On January 22, New York Attorney General Letitia James announced a significant settlement with Yellowstone Capital of New Jersey and its affiliated companies over allegations of illegal high-interest loans disguised as merchant cash advance (MCA) transactions.

Yellowstone Capital provided MCAs to small businesses, which are a form of short-term funding where the funding provider pays a small business for a share of the business’ future receipts. Those receipts are paid to the MCA company over time as they are earned. However, according to the Attorney General’s Office (OAG), Yellowstone’s advances were often structured as loans with high interest rates, in violation of state law. The Attorney General alleged that:

The predatory lenders collected fixed amounts directly from small businesses’ bank accounts every day during short repayment periods that often lasted just 60 or 90 days. These daily collections had little connection to the portion of the businesses’ revenues the lenders supposedly purchased. While the lenders promised to ‘reconcile’ or refund small businesses’ daily payments to ensure they never rose above an agreed-upon percentage of their revenue, they used numerous fraudulent measures to ensure borrowers almost never qualified for these payment refunds. As a result, the transactions actually functioned as short-term loans with ultra-high interest rates of up to 820 percent per year — more than 50 times the legal interest rate.

Settlement Details

On January 16, a settlement was signed by all parties involved, including:

  • Debt Cancellation: All merchant debts to Yellowstone, totaling $534 million, have been automatically canceled.
  • Monetary Relief: Yellowstone’s CEO, President, and subsidiaries have paid $16.1 million in monetary relief, which will be distributed to impacted small businesses. This payment will increase to $30 million if they fail to comply with the settlement terms.
  • Business Ban: Yellowstone and its subsidiaries are banned from the MCA business.
  • Unsatisfied Judgment: According to the settlement, the Yellowstone entities, even after the cancelled debts and cash payment described above, owe New York an additional $514 million.
  • Vacated Legal Actions: Some legal actions that Yellowstone took against merchants will be vacated. Eligible merchants must file a claim to ensure the judgment is vacated.
  • Terminated Liens: Some liens that Yellowstone obtained against merchants’ property will be terminated. This is not automatic. Eligible merchants must file a claim before June 2025 to have their liens terminated.

The OAG press release stated that it will continue its lawsuit against companies that took over Yellowstone’s operations in 2021 and eight individuals, including Yellowstone’s co-founder. Before filing the lawsuit, Attorney General James reached settlements with five other individuals, in which they paid $3.37 million to be distributed to impacted small businesses and were banned from the MCA industry.

Photo of Mark Furletti Mark Furletti

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial services across numerous industries.

Photo of Joseph Reilly Joseph Reilly

Financial services companies depend on Joe for all aspects of their regulatory and compliance needs. Drawing from two decades of experience in the sector, he provides actionable guidance in a complex and evolving landscape.

Photo of Caleb Rosenberg Caleb Rosenberg

Caleb is counsel in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small…

Caleb is counsel in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small businesses in the credit and alternative finance products industry.