New York secures $1 billion settlement against Yellowstone Capital

N.Y. Attorney General Letitia James has announced a massive settlement with a company she accused of predatory lending - Photo via N.Y. Attorney General's Office

The state sued the company on charges of predatory lending

New York Attorney General Letitia James has announced a massive $1.065 billion judgment against Yellowstone Capital and its network of 25 lending companies she accused of being predatory. 

The settlement could deliver over $534 million in debt relief and at least $16 million in restitution to small businesses across New York and the U.S. that were targeted with illegal high-interest loans.

James’ suit against Yellowstone claimed the company disguised high-interest loans as merchant cash advances. These advances were purportedly structured as purchases of future revenues, but in reality, James said they imposed fixed daily repayments disconnected from the businesses' actual earnings. The suit charged the loans resulted in effective interest rates soaring up to 820% annually, far exceeding legal limits.

"Targeting small businesses with predatory loans and outrageous interest rates threatens the livelihoods of hardworking business owners and their employees," James said in a statement. 

Substantial financial relief

She said the settlement not only provides substantial financial relief but also marks a significant step in protecting small businesses from exploitative financial practices.

Among the affected businesses were City Bakery in Manhattan, which was forced to close due to the crippling debt cycle. The bakery, a staple in Union Square for nearly 30 years, succumbed to daily repayments exceeding $2,000, which it could not sustain.

The settlement requires Yellowstone to cease all collection efforts, vacate court judgments, and terminate liens on small businesses' properties. Additionally, the companies and their officers are permanently banned from the merchant cash advance industry. If they fail to adhere to the settlement terms, the immediate $16.1 million payment will increase to $30 million.