The conclusion of one of the more well-known lawsuits affecting the MCA industry happened with a settlement on Tuesday. It was announced by the NJ Attorney General's office that they reached a settlement with Yellowstone Capital LLC and related entities “to resolve allegations that the companies targeted small businesses with unconscionable, misleading, and abusive lending, servicing, and collection tactics that caused financial harm through their merchant cash advance (“MCA”) business.”
All New Jersey consumers who entered into MCA agreements with these companies will have their balances forgiven for a total amount of $21.75 million dollars as part of the settlement. The remaining $5.625 million will be granted to the Division of Consumer Affairs for expenses, civil penalties, legal fees, and reimbursement to some New Jersey customers.
Yellowstone has since rebranded a couple of times, currently named Delta Bridge, with supposedly improved business practices and operations. The settlement names a few things they must do including:
“Provide current customers with enhanced rights to request modifications to their payment terms based on actual receivables;
Improve internal business practices, be transparent in any terms of future MCA agreements regarding fees and reconciliation rights, and give notice to customers before taking legal action to collect on purported unpaid balances.”
The ability for customers to request modifications to their payment terms is one of the most critical for any funder to not only have in their contracts but to actually carry out with the customer when it comes time.
Among the reasons why there are more regulations recently enacted and others in the pipeline are lawsuits like this one.
This was the second of 2 major lawsuits against Yellowstone Capital in recent years from government agencies, the other one was from the FTC which was settled in June 2022 for $9.8 million dollars.
We can only hope they and every other Funder have learned from this and adapted to the current legal landscape and business practices that won’t get them into hot water.
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