On March 15, 2023, New York Attorney General Letitia James announced a landmark judgment against Yellowstone Capital, a cash advance provider now operating under the names Delta Bridge Funding and Cloudfund. The ruling, which totals an astounding $1.065 billion, stems from allegations of predatory lending practices that have harmed countless small businesses across the nation. As part of the settlement, over half a billion dollars in debt relief will be provided to affected small businesses, marking a significant victory for consumer protection.
The Allegations Against Yellowstone Capital
Attorney General James filed a lawsuit against Yellowstone Capital last year, accusing the company of misleading merchants into believing they were entering into revenue purchase agreements. According to the lawsuit, Yellowstone falsely claimed that businesses could receive refunds on loan payments during slow periods. However, the reality was starkly different: the company debited fixed amounts from merchants’ bank accounts, often over a period of 60 to 90 days. This led to exorbitant effective interest rates that could soar to triple digits, with some businesses facing rates as high as 820%.
In New York, interest rates exceeding 16% are classified as usurious, highlighting the severe nature of Yellowstone’s practices. The ramifications of these predatory loans were dire, forcing many successful businesses to close their doors and leaving employees without jobs.
The Settlement Details
The settlement reached by Attorney General James includes the cancellation of approximately $534.5 million in debt owed by over 18,000 small businesses nationwide. Of this amount, around $36 million pertains to more than 1,100 small businesses located in New York. Additionally, Yellowstone and its executives have agreed to pay $16.1 million as part of the settlement.
Despite this substantial relief, Yellowstone is still liable for $514.3 million that remains outstanding, though the specifics of how this sum will be collected remain unclear. The ongoing lawsuit against Delta Bridge Funding, Cloudfund, and co-founder David Glass continues, reflecting the seriousness of the allegations.
Impact on Small Businesses
The repercussions of predatory lending extend far beyond financial loss. Small businesses, often the backbone of the economy, rely on fair lending practices to thrive. The aggressive tactics employed by Yellowstone Capital have not only jeopardized individual businesses but have also contributed to broader economic instability, particularly in vulnerable communities.
Attorney General James emphasized the gravity of the situation, stating, “Yellowstone and its executives lined their pockets at the expense of vulnerable small businesses who turned to them for help.” This sentiment resonates with many who have faced similar predatory practices in the financial sector.
A Broader Context of Predatory Lending
The case against Yellowstone Capital is not an isolated incident. Predatory lending has become a pervasive issue, with numerous companies employing deceptive practices to exploit small businesses. The Federal Trade Commission (FTC) and other regulatory bodies have been working to combat these practices, but challenges remain.
For small business owners, understanding the landscape of financing options is crucial. Resources such as the Consumer Financial Protection Bureau provide valuable information on recognizing predatory lending and exploring alternative financing methods.
Moving Forward
The judgment against Yellowstone Capital serves as a powerful reminder of the need for vigilance in the lending industry. It underscores the importance of holding companies accountable for their actions and protecting small businesses from exploitative practices.
As we look to the future, it is essential for entrepreneurs to educate themselves about their rights and available resources. Engaging with reputable financial institutions and seeking legal advice when necessary can help safeguard against predatory lending.
To sum up, the recent ruling against Yellowstone Capital is a significant step towards protecting small businesses from predatory lending practices. It highlights the critical role that regulatory bodies play in ensuring fair treatment in the financial sector and serves as a call to action for continued vigilance against exploitation in all forms.