N.Y. sues over 40 ‘illegal’ lenders

ALBANY — The state attorney general’s office has filed a lawsuit against more than 40 companies and individuals alleging they exploited small businesses through fraudulent loans with high interest rates.

The lawsuit, filed in state Supreme Court in Albany, claims that Yellowstone Capital and Delta Bridge Funding, along with subsidiary companies and individuals involved in the loan operation, disguised their loans as merchant cash advances, which provide companies with money in exchange for future portions of their sales.

Merchant cash advances, which bring in high-interest funding, have grown in popularity for small businesses that cannot secure traditional funding.

The attorney general’s office said the lenders provided small businesses with contracts that described transactions as purchases of portions of a business’ future revenues, with flexible payment amounts and open-ended terms.

The lawsuit also alleges that the lenders collected fixed amounts daily from small businesses’ bank accounts over 60or 90-day repayment periods. While the lenders told businesses that they would refund portions of daily payments to not collect more than an agreed-upon percentage of revenue, the attorney general’s office claims that the lenders “used numerous fraudulent measures to ensure borrowers almost never qualified for payment refunds.”

The lawsuit claims that the transactions marketed as merchant cash advances were in reality short-term loans with interest rates reaching up to 820 percent per year.

“Yellowstone Capital, Delta Bridge and the other companies pretended to offer a helping hand, but instead provided only illegal, ultra-high-interest loans,” Attorney General Letitia James said in a statement. “Numerous small business owners struggled because of the outrageous loans issued by Yellowstone Capital and other predatory lenders.”

James’ office is seeking the return of $1.4 billion from the lenders — money that was collected from small businesses through interest and fees — as well as an order requiring them to cease operations, including a lifetime industry ban for Yellowstone Capital founder David Glass.

Prior to the lawsuit, five individuals involved in the operation settled for $3.37 million and were banned from participating