Court Upholds Class Action Waiver in MCA Lawsuit

The U.S. District Court for the Eastern District of Pennsylvania recently denied a motion to certify a class of Korean and other Asian businesses that alleged that the merchant cash advance transactions into which they entered with GOT Capital LLC violated the Racketeer Influenced and Corrupt Organizations Act. The plaintiff merchants, who originally filed a complaint asserting violations of virtually every consumer credit law, argued that GOT Capital specifically targeted them because of their status as Korean-American and Asian-American businesses in Pennsylvania, New York, New Jersey, Texas, California and the United Kingdom. GOT Capital opposed the motion for class certification by pointing out that the merchant cash advance agreement contained the following class action waiver clause: Continue reading “Court Upholds Class Action Waiver in MCA Lawsuit”

Forum Selection Clause Upheld in the 7th Circuit

The extension of financing to small business has undergone something of a revolution in the last few years. With the growth of Independent Sales Organizations and the advent of online lending, more and more small businesses are obtaining credit from alternative finance sources. Many of this alternative financiers operate with certain contractual clauses hard-baked into their merchant-facing agreements. A recent U.S. Court of Appeals decision sheds light on one clause commonly found in these agreements – the forum selection clause.

A forum selection clause, although anathema in a consumer financing agreement, is fairly common in a commercial agreement. The clause binds the parties to face lawsuit (or bring lawsuit) in a specific court. For small business financiers with a nationwide footprint, the forum selected is usually one that is convenient to them, but inconvenient to merchants who do not happen to reside in the same location. Forum selection clauses allow small business financiers to obtain consistency in the enforcement of judgments and certainty of processes necessary to file litigation. Forum selection clauses are generally not prohibited in a commercial setting. Continue reading “Forum Selection Clause Upheld in the 7th Circuit”

2016 Consumer Financial Services Conference

Hudson Cook LLP recently held its Consumer Financial Services Conference. I presented on two panels. The PowerPoint presentations for each follow:

BANK PARTNERSHIP AND THE VALID WHEN MADE DOCTRINE: UPDATE ON MADDEN V MIDLAND

Panelists:
Cathy Brennan, Partner, Hudson Cook, LLP, Hanover, MD
Meghan Musselman, Partner, Hudson Cook, LLP, Hanover, MD
Joseph Vitale, Partner, Schulte Roth & Zabel LLP, New York, NY

Description of Panel:
In the recent decision in Madden v. Midland Funding, LLC, the U.S. Court of Appeals for the Second Circuit held that National Bank Act preemption of state usury laws did not apply to accounts owned and serviced by Midland Funding, LLC, a non-bank debt buyer, even though a national bank originated the account. The panel will discuss how the decision undermines the “valid when made” theory and impedes the ability of national banks to sell loans they originate, thus reducing their ability to lend. The panel will also discuss the impact on anyone involved in a bank partnership model of lending and on those purchasing loans or lines of credit. Panelists will also discuss strategies for addressing the challenges presented by Madden, including licensing and deal structure responses.

Madden Panel

MERCHANT CASH ADVANCE AND SMALL BUSINESS LENDING SESSION: REGULATORY DEVELOPMENTS INCLUDING ISO AND BROKER ISSUES AND GOVERNMENT ADVOCACY

Panelists:
Cathy Brennan, Partner, Hudson Cook, LLP, Hanover, MD
Shawnielle Predeoux, Associate, Hudson Cook, LLP, Hanover, MD
Tom Sullivan, Executive Director, Coalition for Responsible Business Finance, Washington, DC

Description of Panel:
Panelists discuss recent activity by federal regulators and industry efforts to advocate for increased access to capital for merchants. Discussion also includes legal developments and best practices for working with independent sales organizations and brokers.

MCA Panel

Ohio Considers Regulation of Confessions of Judgment

In a commercial lending context, courts and legislatures have generally assumes that the parties to the agreement have relatively equal bargaining power. Because of this understanding – that a business borrower is more sophisticated than a consumer borrower – regulation has been more “hands off” with regard to the terms commercial loans may contain. One such clause frequently found in commercial loan agreements is a confession of judgment clause, also called a cognovit judgment. A confession of judgment is written authorization by the borrower directing the entry of a judgment against him in the event he defaults in payment.  A confession of judgment clause in a loan agreement permits the creditor on default to appear in court and confers judgment against the borrower. Continue reading “Ohio Considers Regulation of Confessions of Judgment”

Asset Purchase or Consumer Loan: One State High Court Weighs In

In a case closely watched by players in the asset purchase space, the Colorado Supreme Court ruled that the purchase of a future interest in the litigation proceeds of a tort lawsuit – usually automobile accidents, slip and falls, construction site injuries and medical malpractice – constituted a loan subject to that state’s consumer credit laws.  Selling an interest in the potential proceeds of personal injury cases is not new. The Purchaser pays the Seller, who is a plaintiff in a tort lawsuit, money in exchange for the right to receive a  portion of the proceeds of litigation.  Although the Colorado case touches on the form of the transaction in the merchant cash advance space, the applicability of the decision to such transactions seems limited to consumer transactions. Continue reading “Asset Purchase or Consumer Loan: One State High Court Weighs In”