In a landmark decision, Yellowstone Capital, a merchant cash advance provider, agreed to a $1 billion settlement over allegations of predatory lending practices, affecting upwards of 18,000 small businesses nationwide.
Why It Matters
This is the largest consumer settlement ever achieved by the Office of the New York Attorney General (OAG), according to Attorney General Letitia James. It highlights the ongoing issues within the merchant cash advance industry, which has been criticized for its lack of transparency and fairness.
"Targeting small businesses with predatory loans and outrageous interest rates threatens the livelihoods of hardworking business owners and their employees," New York Attorney General Letitia James said in a press release.
What To Know
Twenty-five lending companies run by Yellowstone Capital and its executive officers were found by the New York attorney general's office to have engaged in illegal lending tactics—notably charging exceptionally high interest rates of up to 820 percent. That's more than 50 times the legal interest rate for loans in New York.
According to the settlement, Yellowstone used deceptive contracts to disguise merchant cash advances as flexible revenue purchases and took daily repayments from businesses' bank accounts over periods of 60 or 90 days. These payments bore no real relation to actual revenue, and despite promises of possible refunds, the terms ensured almost no business qualified.
These practices affected over 18,000 small businesses across the country and more than 1,100 businesses throughout New York.
Letitia James, New York's Attorney General, announced on Wednesday that the settlement includes just over a $1 billion judgment and delivers affected businesses over $534 million in debt relief and $16.1 million in restitution payments. It also imposes a permanent ban from the merchant cash advance industry on the companies and executive officers involved.
The lawsuit was first filed by James in March 2024 following an investigation by the Office of the Attorney General.
What People Are Saying
New York Attorney General Letitia James said in a press release: "Yellowstone and its executives lined their pockets at the expense of vulnerable small businesses who turned to them for help. Their predatory loans forced successful companies to close and put New Yorkers out of work. My office has put an end to these predatory loans and secured over $534 million in debt relief for businesses that were harmed, helping them stay open and continue to thrive as the engine of our economy[...]."
Kevin Thompson, founder and CEO of 9i Capital Group, told Newsweek: "...Bad actors exist in every industry, and this case represents justice for thousands of small businesses that were exploited by predatory lenders charging exorbitant interest rates. The broader impact depends on how you define 'long term.' With a new administration focused on stimulating economic growth, it's likely we will see deregulation in financial services, which could create an environment where similar lenders continue to operate with fewer restrictions."
What Happens Next
Under the settlement, the Yellowstone-run companies involved must "cease all attempts to collect on balances owed by businesses they lent to, discontinue pending actions to enforce them, vacate unsatisfied court judgments, and terminate some liens on small businesses' property."
Both the companies and officers are also permanently banned from the merchant cash advance industry, as mentioned previously.
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