In the latest development in the controversial merchant cash advance business in New York, state Attorney General Letitia James recently announced that her office is suing one of the biggest players in the industry for fraud and usury. James accused Delta Bridge Funding, also known as Cloudfund and formerly called Yellowstone Capital, of defrauding business owners on the terms of their advances and charging them “sky-high” interest rates.
820 percent interest charged
According to Reuters, Yellowstone promised its clients that it could pay off advances over longer periods if they run into a slow business period. But instead of honoring that promise, Yellowstone made several fixed, rapid withdrawals from its clients’ bank accounts, often within a 60-90 day period, regardless of what the clients could afford, James said. This practice frequently resulted in effective interest rates of 100 percent or more, with at least one victim’s interest rate hitting 820 percent, according to the Reuters report. New York State law forbids interest rates on loans above 16 percent.
This is not Yellowstone/Delta Bridge’s first encounter with the law. In 2021, the merchant cash advance company settled accusations by the Federal Trade Commission that it defrauded clients and made unauthorized bank transactions. The company said it would pay $9.8 million in that settlement. It also settled similar claims filed by the New Jersey attorney general.
Forced out of business
The effect of being taken in by a dishonest MCA company can devastate a small business. James referred to a New York bakery that closed in 2019 after 29 years in business because of deep debts to Yellowstone and being unable to pay a surprise payment increase.
While a merchant cash advance can be a legitimate way for a small business to raise quick cash, the industry is largely unregulated and is rife with problems. If your business is struggling to repay an MCA, legal advice from an attorney who practices in this area can help you find a way out.