In a lawsuit filed today, New York Attorney General Letitia James is alleging that Yellowstone Capital and over 40 of its subsidiaries provided merchant cash advances to small businesses that in reality were fraudulent loans, with interest rates as high as 820% per year.
The state is seeking $1.4 billion in damages and to bar Yellowstone Capital, and founder David Glass, from the lending industry.
Merchant cash advances are already a controversial means of providing short-term liquidity because, unlike a traditional loan, they’re seen as advances on future revenue. Lenders collect a percentage of paid sales plus an additional fee. The cash advances carry high rates and don’t require good credit scores, which makes them especially appealing for small businesses in tight spots.
Among Yellowstone Capital’s alleged victims is City Bakery, a Manhattan eatery that closed its doors in 2019 after 30 years because it couldn’t continue making daily payments of $2,000.
“The lenders falsely promised to ‘reconcile’ merchants’ daily payments to ensure they never rose above an agreed-upon percentage of the borrowers’ receipts, but the lenders used numerous fraudulent measures to ensure borrowers almost never qualified for payment refunds,” the attorney general’s office said in a statement.
Additionally, subsidiaries of Yellowstone Capital, which later changed its name to Delta Bridge, allegedly misused an obscure legal tool called “confessions of judgment” to bypass court proceedings and take advantage of loan recipients. Businesses like City Bakery, which employed dozens of full-time workers at the time of its closing, signed these confessions as part of receiving cash advances, inadvertently admitting to guilt before receiving the agreed-upon funds.
Although for years Yellowstone Capital used New York’s and other court systems to collect high fees from businesses, the lender’s luck began to change in 2020, when then-New Jersey Attorney General Gurbir S. Grewal sued Yellowstone Capital and its subsidiaries for predatory lending. The next year, the New York Office of Attorney General showed usury-style practices, and the company rebranded to Delta Bridge.
In December, New Jersey Attorney General Matthew Platkin announced it had reached a $27.3 million settlement with the lender. Before filing the lawsuit on Tuesday, James also reached a $3.37 million settlement with some individuals involved in the scheme.
“Yellowstone Capital, Delta Bridge, and the other companies pretended to offer a helping hand, but instead provided only illegal, ultra-high-interest loans,” James said in the statement. “My office will not allow any scheme to harm small businesses, their owners or employees, or the millions of New Yorkers who rely on them each and every day.”