Should These Loans Be Legal? Part II

December 12, 2018 at 9:18 am 2 comments

A little more than a week ago I did this blog in which Bloomberg Business Week reported how non-banks and credit unions get around New York’s usury laws by offering cash advance loans to small businesses with repayment predicated on the businesses’ expected cash flow. Apparently this loop-hole is more widespread than I thought.

In a December 6th decision, (Cash4Cases, Inc. v. Brunetti, No. 655131/16, 2018 WL 6356250, at *1 (N.Y. App. Div. Dec. 6, 2018), New York’s Appellate Division 1st Department, which because it oversees Manhattan is New York’s equivalent to the Delaware Chancellery when it comes to business law, ruled that a company specializing in providing loans to plaintiffs suing for expensive lawsuits did not violate New York’s usury laws even though these cash advances were repaid with terms well in excess of New York’s usury cap. The court ruled that since repayment was predicated on a successful settlement of the claim, it could not be considered a loan and that the agreement was not “unconscionable” because the defendant had a “meaningful choice” in entering into the cash advance agreement and the terms were not unreasonable.

This is sure to lend fuel to the fire when a new legislative majority takes over in January with an eye towards curtailing perceived lending excesses. Furthermore, as yours truly predicted in his earlier blog on the subject, New York’s Attorney General has begun an investigation into business advance loans. One man’s opinion, they are not illegal or deceptive under existing state law but they should be.

Entry filed under: Legal Watch, New York State. Tags: , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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