Under loan agreements, the firm argued that one loan was disguised as a Merchant Cash Advance so that the defendant could charge an annual interest rate of 117%.
WAYNE, NJ, October 29, 2020 /24-7PressRelease/ — The attorneys at Scura recently obtained a successful result on behalf of Gencarelli’s Pizzeria and Restaurant Inc. in a recent dispute involving claimed Merchant Cash Advances filed in the Federal District Court in New Jersey. On October 6, 2020, the firm settled the case with the loan companies, removing claimed interest charges on the alleged usurious loans. This case is a major landmark in the continuing battle against merchant cash advance financing.
In the case, we represented Gencarelli’s Pizzeria, alleging that the defendants had given our client a loan with illegal interest rates. Under loan agreements, the firm argued that one loan was disguised as a Merchant Cash Advance so that the defendant could charge an annual interest rate of 117%. On behalf of our client, the firm alleged that this is in excess of both New Jersey state law, which maintains the annual interest cannot exceed 50% per annum on loans. Financing companies that provide Merchant Cash Advance financing typically argue that these are not loans and therefore the financing companies are not subject to the caps on interest charged under applicable usury laws. Usury laws are the laws in a given state that cap the amount of interest that can be charged on a loan. Some states do not even have usury laws. As a result, many financing companies are set up in states that do not have usury laws.
In the Gencarelli case that we filed, the agreements had states other than New Jersey as the applicable controlling law in an attempt to avoid the caps on allowable interest charged. On filing the complaint, we argued that New Jersey law should apply because of NJ’s paramount interest in regulating the interest rates charged in the state. Since Gencarelli’s Pizzeria is a New Jersey business it should be afforded the protections of NJ State law.
The Defendants disputed the allegations. Our firm argued that the Merchant Cash Advance contained a provision which afforded the Merchant Cash Advance companies a recourse in the event of non-payment by the Merchant. Specifically, because the agreement contained two additional overbroad guarantees that could be enforced in the event of non-payment and set a timeframe in which the loan was to be paid back, the firm alleged that this was a usurious loan disguised as a Merchant Cash Advance so that it could charge interest rates that exceeded the rates allowed by the applicable New Jersey state laws. The defendants, as expected, denied any wrongdoing in the case and under the settlement agreement.
The results of this settlement are yet another legal battle that further establishes how small businesses can resist and fight back against predatory loans and business practices.
If you or your company has a legal issue with a Merchant Cash Advance, please do not hesitate to contact one of our New Jersey lawyers to analyze your loan agreements. The attorneys at Scura, Wigfield, Heyer, Stevens & Cammarota LLP can help. Please call our offices to schedule a free consultation and hear your options.
Scura, Wigfield, Heyer, Stevens & Cammarota LLP is a Bankruptcy and Personal Injury Law Firm working in New Jersey. Our team handles all types of bankruptcy, personal injury, estate planning, real estate law, and litigation cases. We are ready to journey with you towards resolution and ensure that you obtain proper legal representation in New Jersey.
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