Yellowstone Capital, a defunct cash advance company taken over by Delta Bridge Funding and Cloudfund, agreed to eliminate debt for its small business clients as part of a combined $1 billion settlement with the New York attorney general’s office. Letitia James. which announced the consent agreement on Wednesday.
The deal canceled more than $534.5 million in debt for more than 1,100 small businesses in New York and more than 18,000 nationwide, James said.
Through the $1.07 settlement, the parties made an immediate restitution payment of $16 million, but the companies remain responsible for a $514.3 million unsatisfied portion of the judgment.
The settlement, which states that it should not be construed as an admission of liability or wrongdoing, resolves the state attorney general’s lawsuit filed in March that alleged Yellowstone Capital, Delta Bridge and more than two dozen subsidiary companies ran a loan operation predatory actions that targeted small businesses.
The Attorney General’s Office conducted an investigation that determined that the defendants exploited small businesses through fraudulent loans with “astronomical” interest rates.
James, whose office will continue its state lawsuit against Delta Bridge and Cloudfund, along with eight officials, said the loans were disguised as merchant cash advances aimed at homeowners who cannot obtain loans from traditional banks.
Yellowstone Capital and the other defendants used contracts that James’ office said fraudulently described each transaction as a purchase of a portion of a small business’s future revenue, known as accounts receivable. The deal was intended to offer flexible payment amounts and open terms.
James said the reality was that cash advance companies charged fixed amounts from small businesses’ bank accounts daily over payment periods that were often 60 or 90 days.
These daily collections had little connection to the portion of the companies’ income that the lenders purchased and ultimately resulted in the transactions functioning as short-term loans with interest rates of up to 820% per year, which is more than 50 times the legal interest. rate, James said.
In a statement, James said: “Targeting small businesses with predatory loans and outrageous interest rates threatens the livelihoods of hard-working business owners and their employees. Yellowstone and its executives lined their pockets at the expense of vulnerable small businesses that came to them for help. Their predatory lending forced successful businesses to close and left New Yorkers out of work.”
Eric Kanefsky, who represented Yellowstone Capital and is a senior partner at Calcagni & Kanefsky in Newark, New Jersey, said, “We are pleased to have resolved this matter with the New York Attorney General.”
James said one of the affected businesses in Manhattan, City Bakery in Union Square, was forced to close after becoming trapped in a debt cycle of more than $2,000 a day in payments to Yellowstone Capital. According to James, the caterer had between 30 and 50 full-time employees.