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A Settlement Between The New York State Attorney General And Predatory Lenders Will Cancel 1,100 New York State Judgments Against Small Businesses
By Rick Tannenbaum
About 250 small businesses, victimized by a network of 25 predatory lenders, will have judgments against them totaling millions of dollars canceled by the Rockland County Supreme Court in coming weeks. Statewide, 1,100 judgments will be canceled.
The judgments, dating back as far as 2016, were issued by numerous Rockland County Supreme Court Justices, many of them issued when small businesses or out-of-state borrowers defaulted. Other judgments were issued after unsuccessful challenges by small businesses over what they claimed were illegal and/or usurious loans – loans issued with interest rates in excess of the legal maximum allowed to be charged.
In all of the cases, defendant small businesses sold their future receivables for a fraction of their face value — generally 55- to 65 cents on the dollar. The businesses agreed to repay the full amount of the sold receivables (100 cents on the dollar), plus a litany of extra fees, within a few months of receiving the money. The payments were made daily (or sometimes weekly) in amounts that were automatically withdrawn from companies’ checking accounts. If these arrangements were considered traditional loans, the effective interest rate paid by the borrowers on these short-term loans would often be between 80 and 200%. Some of the loans carried interest rates over 800%
New York’s Usury laws criminalize loans made with interest rates in excess of 25 percent.
The small business borrowers were located throughout the country, but agreed in advance that any suit brought against them would be litigated in New York.
Rockland is not the only County that had become a haven for the predatory lenders. In all, 1,100 judgment debtors will get relief from outstanding judgments issued by New York State courts. Nationwide, over 18,000 borrowers will get relief from outstanding judgments.
The relief is part of a settlement negotiated in January between the New York State Attorney General’s Office and the 25 predatory lenders, including Yellowstone Capital, its officers, and related companies, none of which admitted to any wrongdoing.
Attorney General Letitia James filed a lawsuit in March 2024 after an Office of the Attorney General (OAG) investigation found that the lenders exploited small businesses through fraudulent loans with astronomic interest rates. These loans were disguised as merchant cash advances, an increasingly prevalent form of short-term, high-interest funding for small businesses, particularly those that cannot get loans from traditional banks.
A settlement, reached in January, required the lenders cancel the outstanding judgments, totaling over $500 million nationwide, cancel every outstanding merchant cash advance agreement, cease all efforts to collect on any outstanding judgment or debt, refrain from transferring any debt to a third-party for collection, and refund any money received in the future from the cancelled debts.
The lenders also agreed to dismiss any outstanding lawsuits that stem from the cash advance agreements. The settling defendants are permanently banned from conducting any Merchant Cash Advance transactions or transactions under the guise of merchant cash advances in the future.
“Targeting small businesses with predatory loans and outrageous interest rates threatens the livelihoods of hardworking business owners and their employees,” said Attorney General Letitia James. “Yellowstone and its executives lined their pockets at the expense of vulnerable small businesses who turned to them for help. Their predatory loans forced successful companies to close and put New Yorkers out of work. My office has put an end to these predatory loans and secured over $534 million in debt relief for businesses that were harmed.”
The Consent Order also required the lenders to release UCC liens filed against the borrowers.
The Order did not affect judgments that had already been satisfied or moneys received by the lenders in partial satisfaction. It does cancel the unpaid portion of any outstanding judgment that’s been partly satisfied.
And, should additional unsatisfied judgments be discovered in the future, or if any were left out of the court filing, a mechanism was created to have those judgments canceled as well.
The total cost to the predatory lenders, according to the Attorney General’s Office, is $1.065 billion.
Other defendants, including Delta Lending and Cloudfund, in the predatory lending case brought by the Attorney General’s Office, continue to defend the legitimacy of their Merchant Cash Advance contracts and judgments.
Cloudfund, based in Suffern, NY, has not filed any new cases in it own name in Rockland County since the inception of the Attorney General’s litigation.
In a recent correspondence to the Court, a non-settling lender referred to a bill proposed in the New York State Legislature, titled the Anti-Usury Bill (also known as The End Loan Sharking Act), a law that would apply only prospectively, but that would expand the application of New York’s usury laws to all financing arrangements, including merchant cash advances and other financial transactions that had not previously been considered loans subject to usury limitations under New York law.
The MCA lender argues that the purpose of the bill, according to the Legislature, “is to close current and potential loopholes in New York’s usury laws” — loopholes that have allowed it to operate legally. The defendant says its agreements are lawful, sales-based financing agreements, and that hundreds of New York courts have said so, and dozens of courts have reviewed and validated its Merchant Cash Advance agreements.
The settling lenders were: Yellowstone Capital LLC, Fundry LLC, ABC Merchant Solutions LLC, Advance Merchant Services LLC, Business Advance Team LLC, Capital Advance Services LLC, Capital Merchant Services LLC, Cash Village Funding LLC, Fast Cash Advance LLC, Fundzio LLC, Green Capital Funding LLC, HFH Merchant Services LLC, High Speed Capital LLC, Merchant Capital Pay LLC, Merchant Funding Services LLC, Midnight Advance LLC. MR Advance Capital LLC, Ocean 1213 LLC, Simply Equities LLC, TVT Cap Fund LLC, TVT Capital HR LLC, Thryve Capital Funding LLC, WCM Funding LLC, West Coast Business Capital LLC and World Global Capital LLC.
The case in the Supreme Court for New York County is: 450750/2024.
Rick Tannenbaum edits the What’s The Big Deal?, Marijuana Monday, The Legal Beat, and the Upstate Update columns for RCBJ.
Read also: Is It Usury Or Legitimate Funding? A Rockland Court Will Decide (July 20, 2021)
Read also: Usurious Loans or Legitimate Merchant Cash Advances – Courts To Decide (December 6, 2023)
Read also: New York Attorney General Sues Suffern-Based Merchant Cash Advance Lender For Fraud (March 20, 2024)
Read also: Court Refuses To Enforce Merchant Cash Advance Agreement That Smacks Of Chicanery (July 20, 2024)
