12 min read
LendMatrix Team
•
January 5, 2025
In 2024, New York authorities secured a $1.175 billion judgment against Yellowstone Capital and its affiliated companies. It was the largest enforcement action in MCA history.
The headlines focused on the number. A billion dollars. Fraud. Predatory lending. But the real story is more nuanced—and more important for anyone in this industry to understand.
Because Yellowstone didn't fail on some technicality. They failed on the fundamental promise of what an MCA is supposed to be.
And if we're honest, a lot of providers are making the same mistakes.
The core issue was simple: Yellowstone was charging fixed daily payments regardless of merchant revenue.
That might not sound like a big deal. But it's actually the entire ballgame.
A true merchant cash advance is revenue-based. You sell a portion of future receivables. When you make money, the provider takes their cut. When revenue drops, payments drop too.
This is what makes MCAs legally distinct from loans. Loans have fixed payments regardless of business performance. MCAs flex with revenue.
Yellowstone structured their deals as MCAs to avoid lending regulations. But they collected like loans—fixed amounts, every day, regardless of what the merchant actually earned. When merchants had slow days, they still owed the same amount. When they had slow weeks, they fell behind. When they fell behind, fees stacked up.
The New York Attorney General called it what it was: a scheme to disguise high-interest loans as merchant cash advances.
Some context on what Yellowstone was actually doing:
But here's the thing: Yellowstone wasn't an outlier in terms of cost. Plenty of MCAs run at 70-100% effective APR. What made them illegal wasn't the rate—it was the structure.
Fixed daily payments + calling it an MCA = fraud.
That distinction matters for everyone in this industry.
Yellowstone accelerated something that was already building: a state-by-state regulatory crackdown on MCA practices.
Here's what's already in effect or coming soon:
The strictest requirements in the country:
The California DFPI now requires:
New requirements include:
HB 700 changes the game:
HB 1127 expands the definition of "loan" to include alternative funding products like MCAs, potentially subjecting them to the Money Brokers Act.
If you're running an MCA operation in 2025, here's the new reality:
If your holdback is 15%, you take 15% of actual daily revenue. Not $500 fixed. Not "15% with a $400 minimum." Actual percentage of actual revenue.
The moment you deviate from this, you're not offering MCAs anymore. You're offering loans disguised as MCAs. And regulators are now looking for exactly that.
Even if you're operating in a state without MCA-specific regulations, you should be providing:
Why? Because (a) it's coming to your state eventually, (b) it protects you legally, and (c) it's just the right thing to do.
When regulators come knocking—and they will—you need to prove:
If you're doing this on spreadsheets and email chains, good luck reconstructing that in discovery.
This is why we built LendMatrix with compliance baked in:
We're not building for the MCA industry of 2019. We're building for the regulated industry of 2025 and beyond.
Yellowstone's $1 billion judgment isn't just about one bad company. It's a signal that the era of unregulated MCA is ending.
Some in the industry are fighting this. They see regulation as a threat to their business model. They lobby against disclosure requirements. They move operations to less-regulated states.
We think that's short-sighted.
The MCA industry has a reputation problem. Ask any small business owner what they think of merchant cash advances and you'll hear words like "predatory," "confusing," "expensive." Some of that reputation is earned. Yellowstone earned it. Dozens of smaller operators earned it.
Regulation isn't the enemy. Bad actors are the enemy. Regulation just forces everyone to compete on service and value instead of on who can hide fees most effectively.
The providers who survive—and thrive—in the new regulatory environment will be the ones who embrace transparency now. Who build compliant systems before they're required. Who treat merchants like partners instead of targets.
At LendMatrix, the Yellowstone case prompted a full review of our platform:
Disclosure templates: We now provide state-specific disclosure documents that meet the strictest requirements (New York/California) regardless of where the merchant is located.
Revenue verification: Our system tracks actual daily revenue and ensures holdback collections never exceed the agreed percentage.
Fee transparency: Every fee is displayed upfront, itemized, and documented in the audit trail.
APR calculation: We show the APR equivalent on every offer, automatically calculated based on actual terms.
Compliance reporting: Tenants can generate instant compliance reports for any deal, any time.
If you take nothing else from the Yellowstone case, take this:
1. Structure matters more than rate. Yellowstone wasn't prosecuted for high rates. They were prosecuted for calling something an MCA when it wasn't.
2. Regulators are watching. New York spent years building this case. Your state AG is paying attention too.
3. Disclosure is your friend. The providers who get in trouble are the ones hiding things. The ones who are transparent have nothing to fear from regulation.
4. The industry needs this. Every predatory headline damages legitimate providers. Cleaning up the bad actors helps everyone.
Expect more enforcement actions. Expect more states to pass MCA-specific regulations. Expect federal attention eventually—the CFPB has been circling this industry for years.
The question isn't whether regulation is coming. It's whether you'll be ready when it does.
We built LendMatrix to be ready. Not because we had to—because we believe that transparent, compliant MCA funding is the only sustainable model for this industry.
Yellowstone is a warning. The next billion-dollar judgment doesn't have to be yours.
Need help evaluating your compliance posture? Our platform includes built-in compliance tools, but we're also happy to discuss industry best practices even if you're not a customer. Reach out—this is too important to get wrong.