Idaho Merchant Cash Advance Attorney
Merchant cash advances have become an increasingly popular form of financing for small businesses in Idaho, however they come with a major catch – the confession of judgment provision. This clause allows the MCA company to seize assets and garnish wages without notice if the business defaults on payments. While advocates argue MCAs provide much-needed capital, critics say the confession of judgment turns this financing into predatory lending in Idaho.
What is a Merchant Cash Advance?
A merchant cash advance is a form of financing where an MCA company provides a Idaho business with an upfront sum of cash in exchange for a percentage of future credit card and/or debit card sales.
- It is not considered a loan, but rather an advance on future revenue.
- Here’s how it works:
- The Idaho business applies for financing and the MCA company evaluates their credit card/debit card sales history.
- If approved, the Idaho business receives a lump sum upfront (often $10,000 – $500,000).
- In exchange, the Idaho business agrees to pay back the advance through daily payments which amount to a fixed percentage of their credit/debit card sales.
- The daily payments continue until the advance is fully paid off, which typically takes around 9-12 months.
The Controversial Confession of Judgment
Many MCA contracts contain a “confession of judgment” clause. This allows the lender to convert any missed payments into a court judgment against the borrower without notice.
- The lender’s lawyer simply submits an affidavit claiming default along with the signed confession to the court clerk.
- The court enters a judgment against the Idaho business, allowing the lender to seize assets and garnish wages to satisfy the debt.
- This all transpires without the lender having to give notice or the Idaho borrower having a chance to respond in court.
- The Idaho borrower’s assets can be seized even if there is a legitimate dispute about missed payments or loan terms.
For this reason, many advocates argue confession of judgment clauses are predatory and deny Idaho borrowers due process.
The Legality of MCA Confession of Judgments in Idaho
Idaho has not passed any laws specifically regulating merchant cash advances or banning confession of judgment clauses. However, some restrictions may still apply:
- Usury laws – Idaho caps interest rates on loans at 12% APR. However, MCA companies claim advances are purchases of future receivables, not loans. This classification has allowed them to circumvent state usury caps.
- Choice of law provisions – Even where banned, some MCA lenders have tried to circumvent state laws by including choice-of-law provisions specifying another state’s laws govern the contract. However, Idaho courts have ruled these provisions invalid when confession of judgment is illegal in Idaho.
- Federal Trade Commission (FTC) – In 2020, the FTC sued a major MCA firm, Par Funding, for predatory and deceptive tactics. This indicates federal regulators are taking notice of the industry’s practices.
- Securities and Exchange Commission (SEC) – The SEC is investigating some MCA firms for possible violations of federal securities laws around disclosure of terms to borrowers.
So while Idaho has not directly regulated merchant cash advances so far, some restrictions on predatory lending may still apply. MCA borrowers do have some defenses against unfair collection practices.
Criticisms of Merchant Cash Advance Confession of Judgment
Consumer advocates level harsh criticisms against MCA confession of judgment clauses:
- Allows predatory collection practices – Lenders can drain bank accounts and garnish wages over minor disputes, devastating small Idaho businesses.
- Erodes due process – Borrowers waive their rights to contest judgments in court by signing confessions.
- Encourages deceptive lending – MCA companies downplay the risks of confessions when marketing to Idaho businesses.
- Impedes regulatory oversight – Avoiding the term “loan” allows MCA companies to skirt state lending laws.
- Inconsistent court treatment – Some judges uphold confessions as valid contracts, while others see them as abusive.
Defense Strategies Against Predatory MCAs in Idaho
If you are an Idaho business owner who has fallen victim to an unfair merchant cash advance confession of judgment, here are some strategies to fight back:
- Dispute the default – Challenge whether you actually missed payments or defaulted. The lender must prove breach of contract.
- Claim deceptive practices – Argue the MCA company engaged in fraud or deception in the origination of the advance. This can invalidate the contract.
- File for bankruptcy – This will pause collection efforts and discharge qualifying debts. Seek legal advice first.
- Challenge court jurisdiction – The MCA company may have filed the judgment in a remote court unrelated to your business. Contest jurisdiction.
- Assert usury violation – Argue the MCA’s rates and fees exceed Idaho’s usury cap, making the contract void.
- Consult an attorney – An experienced lawyer can help raise defenses and negotiate a settlement. Act quickly before assets are seized.