ARE MERCHANT CASH ADVANCES PREDATORY?
“Delancey Street saves a business owner over $400,000 in MCA debt”
AS SEEN ON major media outlets, Delancey Street is a TOP TIER BUSINESS DEBT RELIEF COMPANY, which offers a money back guarantee for our debt relief services. We’ve helped 100’s of business owners who’ve been overwhelmed by merchant cash advances. Regardless of your situation… Regardless of the type of MCA… Regardless of how dire it may feel… we can help you get out of the MCA debt you’re in. If you’re stuck in a predatory merchant cash advance, you have options.
What Is a Merchant Cash Advance and Why the Controversy?
A merchant cash advance, or MCA, is not a traditional small business loan. Instead, it’s an advance on your future credit card sales – and that’s why they can charge you more. You get funds upfront, and in exchange, the MCA provider deducts a percentage of your daily or weekly credit card transactions until the balance plus hefty fees is fully repaid.
Many MCA lenders often adertise QUICK FUNDING and FLEXIBLE TERMS. But if you look closer, you’ll find that the total cost can be high – with rates reaching over 200% APR. According to the Federal Trade Commission (FTC) – which is constantly looking at unfair, deceptive, or abusive practices – MCAs often end up having effective APRs which surpass traditional financing options. This is why some attorneys, regulators, and business owners label them as potentially predatory.
KEY POINTS TO CONSIDER
- Factor Rates: Unlike a normal loan with simple interest, MCAs rely on a factor rate (e.g., 1.3, 1.4, etc.). A $100,000 MCA with a factor rate of 1.4 might require $140,000 in repayment, translating to an extremely high APR. The MCA factor rate can make it sound like the cost of the money is low.
- Daily Repayments: MCAs take payments daily or weekly, which can harm your cash flow if your revenue isn’t consistent.
- Confession of Judgment: Many MCA agreements include a COJ provision, which allowing the lender to get a judgment against your business (and potentially you personally) without a trial if you fall behind.
- Stacking and Debt Spirals: Many business owners will often take multiple MCAs, leading to a lethal cycle of daily withdrawals and never-ending fees.
- Potential Hidden Fees: Origination charges, administrative fees, and penalties can balloon your final payoff.
Understanding the Legal Landscape
Are MCAs subject to usury laws? It depends. Some states have started taking actions against MCA providers by reclassifying these agreements as loans which could be subject to interest caps. If the courts decide an MCA is really a disguised loan, then the criminal usury threshold (25% APR in many states, like New York) might apply. In these instances, MCA providers can face fines, civil liabilities, or even criminal charges.
At a federal level, the Consumer Financial Protection Bureau (CFPB) has started looking at certain small-business financing products, which may include merchant cash advances. If the CFPB or other federal agencies find these agreements predatory, the lenders who gave the MCA might face injunctions, restitution orders, and penalties for unfair or deceptive acts.
Possible Penalties
- Regulatory Fines: The FTC, CFPB, and state agencies can impose fines for misleading disclosures or predatory terms.
- Cease and Desist Orders From Courts: Regulators can stop MCA providers from further lending activities if they’re scams.
- Private Lawsuits: Business owners will file lawsuits for usury, breach of contract, fraud, or deceptive practices.
- Loss of Licenses or Registration: Some states in the USA require MCA providers to register or license their business; these can be revoked upon violations.
DEFENSE STRATEGIES FOR BUSINESS OWNERS
- Challenging the Agreement as a Loan: We will argue the MCA is effectively a high-interest loan (rather than a true sale of receivables), you can invoke state usury laws.
- Exposing Unconscionable Terms: If the MCA that was provided ncludes excessive fees or harsh legal caluses (like immediate confession of judgment), you might claim the contract is unconscionable.
- Asserting Deceptive Marketing or Fraud: If the MCA provider made misleading promises – or failed to properly disclose factor rates – you could argue fraudulent inducement.
- Negotiation or Restructuring: Many MCAs are open to settlement, modification, or consolidation, especially when confronted by an experienced legal or debt relief team.
At Delancey Street, we focus on all types of unsecured business debt relief. OUR TEAM is EXPERIENCED in merchant cash advance negotiations, and we understand how to confront these agreements head-on.
Stream of Consciousness: Dismantling the MCA Industry?
The MCA industry is probably going to face new regulations which might drastically alter its future. One day, a major legislative push could reclassify MCAs as standard lending products, subject to uniform interest caps. Or, the courts might continue to strike down extreme factor rates as usurious, forcing providers to comply with the same rules as traditional lenders. The result could be a massive legal change, placing even the biggest MCA providers under scrutiny and shutting down the predatory ones altogether.
While no one knows exactly how it’ll unfold, business owners should remain vigilant. If the industry is dismantled or tightly regulated, the providers who thrive will be those which practice ethical lending, with transparent terms – potentially leading to a fairer marketplace for entrepreneurs in need of capital.
How We Defend You at Delancey Street
WE FIGHT. WE PROTECT. WE WIN. That’s the approach we bring to business debt relief. Our debt relief strategies include:
- Immediate Negotiation: We speak directly to the MCA provider and challenge unfair terms.
- Legal Team Involvement: Our sister law firm can file motions to stop judgments, defend against lawsuits, or even sue if lenders cross legal boundaries.
- Evidence Gathering: We scrutinize the MCA contract, your cash flow statements, and every single detail possible to expose any usury or deceptive practices.
- Restructuring Plans: We push to restructure your settlement plans, reduce the total owed, and protect your personal and business assets.
- Money Back Guarantee: We know we’re good at what we do. Because of that, Delancey Street offers a money back guarantee for our debt relief services. We’re one of the few to do this. You can trust in our ability to help you place your business in a better spot.
REALITY CHECK
Regardless of whether you call it a loan, an advance, or a receivables sale, the bottom line is your business might be struggling under daily payments. Delancey Street helps you find a real solution, so you can focus on growing your business – not drowning in constant fees and phone calls from MCA providers. We all know those MCA providers are ruthless, and they’ll call you at all hours to get their money back. They will do everything possible to get their money back, even show up to your place of business.
GET INFORMED
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TAKE THE NEXT STEP
If you’re facing crushing debt from MCAs or any other unsecured business debts, WE CAN HELP YOU. Delancey Street is here 24/7 to offer a free consultation. Regardless of your location. Regardless of the stage of your debt issues. Regardless of how many stacked MCAs you have. We’re dedicated to delivering fast relief with no hidden agenda.
Our proven track record:
- Over 80% of our clients enter into a monthly payment plan
- Over 80% get 1-3 additional years added to their term
- Over 80% see a reduction in their overall balance