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Navigating Business Debt Relief in Ohio: A Guide for MCA Defense Lawyers

Introduction

Business debt can pile up fast for Ohio companies, especially with predatory merchant cash advance (MCA) lenders charging sky-high interest rates. As an MCA defense lawyer in Ohio, you need to fully understand the landscape to best protect your clients. This guide breaks down the key laws, defenses, and relief options to consider.

Let’s start with the basics. MCA loans are a type of financing where a lender provides a lump sum to a business in exchange for a percentage of future credit card sales. The catch is that these loans can have absolutely insane interest rates, we’re talking 200-500% APR in some cases.

So when your client misses a payment or two, their debt can spiral out of control real fast. And shady MCA lenders are quick to sue or threaten legal action. That’s where you come in.

As the attorney, you gotta figure out what defenses you can raise to get these excessive debts reduced or dismissed. There’s a bunch of angles to look at – were the loans usurious under Ohio law? Did the MCA company engage in fraud or misrepresentation? Do certain federal lending regulations apply?

We’ll explore all that and more in this guide. We’ll also talk about some alternative debt relief options like bankruptcy or settlement. The goal is to give you a nice blueprint to start mapping out strategies for your clients suffocating under crippling MCA debts.
So grab a coffee (or a beer if it’s past noon) and let’s dig in!

Key Ohio Laws and Regulations on MCA Loans

In Ohio, MCA loans fall into a gray area when it comes to lending regulations and usury laws. Some key state laws and cases to be aware of include:

• Ohio Revised Code Section 1343.01 – Defines usurious interest rates in the state. Unfortunately does not explicitly cover MCA loans.
• Dairyland Financial Corp. v. Federico – 1991 Ohio Supreme Court case that set a precedent for what constitutes usurious loans in the state.
• Ohio House Bill 312 (2021) – Recent unsuccessful attempt to cap MCA interest rates at 36%. Important to watch for future legislative efforts.

On the federal level there could also be potential claims under lending regulations like:

• Federal Trade Commission (FTC) Act – Prohibits unfair or deceptive trade practices.
• Truth in Lending Act (TILA) – Sets disclosure requirements for loans.

Now let’s discuss how you can leverage these laws and regulations to challenge your client’s outrageous MCA debts!

Crafting Usury Claims Under Ohio Law

One of your strongest plays is to argue that the crazy 200-500% interest rates on your client’s MCA loans are illegally usurious under Ohio law.
Here’s a quick definition on usury for reference:

The illegal action or practice of lending money at unreasonably high interest rates. All states have usury laws that prohibit lenders from charging interest rates above a specified percentage.

In Ohio, it gets a little tricky because those usury laws don’t explicitly call out merchant cash advances. But there is still room to make a claim if you can demonstrate the loan’s terms are outrageously above normal.

Under Ohio Revised Code Section 1343.01, the maximum legal interest rate is set around 8% per year. So if your client has an MCA loan with an annualized rate exceeding 25-30%, you potentially have an argument that the loan violates state public policy against usury.

The 1991 Dairyland case noted above also provides a framework for evaluating usury claims in the state. The Court ruled that loans can be deemed usurious if:

1. The interest rate exceeds legally set limits
2. OR the rates are otherwise unconscionable or against public policy

So again, while MCA loans slip through the cracks of defined rate limits, you may still be able to claim usury under that second prong if the rates are ridiculously high.
This requires a careful balancing analysis by the courts on things like:

• The level of risk assumed by the lender
• The business sophistication of the borrower
• Impact of default on the lender
• Other market rates for similar loans

You’ll want to address all those factors to show that your client’s MCA loan is outside industry norms and constitutes predatory lending.
And here’s the best part if you win a usury claim – the remedies under Ohio law are no joke. The courts can either:

1. Invalidate the entire interest charged – So your client pays back just the principal amount borrowed
2. Or invalidate the entire loan contract – Client pays back nothing, loan wiped clean off the books

So definitely analyze if usury arguments are viable when looking to get your client’s MCA debts dismissed.

Other Ohio Defenses Against Predatory MCA Lenders

Along with usury claims, here are some other Ohio-specific defenses that could invalidate, reduce or discharge your client’s unfair MCA debts:

Unconscionability

If an MCA contract contains unfair, one-sided terms that unreasonably favor the lender, you may be able to argue it’s an unconscionable contract under Ohio law. Things like unreasonable fees, arbitration clauses, etc.
If successful, the courts can refuse to enforce the unconscionable parts of the agreement. This is more likely combined with a usury claim to demonstrate the broader pattern of predatory lending.

Fraud and Misrepresentation

When MCA companies make false statements or omit key info to induce a borrower into taking a loan, that potentially constitutes fraud under Ohio statute ORC 2307.60.
Common issues to look out for include inflated statements of potential income or withheld info on automatic daily repayments.
You’ll need to prove intentional deception or at least reckless disregard for the truth. But if successful, this can make the entire loan agreement voidable at your client’s discretion.

Breach of Fiduciary Duty

While rare, there have been cases where courts found an MCA company formed a fiduciary relationship with a borrower, requiring them to act in the client’s interests. Think small, unsophisticated businesses placing full trust in brokers.
If you can demonstrate your client reasonably relied on such a special relationship of trust, courts may award damages for violations of that duty through predatory lending practices.

Alternative Federal Lending Defenses

Stepping beyond Ohio law, it’s also worth exploring potential federal claims related to unfair lending practices:

FTC Violations

Under Section 5 of the FTC Act, predatory MCA loans could potentially constitute an “unfair or deceptive practice affecting commerce.”
You’ll need to demonstrate patterns of intentional deception through tactics like inflated statements or hidden fees. But if proven, this triggers injunctive relief, damages, and attorney fee awards.

TILA Violations

The Truth in Lending Act (TILA) sets disclosure requirements for loans to help borrowers understand terms.
Tactics like obscuring repayment structures or APRs could violate TILA. And even technical errors like incorrect fee estimates entitle borrowers to enhanced damages.
So probe your client’s loan documents for any slip-ups or missing disclosures. TILA opens the door for statutory and actual damages.

Seeking Debt Relief Through Bankruptcy

If lawsuits or legal defenses fail to resolve your client’s crushing MCA debts, bankruptcy may be the lifeline they need. Here is a quick overview of how it works in Ohio:

Chapter 7 Bankruptcy

This allows for a total discharge of qualifying debts while liquidating non-exempt assets. MCA loans would likely qualify to be wiped clean. But the business would cease operations.

Chapter 11 Bankruptcy

A reorganization option that develops a court-approved repayment plan over 3-5 years. Company keeps operating but must dedicate profits to creditors. MCA debts can potentially be discharged post-plan.

Chapter 13 Bankruptcy

While rare for businesses, it offers 3-5 year court-monitored repayment plans for sole proprietors. Gives breathing room and potential discharge of part or all MCA loan balances after completion.
As you can see, all bankruptcy routes offer at least some path to reducing, restructuring or fully discharging those suffocating MCA debts.

Additional Debt Relief Through Settlements

Short of bankruptcy, structuring a favorable settlement agreement is often the quickest and cleanest path to debt relief for your small business clients.
Here are tips for negotiating MCA settlements:

Wait for Default Purchase

Many MCA lenders sell defaulted loans to third-party collectors at steep discounts – often around 2-10 cents per $1 of debt. This instantly creates room for deep settlement discounts.

Know the Tax Implications

Settled debts still count as taxable income. Have your client set aside funds to cover additional tax obligations from debt relief.

Get Terms in Writing

Verbal agreements don’t cut it. Formally execute the settlement terms in a written contract signed by both parties to make it legally enforceable.