March 5, 2024
On March 5, 2024, the New York attorney general filed a lawsuit against a group of providers of revenue-based financing, which is commonly known as "sales-based financing" or "merchant cash advance" transactions.
In its 289-page petition, the AG identifies a large number of companies and individuals who founded or worked for these companies, all of whom are referred to as "Respondents." The petition alleges that the Respondents engaged in a "fraudulent, illegal scheme" to make usurious loans by disguising them as merchant cash advance ("MCA") transactions. The legal arguments in the petition are complex, but a significant portion of the petition is devoted to claims that funders failed to provide customers with the ability to obtain reconciliations, which is an essential element of demonstrating that an MCA transaction is not a loan. The petition also alleges that the Respondents engaged in deceptive marketing practices, abusive collection tactics, and misrepresentations to the New York courts in which funders sought to obtain judgments from their customers.
The AG seeks a wide range of relief, including cessation of all collection activity pending a hearing on the petition, rescission of the funding contracts with the Respondents' customers, return of all "interest" collected by the Respondents and any amounts illegally obtained through fraudulent court papers, and imposition of civil monetary penalties. The AG also seeks to bar certain Respondents from involvement in the MCA business for at least 10 years.