Just days after New York Attorney General (AG) Barbara Underwood announced an investigation into possible misconduct among merchant cash-advance (MCA) firms against small business (SMB) borrowers, The Washington Post reported that state legislators are vowing to push for change in the industry.
The publication said on Thursday (Dec. 13) that incoming chairman of the New York Senate Judiciary Committee Brad Hoylman described the current small business merchant cash-advance environment as “alarming.”
“New Yorkers would be astounded to find out that our state is an outlier when it comes to the use and abuse of confessions of judgment, and the punitive impact on small businesses,” said Hoylman, referring to the document that small business borrowers are often required to sign that forfeits their right to a court hearing. Critics have said this prevents small businesses from accessing the court process to protect themselves in the case that a lender seizes assets.
Earlier this month, Bloomberg reports said analysis found that 350 lenders have gained $1.5 billion via confessions of judgment over the last six years. The publication also obtained court documents that showed small business borrowers claiming that lenders fabricated defaults, documents or loan balances. AG Underwood launched a probe as a result of Bloomberg’s findings.
The Post said Jeffrey Dinowitz, the Assembly counterpart of Hoylman’s position, called for a review of current legislation. Since AG Underwood began the case, Senator Liz Krueger and Assembly members Yuh-Line Niou and Ron Kim have each issued statements pushing for a probe into possible mistreatment of small business borrowers. Merchant cash advances are not defined as loans under current law, reports explained, meaning MCA companies are not required to adhere to certain rules for the lending industry that are aimed to curb predatory practices, like excessive fees and interest rates.
In another statement, the Unified Court System said it is “now fully aware of the extent of the problem” and is “considering a number of possible legislative and/or operational solutions.”