Michigan Merchant Cash Advance Legal Help
Merchant cash advances can seem like quick and easy money for small business owners in Michigan. But they often come with predatory terms and sky-high interest rates that can sink a business. If you’ve taken out a merchant cash advance in Michigan and are struggling with crippling payments or aggressive collection tactics, you may need legal help.
Understanding Merchant Cash Advances in Michigan
A merchant cash advance (MCA) isn’t technically a loan under Michigan law. Instead, MCA companies purchase a portion of your future credit card sales at a steep discount in exchange for an upfront lump sum payment.For example, an MCA company may give you $10,000 upfront in exchange for $15,000 of your future sales paid back over several months. That works out to a 50% interest rate – far higher than even most credit cards.Unlike a small business loan, there’s no set repayment schedule with a merchant cash advance. The MCA company takes a fixed percentage of your daily credit card sales – typically 10-20% – until the full amount plus the purchase discount is repaid.
-Why Merchant Cash Advances Can Be Predatory
While merchant cash advances give business owners quick access to capital, they often come with predatory terms:
- Sky-high interest rates – MCAs often carry annual interest rates from 60% to as high as 400%. That’s vastly higher than even most credit cards.
- No borrowing limits – MCA companies will often lend far more than a business can reasonably pay back. Borrowers can end up owing 2-3X more than they received upfront.
- Aggressive collections – MCA companies can freeze or seize business bank accounts and credit card processing if payments fall behind. Some even threaten business owners with criminal charges.
Unlike payday and auto title loans, which are regulated in Michigan, merchant cash advances occupy a legal gray area with virtually no consumer protections.
Getting Legal Help with Predatory Merchant Cash Advances
If you’ve been victimized by a predatory merchant cash advance in Michigan, a consumer protection lawyer can help you understand your rights and potentially fight back. Here are some ways a lawyer can help:
- Review your merchant cash advance agreement for prohibited terms under Michigan usury laws or for elements of fraud or deception.
- Send formal demand letters asking the MCA company to modify or void the agreement.
- Defend against aggressive collection practices like bank account seizures or threats of criminal charges.
- Explore bankruptcy or debt settlement options to eliminate or reduce what you owe.
- Potentially sue the MCA company for violations of lending laws, fraud, or deceptive business practices. You may be able to recover damages plus attorneys fees.
Reputable consumer protection law firms like Avvo, LawInfo, and FindLaw can connect you with qualified lawyers in Michigan to review your merchant cash advance agreement at little or no upfront cost.
-Key Michigan Laws Governing Merchant Cash Advances
Merchant cash advances exist in a legal gray area in Michigan. But some laws still apply:
Usury Laws
Michigan caps interest rates on loans less than $100k at 25% under its usury statute. Rates above that are considered criminal usury.MCA companies skirt these laws because merchant cash advances are technically business-to-business sales contracts, not loans. But agreements with especially abusive rates above 100% may still be open to legal challenge.
Uniform Commercial Code (UCC) Financing Statements
MCA companies often have borrowers sign a UCC financing statement giving them a security interest in the business’s assets. This allows them to seize bank accounts or credit card receipts if the MCA isn’t repaid.While legal, these measures can sometimes cross the line into abusive debt collection tactics if certain consumer protections aren’t followed.
RICO Laws
The federal Racketeer Influenced and Corrupt Organizations (RICO) Act allows prosecutors to go after criminal enterprises. While not common, some MCA companies have faced RICO charges over systematic fraud or extortion tactics against borrowers.
If you believe an MCA company has engaged in an intentional pattern of fraudulent, abusive, or coercive behavior against multiple borrowers, reporting them to authorities for potential RICO violations may be an option. An attorney can advise you on the viability of a RICO claim.
-4 Defenses Against Predatory Merchant Cash Advances
If you’re facing aggressive collections over a merchant cash advance, here are some potential legal defenses to explore with an attorney:
1. Unconscionability
If an agreement is so one-sided and abusive that no reasonable person would consent to it, courts can rule it “unconscionable” and unenforceable. The absurdly high rates and aggressive tactics prevalent among merchant cash advance companies lend themselves to unconscionability claims.
2. Fraud and Misrepresentation
If an MCA company deceived you about repayment terms, failed to disclose key loan conditions, or induced you to accept loan terms you didn’t understand, that may constitute fraud in the inducement. Courts can void contracts signed under fraudulent pretenses.
-3. Usury Law Violations
As discussed above, merchant cash advances don’t technically qualify as “loans” under Michigan law. But agreements with especially abusive terms over 100% may still potentially be attacked as criminal usury.
4. Abusive Collections
Even if the underlying contract is valid, the MCA company still has to comply with consumer protection laws governing debt collection practices. Violations like harassing contacts, false threats, improperly freezing accounts, or failing to verify debts can invalidate their right to collect.
Finding the Right Lawyer for Help
Fighting back against abusive merchant cash advance tactics takes in-depth knowledge of consumer protection laws. An experienced lawyer can fully evaluate your agreement, advise you on any violations, and formulate the best legal strategies to resist collection efforts.Telltale signs of an experienced, reputable lawyer include:
- Specialization in consumer protection law – You want someone who focuses specifically on cases of predatory lending, debt harassment, and consumer fraud.
- Track record of results – Look for examples of previous cases the lawyer has fought against shady lenders and achieved favorable outcomes for clients.
- Upfront fee options – Many lawyers offer free or low-cost consultations and contingency fee arrangements for consumer protection cases. This makes services affordable even if your finances are tight.
- Responsive communication – You need an advocate who will answer questions promptly and keep you informed every step of the way.
Consumer protection attorneys have powerful tools to force merchant cash advance companies to cease abusive collection tactics and void or modify predatory contracts. With help from the right lawyer, you can escape the merchant cash advance debt trap and regain your financial freedom.