Beginning early 2010, after the Great Recession, when the American housing market blew up and the world fell into a financial crisis, traditional banks like Chase or Citi were unwilling to extend new and small businesses any credit. While the global financial markets slowly recovered, both self-regulation and government regulation over conventional banks, meant that underwriting standards for new loans increased to such a level that most small businesses were no longer eligible to borrow from the regular banking system.
The “new” underwriting standards of the traditional lenders left a massive void in lending to small businesses and merchants alike. The time was ripe for someone or something to address the lack of credit and lending to small business.
What transpired was the birth of the Merchant Cash Advance world. A small business “loan” extended against the future credit card receivables of the small business. The MCA concept was new. As with any new market, the regulation was not able to keep up with industry trends and changes. The MCA market turned into the Wild West. It grew into a “Legal” usury platform and allowed for anyone to enter the space without the need for licensing, background checks or any other form of weeding away lending predators and abusers. However, still in 2020, a full decade later and the MCA industry remains unregulated and the Wild West.
As time went by, more and more players got into the MCA game and as the industry matured so did the funders methodologies for making even more money off the drowning merchants.Like any money making bonanza systematic practices were created that were designed to hold the merchant hostage and abuse their small business. Such practices as daily payments. The use of ACH. Lock boxes. Access to Merchants bank accounts. Personal guarantees. Liens filed against a merchants personalcollateral such as real estate, even primary residence. Confession of Judgments (COJ) a legal tool whereby the funder obtains a legal judgment without having to litigate. 33% attorney’s fees. Visits to the merchants business. Predatory usurious lending rates. Interest rates that exceed 100, 200 and even 800%. Illegal collection activities. Excessive Origination Fees. Excessive Underwriting Fees. Excessive broker commissions. Illegal collection methods. Harassment and many other unscrupulous acts.
Unfortunately, instead of increasing scrutiny and introducing legislation, all that the last decade has done is allowed the market to grow unregulated. Even the so called pristine are involved. Several publicly traded companies are entering the world of Small Business Lending or Merchant Cash Advance. In fact prestigious investment banks like Morgan Stanley have invested money with some of the largest MCA lenders and more investors want in. Where else can you charge 100, 200 or even 1000% interest on your money and have the law call it legal?
What about usury? Most States have usury laws on their books that set the maximum amount of interest you can charge on a loan. This number may vary depending on State, for example; California, Texas, New York, Florida, Michigan, Pennsylvania, Illinois, Tennessee, Ohio, New Jersey, Georgia, Arizona, North Carolina, Massachusetts, Indiana and Missouri all permit Merchant Cash Advance loans but also have usury laws on their books.
So, how is it possible? If usury sets a cap on interest allowed to be charged, why can an MCA funder charge any amount of interest they want?
Many Courts have ruled that a Merchant Cash Advance is legally not considered a loan. These opinions have held that when a merchant takes out a Merchant Cash Advance, he or she did not borrow money. Only borrowed money, otherwise known as a loan, can be subject to usury laws and these Courts have stated that because the MCA funder is purchasing a percentage of the merchants future credit card receivables, it’s not considered a loan and therefore not subject to State usury laws.
It is troubling when Courts side with Merchant Cash Advance Lenders and rule that this predatory lending practice is not a loan. These legal opinions have only emboldened the funders to charge and take even more of the Merchants business revenues and profits. Courts are institutions of equity and fairness, refuge, justice and a formal place for even the small, poor and weak to have their voices heard and have their day in court. Yet, the Courts seemed to have left the small business owner behind. Without the guard of usury, small business owners are ripe prey for the predatory lending world of an MCA loan.
With the Courts seemingly blessing MCA funders to do as they please and charge what they wish, the industry is crying out for regulation, laws and accountability. Until this happens we must challenge the funders. Challenge their contracts. Challenge their fees. Challenge the actual APR. Challenge their abusive practices and illegal collection tactics and end this “non-loan” sham.
If it looks like a loan, acts like a loan, requires a pay back and has the hallmarks of a loan, it should be treated as one. Yet, the simple “act” of buying future credit card receivables or even just calling it a receivable purchase in a contract, is enough for these predatory loans to be legally sold to unknowing merchants.
Someone needs to stand up for the small business owner. Better yet, new and transparent methods of merchant lending must be created. Too many businesses have been forced to shut or file bankruptcy because of these insidious loans.
With many Court opinions stating an MCA is essentially legal, is there a way to challenge, settle or legally fight a Merchant Cash Advance? The answer is an emphatic YES! There are other Courts that have held the so called MCA to be a loan and thus subject to usury laws. Moreover, by working with a specialized Merchant Cash Advance Law Firm, you will have experience and knowledge at your side. You will know your rights and most importantly you will know what can be done to end daily ACH payments, collection efforts and have your MCA loan settled for example to a MONTHLY payment plan. Most importantly we will alleviate your stress and worry.
The attorneys at Grant Phillips Law, PLLC are experts in the practice of Settling, Challenging and if applicable Terminating a Merchant Cash Advance loan. We are an aggressive law firm and stand shoulder to shoulder with our clients. Our long term goal is to see the industry be regulated and the players vetted, see interest rates capped and the adoption of a uniform contract and with standard and capped fees.
Our law firm serves clients across the United States. You do not need to be a resident of New York to receive our law firm’s assistance.
The attorneys at Grant Phillips Law, PLLC have assisted hundreds of Merchants with their Merchant Cash Advance Loans in most States, including but not limited to: California, Texas, New York, Florida, Michigan, Pennsylvania, Illinois, Tennessee, Ohio, New Jersey, Georgia, Arizona, North Carolina, Massachusetts, Indiana, Missouri and all across the United States.
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