New York State Court Commercial Division Justice Andrew Borrok recently held, that the agreements in the Merchant Cash Advance case in front of him, People v. Richmond Capital Group LLC, were in fact usurious loans instead of so-called merchant cash agreements that has allowed MCA companies to charge interest rates above 200% and even 300%.
His decision follows in the same route that the recent decisions in the Eastern and Southern Districts of New York came down as well as the Federal Appeals Court for the 2nd Circuit Court which upheld those decisions. This is a massive decision not only because it follows the Federal Courts, but because it should set a key precedent in the New York State Courts for all of the ongoing and future MCA cases to follow. Most of the MCA cases that are filed are still litigated in NY State courts which is why this decision is so important. Although we have seen more judge’s ruling against MCA companies recently, this decision was long sought after by the NY Attorney General after a lengthy battle.
The NY AG came out back in 2020 and accused MCA loans of being predatory, usurious, and ultimately a sham. This decision also provides that these MCA agreements are in fact usury and proves what we have been arguing for years. No matter which of the court’s decisions is reviewed, all agree that these MCA agreements are usurious. We believed that the federal decisions would eventually transfer over to state courts, and this is the first indication that they finally have. We hope that this string of recent decisions will continue in State Courts so that we can continue using the usury defense to defend small and medium sized businesses against predatory Merchant Cash Advance companies.
Justice Borrok made clear that the reconciliation provision that MCA companies were supposed to abide by was a complete sham. He states, “the predatory lenders either admit that mandatory reconciliation never occurred or invoke the Fifth Amendment privilege against self-incrimination.” This is exactly what we see in almost every single Merchant Cash lawsuit we defend.
It is an extremely rare circumstance in which an MCA company actually abides by the reconciliation provision and works with the business to alter their payments based on a change in their receivables. Instead, the MCA’s immediately initiate collection efforts which leads to litigation and ultimately to too many default judgments against businesses in our experience. Justice Borrok goes on to expose the goal of MCA companies, which is to get businesses to default. MCA’s make sure that borrowers falsely represent that their collateral is free and clear of all other lenders when this was false, and the lenders knew that. He goes on to state that: “there are no issues of fact that these loans were usurious, indeed in one case interest of over 3000% was charged.”
Justice Borrok also explained that the fees charged are not legitimate but simply criminally usurious. This is the argument we have been making to judges for years and we are hopeful that this will turn the tide moving forward against Merchant Cash Advances. In the meantime it is pertinent for businesses who are in default or are being sued by MCA companies to aggressively defend themselves and even countersue MCA’s when appropriate.