Oklahoma Merchant Cash Advance Defense Lawyers: Protecting Your Business from Predatory Lending
As a small business owner in Oklahoma, you’ve likely faced financial challenges that led you to consider alternative funding options. One such option that’s gained popularity in recent years is the merchant cash advance (MCA). While MCAs can provide quick access to capital, they often come with hidden risks and exorbitant costs that can jeopardize your business’s financial health. At Delancey Street, we understand the complexities of MCAs and are here to help you navigate these treacherous waters.
Understanding Merchant Cash Advances in Oklahoma
Merchant cash advances have become increasingly prevalent in Oklahoma’s small business landscape, particularly since the 2008 financial crisis when traditional bank loans became harder to obtain. An MCA is marketed as a purchase of future receivables rather than a loan, which allows providers to sidestep usury laws and charge extremely high effective interest rates.
Here’s how a typical MCA works:
- A business receives an upfront lump sum payment.
- In exchange, the business agrees to repay a fixed percentage of daily credit card sales.
- Repayments are automatically deducted from the business’s bank account until the advance is repaid in full.
While MCAs can provide quick access to capital, they often come with astronomical costs. It’s not uncommon for the effective annual percentage rate (APR) of an MCA to exceed 100% or even 200% when all fees are factored in.
The Legal Landscape in Oklahoma
Oklahoma, like many states, lacks specific regulations governing merchant cash advances. This regulatory gap has created a Wild West scenario where MCA providers can operate with minimal oversight. However, this doesn’t mean that businesses are completely without protection.
In the case of Womack v. Capital Stack, LLC, the court grappled with the question of whether an MCA agreement constituted a usurious loan or a legitimate purchase of future receivables. While the court ultimately sided with the MCA provider in this instance, the case highlights the potential for legal challenges based on usury laws and deceptive trade practices.
IMPORTANT: If you’re considering an MCA or struggling with an existing advance, it’s crucial to consult with an experienced attorney who understands the nuances of these agreements and can protect your rights.
The Pros and Cons of Merchant Cash Advances
Like any financial product, MCAs have their advantages and disadvantages. Let’s break them down:
Pros:
- Quick Access to Capital: MCAs can provide funds in as little as 24-48 hours.
- No Collateral Required: Unlike traditional loans, MCAs don’t typically require collateral.
- Flexible Repayment: Payments are based on a percentage of sales, which can be beneficial during slow periods.
Cons:
- Extremely High Costs: The effective APR of an MCA can be astronomical, often exceeding 100%.
- Daily Repayments: Automatic daily deductions can strain cash flow.
- Confusing Terms: MCA agreements are often complex and difficult to understand.
- Potential for Debt Traps: The high costs can lead businesses to take out multiple advances, creating a cycle of debt.
Red Flags to Watch Out For
When considering an MCA, be on the lookout for these warning signs:
- Pressure to Sign Quickly: Reputable lenders will give you time to review the agreement thoroughly.
- Lack of Clear Terms: If the provider can’t or won’t explain all terms clearly, walk away.
- Hidden Fees: Look for origination fees, maintenance fees, or early repayment penalties.
- Confessions of Judgment: These clauses can allow the MCA provider to obtain a judgment against you without going to court.
REMEMBER: If something seems too good to be true, it probably is. Don’t let desperation cloud your judgment when considering an MCA.
How We Can Help
At Delancey Street, we’ve seen firsthand the devastation that predatory MCAs can wreak on small businesses. Our team of experienced attorneys is dedicated to helping Oklahoma businesses fight back against unfair and deceptive MCA practices. Here’s how we can assist you:
- Contract Review: We’ll thoroughly examine your MCA agreement to identify any unfair or potentially illegal terms.
- Negotiation: If you’re struggling with repayments, we can negotiate with the MCA provider on your behalf to seek more favorable terms.
- Legal Defense: If you’re facing legal action from an MCA provider, we’ll mount a robust defense to protect your rights and assets.
- Debt Relief Strategies: We can help you explore options for debt relief, including potential bankruptcy protection if necessary.
DON’T WAIT: The sooner you seek legal help, the more options you’ll have. Contact us today for a free consultation to discuss your MCA concerns.
Legal Strategies for MCA Defense
When it comes to defending against predatory MCA practices, there are several legal strategies we can employ:
1. Challenging the Agreement’s Characterization
One of the primary defenses against MCAs is to argue that the agreement is actually a loan disguised as a purchase of future receivables. If successful, this argument could subject the agreement to usury laws, potentially voiding the contract or reducing the amount owed.
In the case of K9Bytes, Inc. v. Arch Capital Funding, LLC, 56 Misc. 3d 807 (N.Y. Sup. Ct. 2017), the court provided guidance on factors to consider when determining whether an MCA agreement is a true purchase of future receivables or a loan. These factors include:
- The presence of a reconciliation provision
- Whether there’s a finite term for repayment
- Whether there’s a fixed daily payment amount
2. Asserting Violations of State Consumer Protection Laws
While Oklahoma doesn’t have specific MCA regulations, the state’s Consumer Protection Act (Okla. Stat. tit. 15, § 751 et seq.) prohibits deceptive and unfair business practices. We can potentially argue that certain MCA practices violate this law.
3. Challenging Confessions of Judgment
Many MCA agreements include confession of judgment clauses, which allow the provider to obtain a judgment without going to court. These clauses are increasingly being scrutinized by courts and regulators. In New York, for example, a new law prohibits the use of confessions of judgment against out-of-state debtors (N.Y. C.P.L.R. 3218).
4. Exploring Bankruptcy Options
In some cases, filing for bankruptcy may be the best option to deal with overwhelming MCA debt. Chapter 11 bankruptcy, in particular, can provide an opportunity to restructure debts and potentially reclassify MCA agreements as loans.
IMPORTANT: Each case is unique, and the best legal strategy will depend on the specific circumstances of your situation. Our experienced attorneys will work closely with you to develop a tailored approach to your MCA defense.
Case Study: Successful MCA Defense
To illustrate how these strategies can work in practice, let’s look at a hypothetical case study based on our experience:
John’s Auto Repair, a small business in Oklahoma City, took out an MCA for $100,000 with a factor rate of 1.4, meaning they would need to repay $140,000. The daily payments were quickly draining the business’s cash flow, and John was struggling to keep up with other expenses.
After consulting with our firm, we identified several issues with the MCA agreement:
- The effective APR was over 200% when all fees were factored in.
- The agreement included a confession of judgment clause.
- The reconciliation provision was essentially meaningless, as it required the business to be in default before it could be invoked.
We initiated negotiations with the MCA provider, arguing that the agreement was effectively a loan and thus subject to usury laws. We also highlighted potential violations of Oklahoma’s Consumer Protection Act.
Faced with the prospect of litigation, the MCA provider agreed to restructure the agreement, reducing the total repayment amount and extending the repayment term. This allowed John’s Auto Repair to stabilize its cash flow and eventually repay the advance without further financial distress.
REMEMBER: While not every case will have this outcome, having experienced legal representation can significantly improve your chances of a favorable resolution.
Protecting Your Business from Predatory MCAs
Prevention is always better than cure. Here are some steps you can take to protect your business from predatory MCAs:
- Explore All Options: Before considering an MCA, exhaust all traditional financing options, including SBA loans and lines of credit.
- Read the Fine Print: If you do consider an MCA, read the entire agreement carefully. Don’t hesitate to ask questions about any terms you don’t understand.
- Calculate the True Cost: Use our MCA calculator to determine the effective APR of any advance you’re considering.
- Seek Legal Advice: Have an experienced attorney review any MCA agreement before you sign.
- Watch for Red Flags: Be wary of providers who use high-pressure sales tactics or make promises that seem too good to be true.
PRO TIP: Keep detailed records of all communications with MCA providers. This documentation can be crucial if you need to challenge the agreement later.
The Future of MCA Regulation in Oklahoma
While Oklahoma currently lacks specific MCA regulations, there’s growing awareness of the need for oversight in this industry. Several states, including New York and California, have enacted or proposed laws to regulate MCAs, and it’s possible that Oklahoma may follow suit in the future.
Until then, it’s crucial for businesses to be aware of their rights and the potential pitfalls of MCAs. At Delancey Street, we’re committed to staying at the forefront of this evolving legal landscape to provide the best possible defense for our clients.
Conclusion: Don’t Face MCA Challenges Alone
Merchant cash advances can be a minefield for small businesses, particularly in a state like Oklahoma where specific regulations are lacking. If you’re considering an MCA or struggling with an existing advance, don’t go it alone. Our team at Delancey Street has the experience and expertise to guide you through these complex issues and fight for your rights.
TAKE ACTION NOW: Contact us today for a free consultation. Let us help you protect your business and secure your financial future.
Remember, when it comes to MCAs, knowledge is power. Stay informed, be cautious, and don’t hesitate to seek professional help when you need it. Your business’s future may depend on it.