts, Fidelity Bank is one of the oldest, strongest and continually growing independent community banks in the region. Fidelity Bank offers the experience of a big bank with the personal service of a community lender. As a franchise owner client, you deal directly with the decision makers who are committed to responding quickly and knowledgably from day one of your relationship.

Fidelity Bank offers mid-to-large scale financing to franchisees throughout New England and New York State. The lender provides network financing for new stores, store acquisitions, expansions, remodels and related real estate. Fidelity Bank tends to work with franchise owners or owner networks with at least four or five shops. Its minimum transaction amount is $500,000 and the maximum is $10 million. The bank is a “relationship lender,” meaning its aim is to finance the relationship and be the primary lender for an operation, not just to fund a single transaction. Fidelity Bank can fit the bill no matter the size of the network, serving all of the needs of a network with a handful of stores or helping franchise owners with more than 100 stores to diversify their banking relationships.

While Fidelity Bank just initiated its Dunkin’ Donuts Commercial Lending Program six months ago, President and Chief Lending Officer John Merrill and Senior Business Banking Officer Sally Buffum each have more than 10 years experience providing financing to Dunkin’ franchise owners.

“We may be small, but we’re experienced. We understand the capital needs of a growing or existing network of Dunkin’ Donuts stores, but also recognize that each network is different and we’re nimble in our customization of services for individual franchise owners,” said Merrill. “We’re putting a lot of effort into growing our lending program, and we’ve had a number of early successes.”

Through Fidelity Bank’s LifeDesign approach, your relationship would typically begin with a conversation with one of the bank’s commercial lending Relationship Managers to discuss what you’re trying to accomplish and what your capital needs are. Your Relationship Manager would require financial statements and other documentation to fully grasp how your needs and goals fit into your overall business plan. When it comes to the application and decision-making process, everything is tailored to the transaction type and complexity as well as the franchisee’s needs. Fidelity Bank would ask for a project timetable upfront and design a plan to meet that timetable. This would be part of the complete financial package and transaction outline ultimately provided by the lender. Throughout the process, your Relationship Manager is there to walk you and your associates (e.g., your accountant) through the steps and/or to answer any questions.

To find out more, visit www.fidelitybankonline.com or contact Sally Buffum at 508-762-3604 or sbuffum@fidelitybankonline.com.

Direct Capital Franchise Group

Headquartered in Portsmouth, New Hampshire, Direct Capital is a national direct lender that has worked with Dunkin’ Donuts and Baskin-Robbins franchise owners for more than a decade. In fact, the lender has a team of Franchise Finance Managers specifically trained to work with the Dunkin’ Donuts community. Offering small-to-mid scale financing for new store development, equipment and technology replacement and upgrades, remodels, store acquisitions and even relocations; Direct Capital’s typical minimum transaction amount is $2,500 and the maximum is $1 million.

In addition to traditional finance structures, working capital loans are available. Direct Capital has a brand new program exclusively for Dunkin’ Donuts and Baskin-Robbins franchise owners: All are automatically pre-approved for $25,000 of working capital financing per location and may be eligible for higher amounts. These short-term, unsecured loans can be used to boost liquidity and cover general business expenses such as inventory, labor, advertising and taxes.

Express underwriting and approval services streamline financing for Dunkin’ Donuts clients. A one-page application is all that is required for loans under $100,000, and approvals and documentation are processed the day of the application. For larger loans, the process is initiated with that same application, but additional financial review is required. Once financials are received, Direct Capital typically makes decisions within two business days on remodels, new stores, acquisitions and relocations in two business days. What’s more, the lender’s ClickFund™ electronic documentation system allows you to review and sign financial documents through a secure website, significantly reducing the turn-around time of “hard copy” processing. For multi-unit franchise owners, Direct Capital designed a Master Finance Agreement to simplify applications for subsequent financing with the completion of a one-page addendum to simplify the process of securing additional funds over time. Direct Capital also can consolidate all of your invoicing and offers flexible payment options (deferred and seasonal).

“We have grown so comfortable with the Brand and are so confident in the ability of franchise owners to perform that, even in a generally tight lending climate, we’ve had a wider credit window for franchisees in the Dunkin’ system,” said Robyn Gault, Vice President of Strategic Accounts. “In 2012, we are looking to expand our programs and allocate even more funding to the Dunkin’ Donuts community because it has been so successful.”

For more information check out http://franchise.lendedge.com or contact Robyn Gault at 603-433-9476 or rgault@directcapital.com.

GE Capital, Franchise Finance

GE Capital, Franchise Finance (GE Capital) has more than 30 years experience serving mid-market owner/operators with multiple stores in the restaurant and hospitality industries. In January of 2010, GE Capital reorganized to a regional model and put a major focus on Dunkin’ Donuts becoming a core brand. While headquartered in Scottsdale, Arizona, GE Capital is dedicated to lending to franchisees across the country with originations teams embedded in the East, Central and West regions.

“We have the expertise in the restaurant space to understand key issues for franchise owners, and our regional focuses give us a better grasp of each client’s local marketplace,” said Brian Frank, Managing Director, East Region. “And because GE has the knowledge and expertise in a variety of industries, we not only provide the capital but also the insight on topics such as market competition, energy costs, local and global economies, health care and government. Our experts can tap into these and other areas to help a franchise owner grow their business.”

GE Capital stands true to its tagline, “We’re not just bankers. We’re builders.” The lender is committed to helping you do more than maintain your business; it aims to facilitate your growth vision. GE Capital offers term loans, refinancing, real estate mortgages, sales leaseback, acquisition financing and development lines for new stores and remodels. It predominantly does financing across the board for an entire business, working with seasoned owner/operators with at least three to five years experience and six to 10 stores. Decisions are made on a case-by-case basis, however, so the lender is always open to speaking with franchisees who might not fit this exact profile.

GE Capital has more than 300 employees nationwide who are solely dedicated to the restaurant finance business, so it can truly provide a national perspective. The lender also has a Brand Manager, Christine Keating, who works with Dunkin’ Brands directly to ensure GE Capital understands all of the brand’s issues and expectations, and to forge a triangle partnership since it works best when the franchisee, franchisor and lender are all working together to grow the business.

While GE Capital clearly has expansive operations, it remains committed to serving each franchise owner client as an individual. You typically begin by talking with an account executive in your region to establish the groundwork. The regional account executive gathers basic information about your business such as history and performance, scope of anticipated projects, overall business plan, financial history and documentation. The account executive then brings in an underwriter and closer to form a “Deal Team” specifically dedicated to you. This team subsequently walks you through the transactions step-by-step.

Learn more at www.gefranchisefinance.com or contact Ab Igram at     203-229-1885 or ab.igram@ge.com.

Joyal Capital Management

For 25 years, Joyal Capital Management, LLC (JCM) and its affiliates have provided financial services to Dunkin’ Donuts franchisees. This longstanding association began with estate, business and financial planning and evolved into lending-related services. Today, JCM offers exclusive financing arrangements to Dunkin’ Donuts franchisees along with outstanding personalized service, including a dedicated team that handles transactions in a 100% turnkey process requiring minimal franchisee involvement.

Based in Plymouth, Massachusetts, JCM primarily serves franchise owners on the East Coast, supplying traditional franchise financing for new store development, acquisitions, expansions, remodels, refinancing, and so on. What makes JCM unique, however, are the funding and debt structuring services available only to Dunkin’ Donuts clients. If you need immediate access to capital, JCM can help. The firm has very substantial secured funds set aside to provide the capital now and subsequently structure that debt, meaning you can get the money you need today, literally.

JCM also offers exceptional debt restructuring. When you have loans with more than one bank, often the banks and loan covenants make it impossible to access additional capital. In this situation, JCM will work with you to restructure your loans, getting rid of the other banks and terming out your existing debt in ways that meet your ongoing cash flow needs.

“We are proud to offer services to our Dunkin’ Donuts clients that go ‘above and beyond.’ It’s our mission to be there as a resource they can rely on to help grow their business,” said JCM Chairman and CEO Gary Joyal. “We currently serve the full spectrum—from franchisees who own just one shop to the largest franchisee in the system—and we believe in developing long-term relationships, not transactional-based relationships.”

In fact, JCM stood by its Dunkin’ Donuts clients through a serious crisis. In 2007, while managing the Dunkin’ Donuts Lending Program created by Sovereign Bank in the early 1990s, JCM began getting panicked calls from franchisees: Sovereign was calling in loans that were technically in default solely due to not meeting growth criteria stipulated in the loan agreements. Gary Joyal immediately contacted Northern Bank & Trust Company (a small, privately owned community bank) to explore solutions. Joyal wanted: simple loan approval, no financial covenants and no overly burdensome cross-collateralization provisions—a key component that would allow larger franchisee networks to grow and prosper. Northern Bank President and CEO James Mawn agreed and further said the only criteria would be that franchisees make their monthly payments. In addition, Mawn would meet clients face-to-face and share his home phone number for use in case of an emergency. JCM established a partnership with Northern Bank in 2008 and began transferring business from Sovereign. The program has been extremely successful and, whenever a franchisee has faced an urgent problem, Mawn has come through with a resolution.

To find out more, see www.jcmfranchise.com or contact Manager of Client Services Kathy Rebello at 508-747-2237 or krebello@joycapmgt.com.

“United Capital is committed to working closely with Dunkin’ Donuts^® franchisees to provide financing for new store development, acquisitions, remodels and debt refinancing,” saysTrey Grimm, vice president and business development officer for United Capital. “We’re proud to play a part in the growth of the Dunkin’ brand.”

United Capital Business Lending, which in late 2010 acquired the small business lending operations of Butler Capital, is a subsidiary of BankUnited (NYSE: BKU), the largest bank in Florida with over $12 billion in assets. United Capital Business Lending now brings the experience of Butler Capital together with the financial strength of BankUnited.

In addition to Dunkin’ Donuts^®, the United Capital team has financed franchisees for Subway^®, Burger King^®, Wendy’s^®, Denny’s^®, Jiffy Lube^® , Five Guys^® Burgers and Fries and Jimmy John’s^® Gourmet Sandwiches among others.

For information about financing for franchise acquisition, new unit development, remodeling or refinancing, call United Capital at 866-218-4793 or visit the company’s website at www.unitedcapitalbusinesslending.com.

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The Globe’s research partner, WorkplaceDynamics, received 73,813 completed surveys from employers across Massachusetts. Each was asked to grade their organization’s performance according to 24 statements, ranging from “New ideas are encouraged at this company” to “It’s easy to tell my boss the truth.” To compile the ranking, each employer was measured according to six factors: direction from leadership; execution by senior managers; responsiveness of managers to employee concerns and needs; formal training and other opportunities to learn and grow; work.

Fidelity Bank believes in helping our clients and employees get where they want to be – it’s our LifeDesign difference and it is why we are so honored that our employees voted us one of Boston Globe’s Top places to Work.

Congratulations Fidelity Bank!

Download list of top 40 employers in Massachusetts

Dunkin’ announced Monday that the lead underwriters in the company’s recent IPO plan to waive the lock-up restriction for up to 732,758 shares held by 15 executives, former executives and directors at the company. Bain was one of three private equity firms that invested in Dunkin’ before the company’s IPO.

The shares, worth about $19 million at Friday’s closing price, amount to about 0.6 percent of the company’s 120.1 million shares.

The officers and directors at the company who will see the IPO lock-up waived include:
Nigel Travis, CEO of Dunkin Brands and president of Dunkin’ Donuts U.S.
Neil Moses, CFO Dunkin’ Brands.
John Costello, chief global marketing and innovation officer.
Richard Emmett, svp and general counsel.
Kate Lavelle, former Dunkin’ Donuts CFO.
Paul Twohig, COO Dunkin’ Donuts U.S.
Jon Luther, former Dunkin’ CEO.
Todd Abbrecht, Managing Director at Thomas H. Lee Partners  .. .
Andrew Balson, Managing Director at Bain Capital Partners, LLC.
Anita Balaji, Vice President at The Carlyle Group  .. .
Anthony DiNovi, Co-President of Thomas H. Lee Partners.
Sandra Horbach, Managing Director of The Carlyle Group.
Michael Hines, Board member.
Mark Nunnelly, Managing Director at Bain Capital Partners, LLC.
Joseph Uva, board member and former president and CEO of Univision Communications Inc.

Earlier this month Dunkin’ reported that third quarter sales were up, but income dropped. The firm also said on Nov. 1 that it would offer 22 million shares of its common stock for sale in a secondary offering.

Read more at: Boston Business Journal

Other Related stories: Dunkin’ Brands Announces Waiver of IPO Lock-Up Restriction for Certain Officers and Directors

“We are already a GE Capital customer, under another restaurant brand,” says Jim Taggart, principal, Pizza Project, LLC. “After our success with that brand, we were looking to diversify our portfolio. The Brand Management team at GE Capital introduced us to the Domino’s family, and we could not be happier.”

The current funds will help launch Pizza Project’s plan to become a 40+ unit Domino’s Pizza franchisee across northern California.

“GE Capital’s Brand Management team has relationships with a good cross-section of franchise brands. These relationships give us insight into each brand’s development plans and strategy,” said Dave Stansbery, vice president, GE Capital, Franchise Finance. “Our access to brands and to capital made us a perfect match for Pizza Project.”

Domino’s(R) Pizza was founded in 1960 and now has more than 9,000 stores in more than 60 countries around the world, making them the second-largest pizza chain in the United States. In January of 2011, Forbes named Domino’s Pizza as “The Top Franchise for the Money.”

About GE Capital, Franchise Finance

GE Capital, Franchise Finance is a leading lender for the franchise finance market via direct sales and portfolio acquisition. With more than 30 years of experience and $12 billion in served assets, we serve over 5,000 customers and over 22,000 property locations. We specialize in financing mid-market operators with multiple stores in the restaurant and hospitality industries. Our team of industry experts will work with you to help develop growth plans with access to our proprietary industry research and customized tools. More information is available at www.gefranchisefinance.com or by calling 866-GET-GEFF (438-4333).

The agreement was negotiated by a team of franchisees: Jim Cain, Bill Daly, Mark Dubinsky, John Motta, Rod Valencia and Ed Wolak. They were known as the G-6 and represented, in equal parts, the Brand Advisory Council (BAC), the Enterprise Advisory Council (EAC) —representing TOGO’s and Baskin’ Robbins—and DDIFO.

According to John Motta, a G-6 member and the BAC co-chair at the time, there was little doubt the letter would resurface one day. Back in 2005, Dunkin’ Brands was sold to a trio of private equity firms whose terms negated the opportunity for a public stock sale.

“I put my copy of the letter in a safe place, because I always thought that the private equity companies would spin us off and there would be IPO,” said Motta. “Some people thought it was a dead deal, but I always felt they would honor it.”

Motta says Luther initiated the original concept of the G-6 and worked with representatives of the new ownership team to approve the pre-IPO sale. Other terms requested by the G-6, including the inclusion of a franchisee on the Board of Directors, were discussed but ultimately rejected by Dunkin’ Brands.

“Because of the make-up of the G-6, we were truly independent of all entities and that gave us the ability to have productive dialogue with Luther and [former Dunkin’ Donuts President Will] Kussell,” Motta said.

In the weeks and months leading up to the agreement, G-6 members took two trips to New York to interview with potential buyers. Before those fact-finding missions, the group engaged Riparian Partners, a Rhode Island merger and acquisition advisory firm, to study the pending sale. “That helped us be sure we asked the right questions and were on the right course,” Motta said.

Former franchise owner and G-6 member Mark Dubinsky remembers DDIFO playing an important role behind the scenes ensuring the franchisee community’s concerns were addressed. Those concerns included distribution in new channels and opportunities to invest in new markets.

“The G-6 worked diligently to extract the maximum benefit for the franchisees during what many franchisees perceived as a potentially perilous transition period. While I remain proud of our efforts, I—for one—was not completely satisfied with our results.”

In a statement to DDIFO, Luther, who is now non-executive Chairman of the Board of Dunkin’ Brands said, “The Dunkin’ Donuts and Baskin-Robbins brands were built one franchisee at a time, and hence the company felt it was important to offer this program.  We were very pleased with the participation from our corporate employees and the franchise community, and we look forward to writing the next history of our chapter together.”

Since its blockbuster opening where it jumped more than 50 percent over its $19 per share initial price at one point, Dunkin’ Donuts stock—traded under the symbol DNKN—has traded at around $25 per share.

According to Lynn Cowan, a reporter for the Wall St. Journal, “Analysts caution that the company’s debt level is high and its valuation is steep compared with other quick-service chains that court a breakfast crowd. Dunkin’ Brands is entirely franchised, so those mom-and-pop shop owners are responsible for most of the costs to launch and maintain doughnut and ice cream shops. The result is higher operating margins and a richer stock valuation compared to company-owned store model favored by Starbucks.”

According to an unscientific survey of DDIFO members, 62 percent said they were planning to purchase DNKN stock at the IPO. A subsequent survey finds that 30 percent have since sold their shares.

Just weeks after the IPO, Dunkin’ Brands began its process of reporting quarterly earnings to its shareholders. For the second quarter, Dunkin’ reported a profit of $17.2 million, down from $17.3 million a year earlier. Revenue rose 4.4% to $157 million, and its operating margin widened to 39.3% from 38.4% though operating expenses were slightly higher.

Even as analysts spin the earnings reports and Dunkin’ Brands’ leadership charts its expansion course across America, Motta believes franchisees will continue their focus on day to day operations and the strengths that have built Dunkin’.

“Franchisees are still going to be focused on customer service and unit profitability,” he said.

The Securities and Exchange Commission describes insider trading as follows: Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security.

Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.
A person can be liable for “tipping” others even if that person does not buy or sell shares himself.  In the same way, a “tippee” can be liable for trading even if that person is not a company insider, as long as the “tippee” receives material nonpublic information from a corporate insider.

Company insiders may not use nonpublic information to trade stock for gain.  Similarly, the improper acquisition and use “material nonpublic information” to trade securities is prohibited.  “Material nonpublic information” is information that investors would likely consider important in making investment decisions.
Over time an “insider” has come to be defined to include corporate officers, directors and employees.  While franchisees are not corporate employees, they could be considered business associates of corporate insiders, thus corporate insiders.  This may be particularly true of franchisees that by reasons of leadership positions are privy to brand-sensitive information.
These rules do not prohibit you from owning the shares of DNKN.  However, if you do decide to buy or sell shares of DNKN, you should be careful to scrupulously observe these laws and not buy or sell DNKN shares based on material nonpublic information.

The SEC’s website states as follows: Because insider trading undermines investor confidence in the farness and integrity of the securities markets, the SEC has treated the detection and prosecution of insider trading violations as one of its enforcement priorities.

The government has brought both criminal and civil prosecutions against people for insider trading.

You should also be careful with information outsiders may seek on the condition of your business, new products, sales, sales mixes and any number of other topics.  This information is generally not known publicly, and some traders and analysts may try to get an edge by using information that you might have.  Please be sure not to communicate with these people, and instruct your employees, as you usually do not pass along any such business information.

Passing along inside information, even if you do not trade on it, could put you in violation of these laws.  Even passing inside information to family members could make you liable under the securities laws if family members trade based on that information.

Finally, a reminder that section 10 of your franchise agreement contains a confidentiality provision that requires you to refrain from (a) sharing Confidential Information with anyone, or (b) using Confidential Information for the benefit of anyone, except in carrying out your obligations under the agreement.

If you have any questions, we urge you to consult your own professional advisors and to visit the SEC’s website at http://www.sec.gov/answers/insider.htm.