Yellowstone Capital operated for years as one of the largest merchant cash advance funders in the country, and the settlement that ended its run became the largest enforcement action the New York Attorney General had ever secured against a single lending operation. The judgment exceeded one billion dollars. The company no longer exists. The consequences for the industry persist.
What happened to Yellowstone is not an isolated enforcement anomaly. It is a template for how regulators and courts intend to treat MCA funders who disguise fixed loans as purchases of future receivables.
The Core Allegation: Loans Disguised as Purchases
The New York Attorney General filed suit in March 2024, alleging that Yellowstone Capital and its network of affiliated entities structured their transactions as purchases of future receivables while operating, in substance, as lenders. The contracts described flexible payment amounts tied to business revenue. The reality involved fixed daily ACH debits withdrawn regardless of the merchant’s actual sales volume, with repayment periods that often lasted just sixty or ninety days.
That distinction between a purchase and a loan carries enormous legal weight. A true purchase of future receivables falls outside the scope of state usury laws. A loan does not. Some of the interest rates the Attorney General’s office calculated for Yellowstone’s transactions reached eight hundred and twenty percent annually. New York’s civil usury cap sits at sixteen percent.
The Scale of Harm
Over eighteen thousand small businesses received funding from Yellowstone and its affiliates. More than eleven hundred of those businesses were located in New York. The daily debits extracted from merchant bank accounts operated with mechanical regularity, pulling funds whether the business had a profitable day or a devastating one.
The City Bakery in Manhattan’s Union Square closed in 2019. Before it shut its doors, the bakery employed between thirty and fifty workers and was paying more than two thousand dollars per day to Yellowstone on account of what the Attorney General characterized as fraudulent, predatory loans. That single example captures the operational reality of an MCA arrangement where the funder’s daily withdrawal competes with payroll, rent, and the cost of flour.
A business that must pay its lender before it pays its employees is a business that has already failed. The closure is a formality.
The Settlement Terms
On January 22, 2025, Attorney General Letitia James announced the judgment and settlement. The total exceeded $1.065 billion. Of that figure, more than $534 million consisted of canceled merchant obligations. Yellowstone and its entities agreed to cease all collection efforts, discontinue pending actions, vacate unsatisfied court judgments, and terminate liens filed against merchants’ property.
The companies and their officers also made an immediate cash payment of $16.1 million, funds designated for distribution to affected merchants. That payment would increase to $30 million if the entities failed to comply with the settlement terms. And the principals, including CEO Isaac Stern and President Jeffrey Reece, received permanent bans from the merchant cash advance industry.
By December 2025, the final batch of Yellowstone judgments had been vacated by the court.
New Jersey Followed
The enforcement momentum did not stop at the New York border. New Jersey Attorney General Platkin announced a separate $27.375 million settlement with Yellowstone Capital and related entities over allegations of unlawful lending, servicing, and collection practices. The multi-state dimension of the enforcement action signaled that MCA abuses would not be treated as a New York problem alone.
The FTC had also pursued Yellowstone in a separate federal action, adding a third layer of regulatory scrutiny to a single operation.
What This Means for Current MCA Disputes
The Yellowstone settlement established several principles that apply well beyond that particular company. First, courts will examine the substance of an MCA transaction regardless of how the contract labels it. If the funder collects fixed amounts through daily debits during short repayment windows, the transaction resembles a loan. Second, usury protections apply once a court reclassifies the transaction. Third, confessions of judgment obtained through these arrangements are vulnerable to vacatur.
For business owners currently struggling with MCA agreements from other funders, the Yellowstone precedent provides a framework for challenge. The contractual language matters less than the operational reality. If your funder debits a fixed amount each day without regard to your actual revenue, you may possess grounds to argue the transaction is a loan subject to usury limitations.
Ongoing Litigation Against Successor Entities
The Attorney General’s office continues its lawsuit against Delta Bridge Funding and Cloudfund, entities that assumed Yellowstone’s operations in 2021, along with eight additional individuals connected to the scheme, including co-founder David Glass. The settlement resolved the claims against Yellowstone itself, but the broader enforcement action remains active.
That ongoing litigation suggests the regulatory posture has shifted from reactive to structural. It is not sufficient to shut down one company. The individuals who designed and operated the scheme face personal accountability.
The question for business owners holding MCA agreements from other funders is whether their contracts share the structural features that defined Yellowstone’s transactions. An attorney experienced in MCA defense can evaluate that question in a single consultation, and the call carries no cost or obligation.
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