politics·

When The Law Doesn't Matter: How Virginia Courts Became Collection Agencies for Predatory Lenders

New York forced a $1 billion settlement. New Jersey got $27 million. Virginia passed a law and did nothing. Here's what every small business owner needs to know before signing a merchant cash advance.

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TLDR:

  • Virginia passed the Sales-Based Financing Providers Act in 2022 to regulate merchant cash advances
  • New York extracted a $1 billion settlement from the same predatory lenders. New Jersey got $27 million.
  • Virginia has taken zero enforcement actions
  • When laws exist but no one enforces them, the legal system becomes a collection agency for loan sharks
  • Get professional help before signing any MCA agreement

What Nobody Tells You About "Fast Business Funding"

If you've ever searched for quick business financing, you've seen the ads. "Not a loan." "Flexible payments based on your sales." "Approved in 24 hours."

I signed one of these agreements. What followed taught me more about how the legal system actually works than I ever wanted to know.

This isn't a story about one bad contract. This is a story about an industry that has figured out how to use the courts themselves as their collection agency—and what you need to know to protect yourself.

The $1 Billion Industry That Operates With Impunity

In January 2025, New York Attorney General Letitia James announced a $1 billion settlement against Yellowstone Capital—one of the largest merchant cash advance providers in the country. Interest rates documented in the case reached 820% per year.

Over 18,000 small businesses were affected. More than 1,100 judgments against small business owners were vacated by the courts.

But Yellowstone wasn't the worst. In February 2024, a federal court entered a $77 million judgment against Richmond Capital for the same predatory practices. Their interest rates approached 4,000%—almost 250 times the legal rate.

The FTC has banned multiple operators from the industry entirely.

This isn't a few bad actors. This is an industry.

Loan Sharks in Suits

In Brazil, they call them agiotas—loan sharks who lend money at predatory rates and collect through intimidation and violence. In America, we have something more sophisticated. Or so we thought.

The FTC and New York Attorney General cases revealed that MCA companies don't just use lawyers. They use threats. Court filings document collectors telling merchants:

"I am going to make you bleed." — Threat made at a merchant's synagogue

"Be thankful you're not in New York, because your family would find you floating in the Hudson."

In one case, a collector threatened to "break his jaw" if a merchant didn't pay. In another, they threatened to destroy a merchant's reputation by falsely accusing him of being a child molester.

But the industry figured out they don't need violence. They have something better: the legal system itself.

A traditional loan shark breaks your legs if you don't pay. That's illegal. They go to prison.

An MCA provider does something smarter:

  • They call it "not a loan" to avoid usury laws
  • They make you sign a personal guarantee
  • They include a confession of judgment (a pre-signed admission that you owe them)
  • They file a UCC lien on your business
  • When you can't pay, they don't send enforcers—they send lawyers
  • The courts collect for them. Legally. With the full power of the state.

They've turned the justice system into their collection agency.

Before New York banned the practice in 2019, MCA companies won more than 11,000 judgments in New York courts in a single year—many based on confessions of judgment that borrowers didn't even know they had signed.

A Tale of Two States

The States That Fought Back

New York didn't wait for victims to come forward. Attorney General Letitia James launched three major enforcement actions:

Over $534 million in debt was cancelled. 18,000+ businesses got relief.

New Jersey secured a $27.375 million settlement against the same Yellowstone Capital.

These states saw predatory lending. They acted. They won.

Virginia's Silence

Virginia passed the Sales-Based Financing Providers Act in 2022. The law requires registration, mandates specific disclosures, prohibits confession of judgment clauses, and says violations "shall be unenforceable."

Documented Virginia AG enforcement actions against MCA providers since the law passed: Zero.

The same companies that New York and New Jersey prosecuted operate in Virginia. The same predatory practices. The same 820% interest rates.

But Virginia's Attorney General has filed no lawsuits. Issued no settlements. Taken no action.

I filed a complaint with the Attorney General's office documenting violations in my own agreement—violations visible in the contract itself. They declined to pursue the matter.

New York's Letitia James didn't wait for perfect cases. She investigated an industry, found systematic violations, and extracted a billion dollars for small businesses. Virginia received complaints with violations spelled out and did nothing.

The Veto That Protected Predators

In 2025, the Virginia legislature tried to fix this. Senate Bill 1252 would have closed the loopholes that let MCA providers evade usury laws.

The bill passed the Senate 38-0. Unanimous. Republicans and Democrats agreed: these practices needed to stop.

Governor Glenn Youngkin vetoed it.

His reasoning? The bill was too "vague and expansive" and might hinder "access to credit."

Translation: protecting the MCA industry's ability to charge 820% interest rates was more important than protecting Virginia small businesses.

How the MCA Debt Trap Works

Here's what they tell you:

  • "This isn't a loan—it's a purchase of your future receivables"
  • "Payments flex with your sales—slow month, lower payment"
  • "No credit check required"
  • "Fast approval—money in your account tomorrow"

Here's the reality:

The "not a loan" claim lets them avoid usury laws. Traditional lenders can't charge 100%+ interest. MCA providers claim they're not lenders, so the caps don't apply.

The "flexible payments" promise disappears when you read the fine print. Many agreements have fixed weekly payments regardless of sales. And if you default? You've personally signed an "irrevocable, absolute, and unconditional" guarantee for the full amount.

The "no credit check" pitch means they don't care if you can afford it. They've already calculated that between the personal guarantee, the confession of judgment clause, and the UCC lien on your business, they'll get their money one way or another.

The Legal Violations Nobody Will Address

Virginia's law defines what "sales-based financing" means: payments must "increase or decrease according to the volume of sales."

Many MCA agreements appear to violate this in multiple ways:

1. Personal Guarantees Contradict the Definition

If payments are supposed to vary with sales, how can there also be an unconditional personal guarantee for the full amount regardless of sales? These concepts are mutually exclusive.

2. Modified Disclosure Forms

Virginia regulations prohibit modifications to the mandatory disclosure form. Providers routinely add extra paragraphs.

3. Impossible Math

Disclosures often say fees are "deducted at disbursement" AND "included in Finance Charge." Both cannot be true. This makes the actual cost indeterminable—exactly what disclosure laws are supposed to prevent.

The law says violations "shall be unenforceable." But if no one enforces it, that's just words on paper.

What I Wish Someone Had Told Me

Red Flags to Watch For

  • "This is not a loan" — This phrase exists to avoid consumer protection laws
  • Personal guarantee — If they need your personal guarantee, it's not really "sales-based"
  • Confession of judgment clause — Lets them get a judgment against you without trial
  • Daily or weekly ACH debits — Fixed payments, regardless of sales
  • Reconciliation only if no default — The "flexible payment" promise disappears the moment you have trouble
  • Pressure to sign quickly — Take your time. Get help first.

Questions to Ask

  1. What is the effective APR? (They won't want to tell you)
  2. Can payments actually decrease if my sales drop?
  3. What triggers a default?
  4. What happens to the "flexible payment" structure if I default?
  5. Why do you need a personal guarantee if this is based on business revenue?

Get Help Before You Sign

This is the most important thing I can tell you: do not sign an MCA agreement without professional review.

Talk to:

  • A business attorney who understands financing agreements
  • A CPA or financial advisor
  • Your state's small business development center

The few hundred dollars you spend on professional review could save you from years of legal battles.

Alternatives to Consider

  • SBA microloans
  • Community Development Financial Institutions (CDFIs)
  • Revenue-based financing from reputable providers (with transparent terms)
  • Negotiating with existing creditors
  • Business credit cards (yes, even at 24% APR—still better than 100%+)

What You Can Do

If you're a Virginia small business owner—or if you care about whether Virginia enforces its own laws:

File Complaints

Demand Legislative Action

Governor Youngkin vetoed SB 1252—the bill that would have closed the loopholes. The bill passed the Senate 38-0. Unanimous bipartisan support.

Contact your state legislators. Ask them:

  • Why did Governor Youngkin veto SB 1252?
  • Will you override the veto or reintroduce the bill?
  • What are you doing to protect Virginia small businesses from 820% interest rates?

Find your Virginia legislators: Virginia General Assembly

Share This Story

Other Virginia small business owners are signing these agreements right now, thinking they're getting "sales-based financing" with "flexible payments." They're not. They're getting debt traps with 100%+ effective interest rates and personal guarantees that will follow them for years.

The MCA industry counts on silence. They count on shame.

Don't make it easy for them.

Resources

State Enforcement Actions:

Federal Actions:

Virginia Law:

Investigative Journalism: