Winning Against Predatory Lending
How Our Firm Successfully Opposed a Motion for Summary Judgment:
In today’s business landscape, many small companies face significant financial challenges, particularly when it comes to securing necessary capital. This financial pressure has given rise to Merchant Cash Advances (MCAs), which are often marketed as quick liquidity solutions for businesses in need. However, not all MCAs are what they appear to be, and some, as our recent case demonstrates, cross the line into predatory lending.
Our firm recently represented a client in opposing a motion for summary judgment filed by RDM Capital Funding, LLC, which sought to enforce an MCA agreement that we argued was, in reality, an unlawful and usurious loan. We are pleased to announce that the court sided with our client, denying the plaintiff’s motion. This victory not only protected our client but also set an important precedent in combatting unfair financial practices targeting small businesses.
Understanding the Case
At the heart of this case was the distinction between a Merchant Cash Advance and a traditional loan. While MCAs are structured as forward contracts—where a business sells a portion of its future receivables in exchange for an upfront payment—many MCA agreements blur the line and act more like loans, often at exorbitant interest rates that would otherwise be illegal.
The plaintiff, RDM Capital Funding, LLC, sought to enforce an MCA agreement against our client, claiming that the business had breached the terms by failing to make weekly payments. However, we argued that this agreement was not a true purchase of receivables but rather a disguised loan with a usurious interest rate, which violated New York’s strict lending laws.
Key Legal Arguments
In opposing the motion for summary judgment, we presented three main arguments:
Breach of Agreement by the Plaintiff: We demonstrated that the plaintiff itself had breached the contract by ignoring our client’s multiple requests for reconciliation, as allowed under the terms of the agreement. When our client experienced a significant decline in revenue, the agreement permitted adjustments to the weekly payments. Despite our client’s compliance with these provisions, the plaintiff refused to engage in reconciliation, effectively nullifying their claim of breach.
Reconciliation Requests Ignored: Our client made several good-faith efforts to request reconciliation, as the contract allowed, but the plaintiff disregarded these requests. This was a clear violation of the agreement and further evidence that the plaintiff was attempting to enforce terms more typical of a traditional loan rather than a contingent purchase of future receivables.
The Agreement as a Usurious Loan: Most crucially, we successfully argued that the agreement was, in fact, a loan with a criminally usurious interest rate. While the plaintiff framed the transaction as an MCA, the fixed repayment amounts, lack of true reconciliation, and the interest rate exceeding 25% demonstrated that the agreement functioned as a loan under New York law. Usury laws in New York strictly prohibit interest rates above 25%, and any loan with such terms is considered void and unenforceable.
Why This Matters
This case is significant for both legal professionals and business owners. For attorneys, it reinforces the importance of scrutinizing MCA agreements to ensure they don’t violate usury laws. For business owners, particularly those struggling with cash flow, it serves as a warning that not all financial solutions are what they seem. Many MCA companies operate in a legal gray area, and it’s essential to seek legal advice before entering into such agreements.
Our Firm’s Role
Our firm prides itself on protecting clients from deceptive practices and fighting for fairness in the courtroom. In this case, we carefully dissected the agreement, highlighting the inconsistencies and illegalities that worked against our client. By staying vigilant and deeply understanding the nuances of MCA agreements, we were able to secure a favorable outcome.
If you believe your business has been targeted by unfair lending practices, or if you’re facing a motion for summary judgment, contact us today. Our team is here to provide the expertise and advocacy you need to protect your rights."