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In a lawsuit filed today<\/a>, New York Attorney General Letitia James is alleging that Yellowstone Capital and over 40 of its subsidiaries provided merchant cash advances to small businesses that in reality were fraudulent loans, with interest rates as high as 820% per year.<\/p>\n The state is seeking $1.4 billion in damages and to bar Yellowstone Capital, and founder David Glass, from the lending industry.<\/p>\n Merchant cash advances are already a controversial means<\/a> of providing short-term liquidity because, unlike a traditional loan, they\u2019re seen as advances<\/a> on future revenue. Lenders collect a percentage of paid sales plus an additional fee. The cash advances carry high rates and don\u2019t require good credit scores, which makes them especially appealing for small businesses in tight spots.<\/p>\n Among Yellowstone Capital\u2019s alleged victims is City Bakery, a Manhattan eatery that closed its doors in 2019 after 30 years<\/a> because it couldn\u2019t continue making daily payments of $2,000.<\/p>\n \u201cThe lenders falsely promised to \u2018reconcile\u2019 merchants\u2019 daily payments to ensure they never rose above an agreed-upon percentage of the borrowers\u2019 receipts, but the lenders used numerous fraudulent measures to ensure borrowers almost never qualified for payment refunds,\u201d the attorney general\u2019s office said in a statement.<\/p>\n Additionally, subsidiaries of Yellowstone Capital, which later changed its name to Delta Bridge, allegedly misused an obscure legal tool called \u201cconfessions of judgment\u201d to bypass court proceedings and take advantage of loan recipients. Businesses like City Bakery, which employed dozens of full-time workers at the time of its closing, signed these confessions<\/a> as part of receiving cash advances, inadvertently admitting to guilt before receiving the agreed-upon funds.<\/p>\n Although for years Yellowstone Capital used New York\u2019s and other court systems to collect high fees from businesses, the lender\u2019s luck began to change in 2020, when then-New Jersey Attorney General Gurbir S. Grewal sued Yellowstone Capital and its subsidiaries for predatory lending. The next year, the New York Office of Attorney General showed usury-style practices, and the company re-branded to Delta Bridge.\u00a0<\/p>\n In December, New Jersey Attorney General Matthew Platkin announced it had reached a $27.3 million settlement with the lender. Before filing the lawsuit on Tuesday, James also reached a $3.37 million settlement with some individuals involved in the scheme.<\/p>\n \u201cYellowstone Capital, Delta Bridge, and the other companies pretended to offer a helping hand, but instead provided only illegal, ultra-high-interest loans,\u201d James said in the statement. \u201cMy office will not allow any scheme to harm small businesses, their owners or employees, or the millions of New Yorkers who rely on them each and every day.\u201d<\/p>\n<\/div>\n\nSubscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n<\/div>\n