Loan Charging Criminal Usury Rates Supports Vacatur of Default

In what appears to be a cash advance scenario where, pursuant to a merchant agreement, the funder/lender would purchase the borrower/defendant’s future receipts for an up-front payment and not call the transaction a loan. After being sued, defaulted when it failed to respond to the lender’s lawsuit. The trial court refused to vacate the defendant’s default. The Second Department disagreed based on the interest of justice, given that the loan appeared to violate the criminal usury statute and was a usurious loan. After reviewing the elements of a claim that could give rise to criminal usury, the court found that while defendant was to permit plaintiff to withdraw funds on a daily basis,

“the plaintiff was ‘under no obligation’ to reconcile the payments to a percentage amount of the [ ] defendant’s sales rather than the fixed daily amount, and the plaintiff was entitled to collect the full uncollected purchase amount plus all fees due under the agreement in the event [ ] defendant’s default by changing their payment processing arrangements or declaring bankruptcy. Together, these terms established that the agreement was a loan, pursuant to which repayment was absolute, rather than a purchase of future receipts under which repayment was contingent upon the [ ] defendant’s actual sales.”

Crystal Springs Capital, Inc. v. Big Thicket Coin, LLC

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