Sacramento Merchant Cash Advance Legal Help – Attorneys, Debt Settlement
Merchant cash advances (MCAs) have become an increasingly popular form of financing for small businesses in recent years. However, many business owners in Sacramento and across California have found themselves struggling to keep up with MCA payments and dealing with aggressive collection tactics from MCA lenders. If you took out a merchant cash advance and are having issues making payments, there are legal options that may help – but it’s important to act quickly and work with an experienced attorney.
How Merchant Cash Advances Work
A merchant cash advance provides a lump sum payment to a business in exchange for a percentage of future credit card sales over a set period of time. This type of financing can seem appealing as it doesn’t require a personal guarantee, collateral, or credit check. However, MCAs often have very high effective interest rates and aggressive collection practices that catch many business owners off guard.For example, an MCA provider may give a business $50,000 upfront in exchange for 15% of daily credit card sales until $75,000 is repaid – which works out to an annualized rate of 60-90% or more. The payments are taken automatically from the credit card processor as a percentage of each day’s volume – meaning if sales drop, the payback period gets extended longer and longer.This structure allows MCA providers to skirt state usury laws on interest rate caps. However, some courts have recently ruled that certain MCA agreements are actually illegal loans in disguise. So there may be defenses business owners can raise even if MCAs are still largely unregulated in California.
-Common MCA Issues Facing Sacramento Business Owners
There are a few common issues and complaints regarding merchant cash advances heard from small business owners in the Sacramento area:
- Deceptive sales tactics – Some MCA providers use high-pressure and deceptive sales tactics, failing to adequately explain repayment terms or extremely high effective interest rates. Important loan details may be buried in fine print.
- Excessively high payments – If a business has a slow season or sees revenues drop unexpectedly, MCA payments that automatically withdraw a fixed percentage of each day’s credit card receipts can become unmanageable. Owners can get stuck in a debt trap.
- No flexibility – Some MCA lenders refuse to work with business owners that fall behind on payments. Even temporary payment reductions or alterations to the repayment schedule can be difficult to obtain.
- Aggressive collections – Facing defaults on their advances, some MCA providers resort to aggressive tactics like harassing phone calls, lawsuits, or threats to contact vendors, employees, or customers about unpaid debts.
- Confessions of judgement – Many MCA agreements contain “confessions of judgement” that allow lenders to obtain a judgement without ever setting foot in court. This can fast-track garnishments even if there are legitimate legal defenses.
If you are dealing with any of these issues related to a merchant cash advance in Sacramento, it’s important to act quickly and understand all of your legal options. The attorneys at Avvo or FindLaw can provide guidance for your specific situation.
MCA Legal Defenses to Explore
Depending on the specifics of your case, there are a few potential legal arguments to explore with an attorney if you are struggling with merchant cash advance debt:
Unconscionability
Some courts have ruled MCA agreements to be so imbalanced and one-sided that they are “unconscionable” contracts. This makes them unenforceable. Factors like hiding key loan terms in small print legalese, interest rates over 50%, and aggressive collections could support an unconscionability claim.
-Usury Violations
As mentioned earlier, recent lawsuits have raised the argument that some MCAs are actually usurious loans in disguise. Usury laws cap the maximum allowable interest rates on loans – typically around 10-12% in California. If an MCA’s effective rate is considered usurious by the courts, the contract becomes void and uncollectible.
RICO Violations
The federal Racketeer Influenced and Corrupt Organizations (RICO) Act allows both criminal charges and civil lawsuits against those engaged in “patterns” of illegal activity involving fraud and extortion. According to Forbes, several lawsuits have brought RICO claims against MCA firms for systematically deceiving and illegally squeezing small businesses.
Working With a Sacramento MCA Attorney
If you are located in the Sacramento area and need legal help related to problems with a merchant cash advance, it is important to work with an attorney experienced in this unique and complex field. Some key tips:
- Ask about experience handling MCA cases specifically and knowledge of recent legal rulings & defenses. General finance attorneys may not fully grasp the intricacies.
- Inquire about debt settlement/reconciliation services and negotiating directly with MCA providers. The right legal team can often achieve settlements.
- Discuss contingency fee options – that way attorneys only get paid if/when your MCA debt gets reduced or eliminated.
- Research lawyers carefully via resources like Avvo ratings, peer reviews, and client testimonials. Find someone with proven MCA experience.
- Ask if they have relationships with MCA lenders to facilitate settlements – an “inside track” can help immensely.
Going up against merchant cash advance companies on your own is an uphill battle. But by understanding potential legal arguments and working with an experienced Sacramento MCA attorney, many small business owners have achieved favorable settlements or even had their debts invalidated. If you are struggling to keep up with payments and dealing with aggressive collections, consultations are often free – so it pays to explore your options.