Maryland Merchant Cash Advance Attorney
Merchant cash advances have become an increasingly popular form of business financing in recent years. However, some Maryland 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 to seek help from experienced merchant cash advance attorneys in Maryland.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 Potential Pitfalls of Merchant Cash Advances
While MCAs may seem like an easy financing option on the surface, many merchants report predatory behaviors from MCA companies, including:
-- Excessively high repayment rates that absorb too much of the merchant’s daily credit card receipts
- Daily repayment debits that drain the merchant’s bank account and make it difficult to cover other expenses
- Harassing collection tactics when the business falls behind on payments
- “Confessions of judgement” clauses in MCA contracts that allow the MCA company to seize assets and garnish wages without notice if the merchant defaults
Although advocates argue that confessions of judgement should be illegal, they remain common practice in the MCA industry. This leaves Maryland merchants with little recourse once they fall behind on payments.
How a Maryland Merchant Cash Advance Attorney Can Help
Fortunately, an experienced Maryland merchant cash advance attorney can help business owners find relief from predatory MCA agreements. There are several legal strategies that may be used, such as:
Unconscionability Claims
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 Claims
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
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.
Debt Settlement
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 experienced lawyer can assess the merchant’s leverage and work to secure a reasonable compromise.Settlements may involve paying a lump sum that is less than the remaining balance, agreeing to a reduced repayment schedule, or having a portion of the debt forgiven entirely.