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Merchant Cash Advance Litigation: Protecting Your Business Interests

You poured your life into building your business. The sleepless nights, the grueling work, the mountains of stress – it was all worth fighting for your dream. But now, you face a threat that could bring everything crashing down: merchant cash advance litigation.

It’s a scenario nobody wants to imagine, but one that far too many entrepreneurs find themselves trapped in. So, what do you do, if you get hit – with one of these things?

What is a Merchant Cash Advance?

Before we dive into the legal battlefield, let’s start with a basic overview: a merchant cash advance (MCA) is a type of financing where companies purchase a portion of your future receivables – at a discount.

On the surface, it sounds simple enough, right? You get an upfront sum, the funder gets a cut of your sales until the advance, plus fees, is paid back.

But here’s the harsh reality: MCAs are largely unregulated in most states. Funding companies can, and frequently do, hit businesses with outrageous interest rates – sometimes reaching triple digits when you account for factor rates and renewal policies.

To make matters worse, the MCA contracts are often structured to heavily favor the funders’ interests. Miss too many payments? They could potentially seize your assets or shut down operations entirely.

The Boom in MCA Litigation

Given the predatory nature of some merchant cash advance deals, it’s no surprise that a wave of litigation has followed. Every week, small businesses across the nation are filing lawsuits to:

  • Seek relief from usurious interest rates and fees
  • Challenge unfair contractual terms and deceptive business practices
  • Protect their assets from seizure by aggressive funders
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At the same time, funding companies are aggressively countersuing to enforce the draconian “confessions of judgment” that many MCA contracts contain.

The result? An outright war is raging in courtrooms nationwide over the future of alternative business lending.

Potential Legal Strategies and Claims

If you find yourself entangled in MCA litigation, either as a plaintiff or defendant, your legal team may explore various avenues, including:

Usury Laws

In some states, the effective interest rates on merchant cash advances could potentially be deemed usurious and invalid under state usury laws. Of course, the applicability depends on numerous factors:

  • How the specific MCA deal was structured and priced
  • The state’s definition of “interest” and “loan”
  • Any statutory exemptions for commercial transactions

Truth in Lending Act (TILA) Claims

Aggressive MCA funders may have violated federal TILA disclosure requirements if the deal was not properly characterized as a loan. In that scenario, you could potentially:

  • Seek rescission of the agreement and reimbursement of fees
  • Recoup statutory damages for the failure to make required disclosures

State Deceptive Practices Acts

If the funding company engaged in deception, you may have claims under your state’s deceptive trade practices or consumer protection statutes.

Did they misrepresent the financing terms, employ bait-and-switch tactics, or fail to disclose conflicts of interest? Those practices could open the door to damages awards.

Contractual Defenses

Don’t discount good old-fashioned contractual defenses either:

  • Was the agreement legally valid at inception, given mutual assent, consideration, and the absence of fraud?
  • Could an aggressive factor rate, high fees, and unfavorable terms potentially render the MCA unconscionable?
  • Were any misrepresentations or deceptive acts so egregious as to justify rescission of the deal?
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Even if the core agreement passes legal muster, the funding company’s post-default conduct could potentially violate the implied covenant of good faith and fair dealing.

Crafting a Robust Defense: What to Do

If an MCA conflict erupts into all-out litigation, there’s no single right answer. Every case is unique. The optimal defense strategy depends on the jurisdiction, the specific contractual provisions, the behavior of the funder, and more.

To give your business the best chance of prevailing, start here:

  1. Act decisively at the first signs of trouble: Don’t ignore ominous letters or aggressive collection tactics. At the very first warning sign, immediately consult an attorney with deep MCA litigation experience.
  2. Safeguard critical records and communications: Establish a detailed paper trail regarding your dealings with the MCA company. Every phone call, every letter, every document related to the application, closing, and performance of the deal is now potential evidence.
  3. Prioritize damage mitigation: Litigation can be ferociously expensive. To avoid bleeding cash on legal fees, make every effort to negotiate in good faith. Perhaps there’s a compromise to resolve the dispute amicably.

Should the case proceed to litigation, you’ll then need a multi-faceted attack plan built around the defenses and claims that apply to your specific factual scenario.

One Unchanging Principle

Amidst this complex, rapidly evolving legal landscape, one principle never changes: businesses deserve fairness. You worked tirelessly to build something from nothing. When predatory lenders jeopardize your dream with deceptive tactics or flagrantly unlawful terms, the law is meant to protect you.

No one should have to surrender to funding at any cost. Not you, not ever.

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If the battlefield calls, stand ready to defend your rights and your livelihood. With diligent preparation and an aggressive litigation posture, you can absolutely prevail – no matter how daunting the circumstances.

It’s not just about this single dispute. It’s about pushing back against any and every attempt to tilt the system against honest businesses. With principled advocacy, we can demand a fair lending market for all.

Does it take tremendous resolve? Absolutely. Is preserving your legacy and shaping a just future worth the fight?

You already answered that question, sleepless night after sleepless night, with every ounce of blood, sweat, and tears you poured into making your vision a reality.

So never give up that dream. Dig in, stand firm, and let’s show the world that integrity, justice, and the sanctity of fair business dealings will not be denied.

Not on our watch.

Delancey Street is here for you

Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

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