“We’re Here to ‘Help’!”: How Predatory Lenders Like Yellowstone Turned Small Businesses Into ATMs
- February 10, 2025
- 9:44 pm
“Need cash? We’ll help!” chirped Yellowstone Capital, the Merchant Cash Advance (MCA) giant that graciously handed out $1.065 billion in “advances” to desperate small businesses. Spoiler alert: They weren’t helping—they were robbing them blind. In 2025, New York Attorney General Letitia James exposed this “philanthropy” in a 289-page lawsuit that reads like a Wolf of Wall Street sequel, complete with 820% APRs, fake “reconciliation” clauses, and Confessions of Judgment (COJs)—legal landmines that let lenders seize assets without trial. But don’t worry! Yellowstone’s CEO Isaac Stern and President Jeffrey Reece generously agreed to a $1 billion settlement—$534 million of which “forgave” debts they never should’ve created in the first place. How noble!
The “Help” That Hurts: Yellowstone’s Playbook of Predatory Perfection
1. “We’re Not a Loan, We’re a ‘Purchase of Future Sales’!”
Ah, the classic MCA loophole! Yellowstone innovatively structured their deals as “purchases” of future revenue, not loans. This clever trick let them charge 200–820% APRs while claiming, “What usury? We’re just buying your sales!”.
Real “Help” Example: A restaurant borrows $50,000; Yellowstone “buys” $70,000 of its future sales. When sales dip? Too bad—daily deductions continue until the owner sells their deep fryer to pay up.
2. The COJ Heist: How Yellowstone Turned Contracts Into Legalized Theft
Yellowstone’s contracts included Confessions of Judgment (COJs), where borrowers unknowingly signed away their right to defend themselves in court. By signing, businesses surrendered:
The right to receive notice of legal action.
The ability to dispute claims, even if false.
Protection against asset seizures without due process.
The Ambush Playbook:
The Setup: A COJ clause buried in an MCA contract.
The Trigger: A missed payment (or fabricated default).
The Raid: Yellowstone files the COJ in New York courts, freezing accounts within hours—no trial, no warning.
Real-Life Carnage:
A Florida real estate agency borrowed $36K from Yellowstone. Despite making payments, Yellowstone used a COJ to drain $52K from their accounts overnight. “Somebody just comes in and rips everything out,” said the owner.
Why COJs Are the Ultimate Predatory Tool:
Speed: Courts rubber-stamp COJs in days, turning New York into a “debt-collection machine”.
No Oversight: Lenders aren’t required to prove defaults. Forged documents? Courts rarely check.
Personal Ruin: COJs often include personal guarantees, letting lenders target homes or savings.
Legislative Whack-a-Mole:
In 2019, New York limited COJs to in-state businesses, but lenders adapted by suing out-of-state borrowers for “breach of contract”. Rep. Nydia Velázquez’s Small Business Lending Fairness Act (to ban COJs nationally) stalled after lender lobbying.
3. The “Delta Bridge” Scam: Yellowstone’s Rebranded Grift
When the heat was on, Yellowstone simply rebranded as Delta Bridge Funding LLC and Cloudfund LLC—same predatory practices, new LLCs! The NY AG called this a “fraudulent conveyor belt” of debt traps.
Real “Innovation”: Why shut down when you can just change your website and keep draining businesses?
The “Oops, We Got Caught” Settlement: A Masterclass in Irony
In December 2024, Yellowstone “settled” with New York by:
- Cancelling $534 million in debt (debts they created), impacting 18,000+ small businesses nationwide.
- Paying a $531 million penalty ($12.7 million from executives personally), though they’ll likely dodge it via bankruptcy.
- Issuing $16.1 million in restitution to compensate victims for financial harm.
- Accepting a permanent ban from the MCA industry for its executives.
AG Letitia James’ Verdict: “Yellowstone engaged in a systematic scheme to defraud small businesses.” Translation: “Surprise! They were never here to help.”
The MCA Industry’s Crossroads: From Gray Area to Regulatory Spotlight
The settlement isn’t just about Yellowstone—it’s a watershed moment for the $30B MCA industry, exposing systemic risks:
1. Regulatory Tsunami
- State AGs on the Offensive: New York’s case signals a nationwide crackdown on MCA lenders masquerading as “purchasers”. Expect more AGs to target hidden APRs over 100% and fake “receivable sales”.
- Federal Heat: The CFPB is now eyeing MCAs, with plans to reclassify them as loans subject to usury laws.
2. Legal Domino Effect
- Precedent Set: Courts are increasingly willing to reclassify MCAs as loans, opening lenders to racketeering (RICO) claims and voiding abusive contracts.
- Small Business Leverage: Affected businesses now have a blueprint to sue lenders for:
- Misrepresented financing costs (e.g., disguising loans as “purchases”).
- Hidden fees buried in contracts.
- Harassment during collections (e.g., threats to seize equipment).
3. Survival Strategies for MCA Lenders
Post-settlement, even “legitimate” MCA firms must adapt:
- Transparency or Bust: Disclose APRs, total repayment amounts, and fees upfront—no more “factor rate” obfuscation.
- Kinder Collections: Ditch intimidation tactics (e.g., threatening owner’s homes) or face lawsuits.
- Hybrid Models: Blend MCAs with traditional loan safeguards to avoid regulatory wrath.
The Bottom Line: The industry must choose—evolve toward transparency or die in court.
How to Fight Back: Because Yellowstone Won’t
For businesses trapped in MCA hell:
- Sue Them First: New York’s lawsuit blueprint is public. Use it.
- Demand APR Disclosures: California and New York now require lenders to reveal APRs. Shock yourself!.
- Call BDA: Business Debt Adjusters specializes in turning $70K MCA nightmares into $10K settlements.
- Never Sign a COJ: If a lender says, “It’s standard paperwork,” run.
- Sue Under New Precedent: Cite New York’s settlement to demand debt cancellation or reduced balances.
- Report to Regulators: File complaints with your state AG or CFPB—they’re hungry for targets.
- Push for APR Laws: Only 14 states require APR disclosures. Demand your reps close loopholes.
Pro-Tip: If an MCA lender says “We’re here to help,” assume they’re holding a COJ behind their back.
Conclusion: The Only Thing MCAs “Advance” Is Bankruptcy
Let’s give Yellowstone a round of applause! They “helped” small businesses straight into courtrooms, liquidation sales, and mental breakdowns. But don’t fret—Delta Bridge and Cloudfund are probably drafting new contracts as we speak.
🔹 Final Note: COJs are the fine-print version of a mob shakedown. BDA? We’re the witness protection program.
Hungry for justice? Consult with BDA before your “helper” empties your bank account. Contact Us today or download this free e-book to learn more.
References:
More on Yellowstone Capital LLC and six of the associated companies that were implicated in the predatory lending practices.
