The New York Attorney General has secured a $1.065 billion judgment against Yellowstone Capital, a business funding company accused of exploitative lending practices. The case represents a landmark effort to protect entrepreneurs from predatory financing schemes.
Key Points of the Judgment
Debt Forgiveness:
Over $534.5 million in debt will be canceled for more than 18,000 small businesses nationwide.
Small businesses in New York alone will see $36 million in relief, benefiting over 1,100 merchants.
Financial Penalties:
Yellowstone Capital and its officers must pay $16.1 million in penalties.
An additional $514.3 million in liabilities remains to be addressed.
Ongoing Legal Actions:
Litigation continues against the company’s successors, Delta Bridge Funding and Cloudfund, as well as its co-founder, David Glass.
Uncovering Deceptive Practices
Yellowstone Capital was found to have misrepresented their merchant cash advance agreements. Claiming to purchase future revenue streams, the company instead imposed fixed repayment terms. This practice resulted in effective interest rates as high as 820%, far exceeding New York’s legal usury limit of 16%.
Wider Implications
This judgment is part of a broader initiative to combat unfair lending practices. Similar actions in New Jersey resulted in a $5.6 million settlement and $21.8 million in debt forgiveness last year.
Message Sent
The outcome of this case underscores the need for vigilance in the small business lending market. Regulators are increasingly focused on holding lenders (funders) accountable for exploitative behavior, ensuring a fairer financial landscape for entrepreneurs.
This decision sends a clear message: predatory practices targeting small businesses will not go unchecked.
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