A proposed class action lawsuit has been filed against Penn Capital Funding, MapCap Funding and those who run Merchant Cash Advance Companies (MCAs) for their alleged use of an apparent loophole in Connecticut law to collect illegal debts. and otherwise fraudulently obtain money.
The brief describes the merchant cash advance industry as essentially payday loans for businesses and a breeding ground for unscrupulous actors. The 32-page lawsuit says that following the New York Legislature’s 2019 ban on out-of-state trial confessions as a way to seize out-of-state bank accounts, the defendants have “abused”.[d]” a apparent loophole in Connecticut law that allows them to freeze out-of-state bank accounts by “simplifying the service of legal documents” on a bank that has a branch located in that state. To justify these account freezes, the defendants “declare and attest under oath that their victimized small businesses owe them a debt” and that the companies “are not aware of any defense to their claims”, the case states.
The complaint, citing Bloomberg News, says this Connecticut loophole has been used more than 180 times in the past year, often with “catastrophic” effect given that the defendants, who operate in New York, can freeze an account out-of-state banking. “without any notice.”
“Once frozen, defendants can then extort payment under duress due to their victims’ need to save on payroll or pay for other necessary business expenses, such as insurance, taxes, rent and inventory,” the lawsuit states.
Depending on the case, this “tactic” is particularly harsh because even when a small business victim capitulates to the “exorbitant demands” of defendants, it can take days for funds to be released from their bank account due to processing delays and constraints. procedural.
According to the lawsuit, the defendants acted at the direction of or in concert with former drug trafficker Jonathan Braun, whose federal prison sentence was commutes at the last minute by former President Donald Trump “without using the safeguards and review process typically employed by U.S. presidents.”
In addition to collecting illegal interest, the defendants, according to the lawsuit, engaged in the tactic of “ghosting” merchants after collecting too much money from them. With respect to plaintiff, a Tarzana, Calif., seniors’ residence, defendants were permitted to collect pursuant to the MCA agreement $625,000, but “nevertheless brazenly and unlawfully collected $729,118, and were not to never be heard from again”, despite repeated attempts by the establishment. to collect reimbursement over the phone, depending on the case.
“Unfortunately, the plaintiffs are not alone and are therefore bringing this action on behalf of [themselves] and those likewise, to permanently enjoin defendants from their myriad unlawful practices,” the lawsuit states.
New York residents Yosef Brezel, Miriam Deutsch and Moshe Katz are also named as individual defendants alongside Penn Capital Funding and MapCap Funding.
The lawsuit seeks to represent all persons in the United States who, on or after February 25, 2018, paid money to any of the defendants under a cash advance agreement with a rate of effective interest greater than 25%.
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