MERCHANT CASH ADVANCE LEGAL UPDATE

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Connecticut may finally be moving to remove a common collection tactic that Merchant Cash Advance companies and their attorneys use in that state. Connecticut is one of the few states that allows for prejudgments against small businesses which allows MCAs to freeze borrower’s bank accounts anywhere in the country without actually going through the litigation process to obtain a judgment on the merits. This makes it very easy for the MCAs to freeze assets at the very beginning of a lawsuit before the defendant can even answer or before it sees it. Usually, a prejudgment is obtained after a hearing involving both parties but, in most cases, involving MCA’s that we have seen, a prejudgment is obtained on default giving the defendant no notice or ability to defend themselves. This may be the case because the defendant small businesses are usually located outside the state of Connecticut and rarely obtain notice of the prejudgment matter. Whether this is part of the strategy of MCA companies is difficult to say but we have almost always encountered this same sort of facts. In other cases, MCA lenders have included language in their agreements which require borrowers to waive their right to such a hearing. This means that they can levy the defendant’s funds at any point whenever they obtain the prejudgment making it very difficult for businesses to unlock those funds or continue doing business. MCA companies have been able to take advantage of this tactic by simply renting mailboxes in Connecticut.



Lifetime Funding is one example of an MCA company that uses the prejudgment rule in CT. They commonly use Hassett & George, a law firm in Connecticut that engages in this sort of business debt collection and prejudgment enforcement. However, after hundreds of these prejudgments were filed in the state, the legislature in Connecticut has finally moved to end this collection tactic. Both houses passed and approved a bill restricting the use of prejudgment attachments and it will now go to the Governor’s desk for signature. If signed, it will likely mean that MCA lenders will have to initiate a standard lawsuit to try to collect the funds allegedly owed to them as they would do in New York and other states. This will prevent the initial levying of bank accounts, most importantly which crippled many small businesses across the country and leaves them at the mercy of MCA creditors. It will allow small businesses to defend themselves against lawsuits and assert defenses such as usury to fight back against Merchant Cash Advance companies.

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