Most of the clients we have worked with who have defaulted on their Merchant Cash Advances have been subjected to the multitude of different actions that these predatory companies use to recover their funds.
At times, MCA companies exceed the terms set in the MCA agreement. In the legal case of Optimumedicine (OM) v. NewCo Capital Group (CLC), NewCo faced a lawsuit due to various tactics commonly employed by MCA companies for fund collection. These tactics included altering payment schedules, threatening legal action and imposing additional penalties if issues were not resolved, ignoring multiple requests for reconciliation, and imposing hefty penalties without prior notice or legal action, among other actions.
We offer a multitude of information and articles regarding Merchant Cash Advances, Alternative Loans, and UCC Liens/Actions at www.beaconclientsolutions.com.
By Thomas Tramaglini, Chief Operations Officer
Partner, The Center for MCA Research
Case Overview
In Optimumedicine v. NewCo Capital Group, the plaintiff has claimed that NewCo has engineered a default on their MCA. In the complaint, NewCo is accused of a host of actions stemming from failing to work with their client who informed the MCA company of a need for a payment date change because of delayed accounts receivables.
The outline of the complaint says:
"On or about May 9, 2024, OM requested that CLC modify the weekly repayment schedule for just one week such that CLC debit the weekly $19,200 remittance payment on a Monday, rather than a Friday, to allow time for OM’s weekend remittances to be credited to its bank account. In response, CLC preliminarily agreed, but requested OM’s most recent bank statement to validate the modification. As requested, OM provided its most recent bank statement, and on May 13, 2024, CLC withdrew the weekly repayment due under the RPA on Monday, rather than the previous Friday, May 10, 2024. By May 17, 2024, OM had made ten weekly payments of $19,200 to CLC and, thus, $768,000 out of the original $960,000 total remittance amount remained due and owing (i.e., $960,000 – $192,000)."
Once the default was noted, the typical measures that MCA companies use began to take shape:
UCC actions
Threats
Lack of communication
Continued pulling with new amounts and a different payment frequency
Requesting other MCA agreements which have no bearing on the plaintiff's ability to make payment
Currently, the actions of NewCo have been called destructive and currently are causing the plaintiff to be close to going out of business.
Furthermore, the attorneys for OM have drawn similar parallels to the lawsuit filed by Attorney General Letitia James in State of New York v. Yellowstone Capital LLC et al.
Their claims are quite on the money of what we see:
When considering CLC's actions and the terms of the RPA as a whole, it is evident that CLC's intention is clear: to create an "Event of Default" as a means to evade its responsibility to carry out a reconciliation, accelerate remittance payments due, impose excessive fees on OM, and ultimately pursue a judgment against OM's other assets or hold OM's limited guarantors (Eisma and Smith) financially accountable. It is believed that this is a common strategy employed by CLC and other illicit lenders in the MCA sector. Despite CLC's assertion that OM's acceptance of additional MCAs led to an "Event of Default," this claim is baseless. Prior to finalizing the RPA, CLC was aware that OM was still in the process of repaying a previous MCA obtained from another lender, as evidenced by OM providing the earlier MCA agreement to CLC during the application process, the review of OM's bank statements showing payments to the prior lender, and the UCC lien search conducted by CLC on OM's assets, which would have revealed the prior lender's priority position.
Additionally, it is believed that CLC was aware of OM securing additional MCAs from other lenders post-RPA through DataMerch, a database accessible to CLC containing industry information. CLC's insistence on OM representing unencumbered title to receivables, despite knowledge of the previous MCA, and its failure to engage in reconciliation discussions in good faith, violate the terms of the RPA.
CLC's delayed and unhelpful responses to OM's inquiries, along with attempts to resolve disputes based on irrelevant metrics, further exacerbate the situation. For instance, Piekarski Law (representing NewCo/CLC) took an extended period to respond to OM's negotiation attempts, conditioning further discussions on OM reducing payments to other MCA lenders, which would lead to breaches of separate contracts.
This approach demonstrates CLC's arbitrary determination of repayment terms, disregarding OM's future receivables and focusing on matching perceived competitor terms. Such rigid interpretation of the RPA lacks logic and highlights CLC's bad faith conduct, particularly when OM's exemplary payment history is overshadowed by a fabricated default threat jeopardizing its business.
So What?
Nothing crazy to review in the case.
It is pretty clear that OM (Plaintiff) is doing what it can to stay afloat. However, the interesting claim in this case is that the plaintiff is using the claim that this is a loan because of their agreement and not really an MCA. Furthermore, the actions we see listed in this lawsuit are no different than the MCA companies use to unilaterally deal with small business owners who are having a hard time with the demands of payback.
We will note that these actions are not what every MCA company does to assist their clients. For instance, we have seem some MCA companies really do their best to assist the client. MCA companies like EPIC Advance, CFG Merchant Solutions, as well as Everest Business Funding seemed more likely to be understanding. We are not saying that we like their products because we do not support their purpose, but when it comes to working with the client, these players are better than others.
The nugget here is to know who you are working with and who you should not work with.
Dr. Thomas Tramaglini is the Director of Operations and Negotiation for Beacon Client Solutions, a company that supports small businesses on a host of fronts, especially MCA debt. Thomas has been a small business owner for many years, as well as held leadership positions in several organizations and companies. Thomas holds a B.A. in History, as well as Masters and Doctorates in Organizational Leadership from Rutgers, The State University of New Jersey.
Disclaimer: Beacon Client Solutions is not an accountancy, or a law firm. We are business consultants. While Beacon works with outstanding attorneys and accountants, we cannot and do not provide legal or tax advice. All of our work is connected to those who are legally certified to give such advice. Beacon does have a longstanding body of work in MCA resolution and understands what small business owners deal with, specific to MCA. Beacon Client Solutions serves clients in all 50 states, Puerto Rico, Mexico and Canada.
Beacon Client Solutions does not solicit small business owners who are in good standing with MCA companies and alternative loan organizations. Our belief is that if a person is in good standing, we do not want to hurt both the MCA company/alternative lender and the business owner(s) by interfering.
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