[co-author: Stephanie Kozol]*

On February 8, New York attorney general (AG) Letisha James announced a $77 million judgment with three merchant cash advance (MCA) companies, Richmond Capital Group, Ram Capital Funding, and Viceroy Capital Funding, and their principals. AG James sued the companies in 2020, alleging they engaged in exploitive lending practices with small businesses, such as charging high interest rates, undisclosed fees, debiting excess amounts, and fraudulently securing judgments against them.

The $77 million judgment follows a New York Supreme Court (New York’s trial court) ruling in favor of the New York AG in September 2023. In this ruling, the court ordered that the defendants must cease all collections on the outstanding debt and repay the small businesses any unfair interest they paid. Specifically, the MCA companies were required to rescind all loan documents, and terminate all related liens or security interests. They were obliged to repay full restitution and damages, and each pay a $2,000 penalty. However, the court noted that restitution does not include forfeiting principal that was not the borrower’s property prior to the loan documents’ consummation.

Although the MCA companies argued that a portion of the money sought was principal, not interest, and therefore, the New York AG was not entitled to a judgment including the principal, the court disagreed. On February 7, the court held that the defendants failed to provide any evidence demonstrating that any portion of the money judgment sought by the New York AG was principal. The court gave the defendants the opportunity to move to amend the judgment if they could establish, by credible evidence that any amount of such judgment is principal.

Why It Matters

The landmark judgment underscores that many state AGs are not only authorized to enforce their consumer protection laws against businesses, but also to engage in transactions with small businesses.

*Senior Government Relations Manager