Over the last several months, Alexander Klein has spearheaded an extension of the firm’s civil rights and commercial practices into an area of financial litigation populated by predatory lender/funders and desperate individual and corporate borrowers. When these borrowers fall on hard times but lack the credit or time to secure a bank loan, they occasionally revert to what are called “merchant cash advances”—or MCAs.
When done properly, the two distinguishing features of MCAs are that (1) the funders provide money up front in exchange for a stake in the company’s revenue, such that the funder shares in the company’s risk in the event that business slows or stops; and (2) in exchange for this risk, the repayment requirement is steep—typically far steeper than the ordinary lending limits governed by usury laws. For years, MCAs have avoided usury limits by distinguishing these financial arrangements from loans.
As Klein has made clear through several successful representations, however, not all MCAs are truly distinguishable from loans. And when they fail to meet the appropriate set of distinctions, these “MCAs” remain governed by usury limits—including the panoply of rights afforded to borrowers when they are on the receiving end of predatory or otherwise illegal loans.
