Merchant Cash Advance Attorney Maryland[yoast-breadcrumb]
Merchant Cash Advance Attorney Maryland
Merchant cash advances have become an increasingly popular form of business financing in recent years. However, some business owners have found themselves struggling to keep up with repayment schedules and aggressive collection tactics from merchant cash advance companies. This has led many Maryland business owners to seek help from experienced merchant cash advance attorneys.
A merchant cash advance (MCA) is a form of financing where a company provides a business with an upfront lump sum of cash in exchange for an agreed upon percentage of future credit card and debit card sales. The repayments are made automatically through daily deductions from the merchant’s credit card receipts.
Unlike a traditional small business loan, an MCA does not come with fixed monthly payments or a set repayment period. The daily payments fluctuate based on the merchant’s credit card sales volume. If sales are down one month, the payment is lower. If sales increase, the payback is higher.
This flexibility seems attractive at first, but it can quickly become problematic if sales drop unexpectedly. Merchants can suddenly find themselves locked into repayment percentages that exceed their current sales levels. For example, if a merchant signed up for an MCA with 15% repayments based on $10,000 in monthly sales, but then sales dropped to $5,000 a month, they would still owe $1,500 each month – an unmanageable 30% of their new sales volume.
Many merchants report predatory behaviors from MCA companies, including excessively high repayment rates, daily repayment debits that drain bank accounts, and harassing collection tactics. Some companies go so far as to include “confessions of judgement” in their MCA contracts. This clause allows the MCA company to seize assets and garnish wages without notice if the business defaults on payments.
While advocates argue that confessions of judgement should be illegal, they remain common practice in the MCA industry. This leaves merchants in Maryland with little recourse once they fall behind on payments.
Fortunately, an experienced merchant cash advance attorney can help. There are several legal strategies that can be used to find relief from predatory MCA agreements.
One approach is to argue that the MCA contract terms are unlawfully unfair and one-sided. If successful, this can result in the contract being declared void.
According to Maryland law, courts can deem contract provisions “unconscionable” if the terms unreasonably favor one party over the other. Factors like the merchant’s bargaining power, sophistication, and ability to understand the contract are considered.
In the case of MCAs, merchants often have very little leverage to negotiate favorable repayment terms. The MCA company dictates the percentage of daily credit card receipts they will collect. Merchants in dire financial straits may feel pressure to accept unfavorable repayment rates.
An attorney can review the MCA agreement and build a case for why the repayment terms are oppressive and unconscionable under Maryland law. This may convince a judge to invalidate all or part of the contract.
Usury laws restrict the maximum interest rates that lenders can charge on loans. Each state has its own usury limit. In Maryland, the maximum legal interest rate is 24% for loans under $2,000 and 33% for loans between $2,000 and $6,000.
Although MCA companies contend their advances are not loans, a skilled attorney may be able to effectively argue that the MCA is a usurious loan in disguise. By calculating the effective APR based on the repayment schedule, it can sometimes be proven that the implied interest rate exceeds Maryland’s usury cap.
If successful, a usury claim can result in the MCA contract being declared void and unenforceable. The merchant may be absolved of all remaining payments.
Breach of Contract
Another avenue is to claim the MCA company breached the original contract terms. This requires a careful review of the agreement to identify any violations by the MCA provider.
Some potential grounds for breach of contract claims include:
- Collecting repayments above the agreed upon percentage
- Debiting the merchant’s bank account on unauthorized days or at unapproved frequencies
- Failing to provide clear statements detailing the repayment deductions
- Making errors in repayment calculations
If the merchant cash advance company is found to be in material breach of contract, the merchant may no longer be obligated to uphold their end of the agreement.
Fraudulent inducement claims allege the MCA provider used deceptive or misleading information to get the merchant to sign the contract. For example, misrepresenting repayment terms, exaggerating potential sales increases, or promising better rates than those outlined in the final agreement.
Under Maryland law, contracts obtained through fraudulent inducement can be considered void. However, clear evidence is needed to prove the merchant was intentionally misled. Detailed records of all communications and representations made during the MCA application process are essential.
Rather than fighting the MCA contract outright, some merchants seek to negotiate a settlement for a portion of what they owe. Skilled attorneys often start settlement discussions by casting doubt on the enforceability of the agreement.
An attorney may explain that they are prepared to pursue legal claims like unconscionability or usury violations. Knowing continued litigation could invalidate the entire contract, the MCA company may be motivated to accept a discounted settlement offer rather than risk getting nothing.
Debt settlements allow the merchant to resolve their outstanding MCA balance at a fraction of what they originally owed. This provides immediate financial relief and avoids the risks of drawn-out legal battles.