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Last Updated on: 12th September 2023, 12:45 am
Navigating Merchant Cash Advances in New York
Merchant cash advances have exploded in popularity as a way for small businesses to get quick financing when traditional loans aren’t an option. But some merchant cash advance companies take advantage of business owners through deceptive practices and absurdly high fees. If you took out a merchant cash advance in New York and are drowning in debt, here’s what you need to know.
How Do Merchant Cash Advances Work?
With a merchant cash advance, a financing company gives you an upfront lump sum of cash in exchange for a cut of your future credit card and debit card sales. You pay back the advance through daily or weekly payments until the total amount plus fees and interest is repaid.Unlike a small business loan, merchant cash advances aren’t treated as loans under New York law. This allows shady merchant cash advance companies to sidestep regulations that protect consumers from predatory lending.While merchant cash advances provide quick access to capital, the costs are often exorbitant. We’re talking interest rates exceeding 60% when all the fees are factored in. And if your business has a few slow weeks and struggles to make the payments, your balance can spiral out of control fast.
Common Problems New York Business Owners Face
Many New York business owners end up on the receiving end of lawsuits and harassment from merchant cash advance companies. Here are some of the most frequent issues:
- Crazy high interest rates and fees that seem criminal
- Aggressive collections tactics like threats and constant calls
- Lawsuits and even threats of criminal charges
- Harassing you, your staff, and even your customers
- Trying to freeze your bank accounts or garnish wages
- Accusing you of fraud
Most disturbing is that some merchant cash advance companies pursue false or inflated claims or break laws like usury caps on interest rates.
New York Laws on Interest Rates and Predatory Lending
There are a few New York laws that regulate interest rates and lending practices:
- New York General Obligations Law §5-501 – Sets caps on interest rates for criminal usury (25%) and civil usury (16%).
- New York Banking Law §340 – Prohibits non-banks from lending at over 16% interest.
- New York General Business Law §349 – Bans deceptive business practices.
- Federal Truth in Lending Act – Requires lenders to disclose terms and total cost.
While merchant cash advance companies claim they aren’t lenders, New York courts have ruled in some cases that their practices are actually illegal lending. A good merchant cash advance lawyer can help you determine if a company violated these laws.
Fighting Back Against Abusive Merchant Cash Advances
If you’re facing a lawsuit from a merchant cash advance company, here are some of the defenses a skilled lawyer may use:
- The interest rates and fees are above New York’s limits
- The company used illegal or deceptive practices
- The contract contains unfair terms that should make it void
- The company failed to follow disclosure laws
- The contract violates New York’s ban on confession of judgment clauses
- The company wrongly tried to garnish protected accounts or assets
In some cases, violations open the merchant cash advance company up to liability. Your lawyer could potentially file a counterclaim or separate lawsuit against them.
Negotiating a Settlement for Relief
Instead of a lengthy court battle, your lawyer may be able to negotiate a settlement for relief from the debt. This involves leveraging your legal claims as negotiating power. For example, your lawyer could potentially negotiate:
- A lower payoff amount
- Reduced monthly payments
- Lower interest rates or fees
- Waiving late fees and penalties
- A longer repayment term
Settling avoids the risk and stress of litigation and provides immediate financial relief.
Using Bankruptcy to Eliminate Merchant Cash Advance Debt
For small business owners facing severe hardship, bankruptcy may be an option to discharge unmanageable merchant cash advance debt. Chapter 7 or Chapter 11 bankruptcy stops collections and can eliminate or restructure debts.Of course, bankruptcy damages your business’s credit and reputation. A lawyer knowledgeable in both merchant cash advances and bankruptcy can advise you on the best path forward.
Finding the Right Attorney
If you’re buried in merchant cash advance debt, it’s crucial to find an attorney with specific experience fighting these companies. Warning signs of an attorney to avoid include:
- No experience with merchant cash advance cases
- Can’t discuss strategies and defenses
- Pushes you to settle right away
- Makes unrealistic promises
Don’t go it alone against predatory merchant cash advance companies. An experienced attorney levels the playing field and fights to protect your rights. There are ways out of the debt spiral – you just need the right legal guidance.