The Predatory Lending Machine Crushing Small Business Across America

Deperate people with poor judgment are always subject to being scammed. Sad to see, but it happens.

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Very long article worth reading. Incredible how corrupt our court system is in conjunction with unsavory businesses.

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My favorite part is the government employee who gets 5% of the funds and made $1.7M last year off of these scams. Seems legit - way to go New York.

It would also not be possible without a desperate borrower. Never trust a large bureaucracy to protect you from your mistakes, they just don't know you well enough even if they were inclined to try.

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It would also not be possible without a desperate borrower. Never trust a large bureaucracy to protect you from your mistakes, they just don't know you well enough even if they were inclined to try.

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I don’t expect the large bureaucracy to protect them from a scam. I do expect them to not facilitate it though. That’s the problem. The scam wouldn’t be much of a scam without the government in this case.

Besides there is a big difference between a desperate person borrowing money at a high rate and not being able to pay it back than what is happening here.

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Besides there is a big difference between a desperate person borrowing money at a high rate and not being able to pay it back than what is happening here.

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Not really. It's a very thin line.

For those of you wanting an explanation of the issue without reading the article:

The article is about merchant cash advances, which, according to government, are different from loans and therefore not under the same scrutiny as conventional loans. See this LINK from May 2017; a federal judge in New York (you'll see why I bolded this in a bit) along with the New York State Supreme Court decided that merchant cash advances are actually purchased claims of the borrowing business's future revenue.

MCA existed before the financial crisis but expanded during the crisis when banks stopped lending and after when banks established stricter lending requirements. MCA companies "lend" (but not according to NY) at interest rates that can be several hundred percent. Payments are made daily or weekly. To make sure they get their money, MCA companies have borrowers sign a confession of judgment which states that if the lender goes to court over the agreement, the borrower always loses; a judge doesn't even have to be involved, just a clerk. Confessions of judgment have been banned in some US states, and the feds made them illegal for consumer loans. The state of New York allows them for business loans though.

Well, the MCA companies weren't content with 300%+ interest rates and daily payments, so some, if not all, have taken it a step further and are using the confessions of judgment to get more money faster. The lender will claim that the borrower missed a payment (even if that isn't true), sends the confession to certain county clerks in New York that are friendly to the MCA companies' actions, and the clerk rubber-stamps a judgment. Then the lender goes to the New York City Marshals, who can demand the money from out-of-state borrowers so long as the borrower's bank has an office in the city, and the bank hands over everything that would've been owed to the lender plus extra fees. The NYC marshal get a 5% fee for all money recovered. The marshal listed in the article cleared $1.7 million after expenses last year. NYC gets a small percent of the marshal's money, the bank gets a processing fee, the county clerk's office gets $40, and the NY state court gets a couple hundred bucks. So multiple levels of NY government are getting paid for playing along.

The only way for borrowers to fight back is to go to NY. But many NY judges, such as the ones from the link above, view that the debtors waived their rights when signing the confession. So the MCA companies have little legal threat and have been known to commit forgery to use the confessions. Evidence of forgery has been presented in court, but the MCA companies apparently received no punishment; they simply quit hounding the borrowers.

The article only focuses on the MCA company Yellowstone Capital, which was started by David Glass. Mr. Glass and Yellowstone were the first to use confessions of judgment. Mr. Glass also inspired the movie "Boiler Room" while working on Wall Street and was busted by the FBI for insider trading but escaped prison by recording and incriminating his colleagues. He started Yellowstone in 2009 while still on probation.

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Imagine that you’re a cable subscriber, and all they have to do is tell the city that you missed a payment

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And the cable company wouldn't have to go to your city and your state to sign off on it, just one that is willing to play ball.

I definitely think people have a point when they say that the borrowers should have done their homework, etc. The main issue though is abuse of the legal system while multiple levels of NY government and possibly your own bank are happy to help screw you with the attitude of "doesn't matter, got paid."

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I’m not sure how “confessions of judgement” are enforceable unless they address the specific situations that could result in a suit, so they know what they’re confessing to.

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It reminds me of something cell providers did (and may still do). Part of their contract to provide service stated that the user was signing away their right to sue and be part of a class action lawsuit.

On the other hand, prenups aren't necessarily legally binding; judges can throw them out. And family court isn't always a shining example of justice, either. So I agree with your point about government pretending to care about its citizens but acting in ways that governments benefit at the expense of citizens.

Not trying to start a big political discussion, though.

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And similar to that m, one judge began ruling that since these advances functioned exactly like a loan, then calling them something else doesn’t make it not a loan. But then they just stopped filing in that court.

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I agree 100%, but to play devil's advocate here on the government side and the companies that give the loans. They are making a new rule, basically the Fed Gov said you can't do loans like these, some entrepreneur's came up with ways around that.

Again, the consumers likely knew this was "not a loan". Therefore the lack of government assistance through the court system. They chose this particular form of funding why? Likely it was their only option.

The consumers in the OP signed up for $800/ day payback? Is that right? That's sketchy as frick! Why? Most likely, because they were desperate AND again it was their only option.

So this bankrupts them absolutely, it was a horrible decision and they likely lost a ton of money. But still given all of that, my guess is they are likely bankrupt either way. My guess is while this is a shady situation and should be illegal all around, it was again their only option to get some capital for their business.

Common sense says if this is your only option, its actually NOT an actual option. Capitalism says let idiots be idiots.