Although New York is still the most common venue for Merchant Cash Advance lawsuits, we have seen an increase of these lawsuits filed in other states. Texas, Virginia, Florida, Arizona, California and Utah are some of the other venues that we have seen MCA cases filed in. Utah is one venue in particular that we have seen a significant rise in volume. We aren’t exactly sure why these MCA creditors have picked states like Utah, but we can guess that it is likely due to a belief that some of these more conservative states would have less regulation against these creditors and case law that favors creditors and MCA lenders against small business. Another significant reason may be the shifting case law in New York which has seen both the Federal courts and more recently the State courts rule against MCA lenders. Primarily, these courts have consistently ruled that the MCA lenders involved in these matters engaged in Usurious loan practices with interest rates significantly higher than any state usury cap. These decisions were a significant contrast from previous years of legal opinions in New York, confirming that these were in fact loans that they were issuing instead of the so called “purchase of future receivables” that the MCA companies had created to maneuver around usury laws in New York and other states.
Utah does not seem to have the sort of extensive case law that New York does and certainly has not had these more recent type of opinions issued which may be why it has become a more favorable venue for MCA lenders. Common MCA lenders that we have observed filing lawsuits in Utah include ODK Capital, better known as OnDeck Capital which is one of the largest MCA lenders in the country, represented by Aubrey Thrasher, a collection law firm based in Georgia, and Torro Business Funding, represented by Russell Weekes Esq., of Weekes Law.
When faced with an MCA lawsuit or default judgment it is important for a small business and for personal guarantors to defend themselves against these Merchant Cash Advance lenders. Preventing a default judgment by answering a lawsuit and asserting affirmative defenses remains the most important step. This provides leverage and keeps the burden on MCA’s like ODK Capital, Torro and others to prove their case in court instead of on default. Likewise, moving to vacate a default judgment as quickly as possible is key in preventing levies and liens against a business or against personal assets. Our experience has shown that most of the MCA lenders involved in litigation are interested in negotiating an out of court settlement that will usually reduce the amount of the cash advance and can establish a monthly installment arrangement over time that is interest free. This is significantly different from the usual daily or weekly payments that businesses are used to paying MCA’s along with the excessive interest that was being added on to significantly inflate the amount owed to the Merchant Cash Advance companies. Small businesses must aggressively defend themselves in Merchant Cash Advance lawsuits in Utah and other states until their case law catches up to New York’s laws or until they better regulate the industry.