This is without question an absolutely miserable practice, and I predict NYS will take quick action to curtail it - this is the sort of bad PR that very often moves the NYS government into actual positive action. This whole industry seems to have hidden in the shadows, and I hope NYS fixes it.
That being said - one thing stands out, as it often does with this sort of story. There's often a turning point that should make any one of us scratch our heads and learn for the future. This was it for me:
"The Duncans’ ordeal began in November 2017 with an unsolicited fax from a broker promising term loans of as much as $1 million at a cheap rate...The spam fax felt like a gift from God."
That's the moment right there that should scream RED FLAG RED FLAG RED FLAG to everyone. Spam never delivers a gift from the heavens. Never. Never. Never. This is the same sort of thing that 409 scammers bank on -- desperate folks that think they're just the luckiest darn people on earth for happening to get this great deal right at their feet. This is not how the world works.
It goes on...
"Without talking to a lawyer, they did. Why not? Doug thought. They intended to pay the money back on time."
Red Flag #2.
"This would continue for about three months, until they’d repaid $59,960, amounting to an annualized interest rate of more than 350 percent. A small price to pay, Doug figured—soon he’d have all the money he needed in cheaper, longer-term debt."
And again...
I'm not blaming the Duncans here entirely, but this situation was avoidable. I hope everyone here on HN reads this tale and learns from it for your own businesses / life experiences.
These stories are so interesting & tragic because the weakness being exploited is that uniquely American breed of optimism... the one that's maybe one part American Dream (capitalist patriotism), one part Jesus (including both the Protestant work ethic and the belief in "deserving") and one part The Secret.
You can't think a fax is a gift from God if you don't think there's a God, for example. And you won't be as predisposed to look at it as a break for you, if you don't think you "deserve" a break (or to be rich, or to be in business at all). And you immediately see the downside of any loan, the second you consider "Hey what if tomorrow isn't more flush than today?"
> one part Jesus (including both the Protestant work ethic and the belief in "deserving")
Protestant theology actually says the opposite of "you deserve blessings", historically. The "five solas" of the protestant reformation include "sola gratia" (salvation only by grace - undeserved good treatment), and "solus christus" and "sola fide" make similar points.
Certainly "prosperity gospel" teaching is rampant, but it has very little to do with the Jesus of the New Testament or with historical Protestantism.
> You can't think a fax is a gift from God if you don't think there's a God, for example.
You also wouldn't think that if you read the Bible much.
- Proverbs 13:11 - Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.
- Proverbs 22:7 - The rich rules over the poor, and the borrower is the slave of the lender.
- Hebrews 13:5 - Keep your life free from love of money, and be content with what you have, for he has said, "I will never leave you nor forsake you."
You can find many examples of professing Christians (or atheists) doing stupid things. That doesn't necessarily mean that Christianity or Jesus is the problem. It's more often that they don't follow what they claim to believe.
I wouldn't have thought Jesus would need defending here, but yes I'm talking more about the convenient reinterpretation of Biblical lessons, than the lessons themselves.
I do not think that this is something unique or specific to the US. Loan sharks, payday loans, and the consequences exist in many countries of the world.
True, but many countries regulate and limit them much more aggressively than the US typically does (I use "typically" since most regulation is at the state level)
To you and me, it’s about as obvious a red flag as can be. To a struggling small-business owner with a staff of dozens all depending on them for their livelihoods, it’s probably a little bit murkier.
Imagine writing some really bad code under an extremely tight deadline. You know it’s a bad idea, you know it’ll be miserable to maintain, and that it’s a very brittle solution, but you write a few all-caps comments around it and a self-deprecating joke in the commit message, and resolve to refactor it once the deadline has passed.
The process of taking on bad tech debt is very, very similar to the process of taking on bad regular debt.
>> To you and me, it’s about as obvious a red flag as can be. To a struggling small-business owner with a staff of dozens all depending on them for their livelihoods, it’s probably a little bit murkier.
When your payments will be $800 per DAY I don't understand how the cost of having a lawyer look it over is of any consequence.
You know, not everything in life requires a code analogy. This one is particularly egregious because outside of Hollywood I've never heard of code intentionally deceiving its author.
Agreed. This feels a lot like the home lending crisis leading up to 2009. People taking out loans for far more than they could afford with interest only loans, ARMs, etc., or taking out large home equity loans for consumer purchases. What it speaks to is a huge lack of financial literacy.
I do feel for people in this situation, particularly those who are driven to the home equity loans due to unfortunate events, like cancer, in their personal lives. But I feel that it needs to be said that there's a not insignificant number of people who are caught in these situations precisely because they failed to plan and have contingency money set aside, instead spending to keep up with the Joneses.
>there's a not insignificant number of people who are caught in these situations precisely because they failed to plan and have contingency money set aside...
and
>due to unfortunate events, like cancer, in their personal lives...
I think it's a bit idealistic to think most Americans can save up to take care of a potential bout with cancer. Particularly if they are unfortunate enough to get certain varieties of cancer.
It's like a Manhattan penthouse. We can save for as long and as hard as we like, but for most Americans that purchase is just going to be out of reach. That's just life here in the US when it comes to cancer. The treatments are expensive and out of reach for most of us. Insurance can make it a bit better, but at the mean, we'll still have some pretty serious problems paying for the treatment.
Perhaps it's not abundantly clear, but I'm trying to draw a distinction there. I get that there are things like cancer that cannot be sufficiently financially prepared for. However, for things like needing a new roof, car tires need replacing, etc., that is precisely what contingency money is for. If you cannot save sufficiently for said expenses, it's time to consider a downgrade on that particular item until you can, or curtail other non-essential expenses for a while.
They were definitely defrauded, but they weren't particularly shrewd here. Pumping the brakes a bit and taking a bit of time to consider all of the legal documentation almost certainly would have saved them. When a deal seems to good to be true, it almost certainly is. Never sign a document unless you fully understand what it is: what rights you're giving up and what legal declarations you're making.
This isn't quite the same in that the people in question actually repaid far more than they owed. The "loans" were structured in such a way that they don't seem to end in practice, and that when you give in you have to give up your entire financial life.
Conmen look for people who are so desperate they will suspend disbelief. It’s no surprise that all the marks in this story were struggling to save their livelihoods.
I wonder if part of the Yellowstone MO was to use fax? Over email, you have to compete with the Nigerians, Russians etc, somehow fax would seem a little more legit.
Sad story this. I hope the victims can achieve some sort of redress.
Conmen look for people who are so desperate they will suspend disbelief.
They look for people who are both desperate and also naive or gullible or unrealistic or something. I spent nearly six years homeless. I was also extremely ill at the time. I absolutely was desperate.
I also refused to be sucked into certain things. No, I was not going to sleep with someone for money and risk getting AIDS, being arrested, etc and having my problems become drastically worse. No, I was not going to accept an offer of temporary housing that came with a huge and obvious downside that well could have left me in much worse straits than I was already in. No, I was not going to make use of homeless services that expected me to leave all my worldly possessions, including my computer that I could not afford to replace, in an unsecured area where anyone could walk off with it.
I looked for options that had clear and obvious benefit without huge fuck you potential.
I’m sorry to hear that but am pleased you seem to have been able to walk away from offers that would have worsened your situation. I hope your savviness is still paying dividends.
To my knowledge, Yellowstone farms out acquisition to a network of tons of shady brokers. So if they do fax spam, Yellowstone's hands are clean. I know of Yellowstone because they are one of the biggest subprime SMB lenders.
FYI, for a 3 month daily debit loan like this, 350% APR means paying $60,000 for a $35,000 loan. This is obviously very high, but it's not the 3.5 * the principle like many people would assume.
How so? You are nearly doubling your money every 3 months. What investments can do that? Crypto? Not guaranteed. Pretty much only usury and actual crime.
Whenever I'm evangelizing the PPACA, I always hit on the regulations around the MLR - the "medical loss ratio", ie, what percentage of premiums are paid back out as medical claims.
One insurance company had a plan with a ten-percent MLR! (Marketing plans that didn't cover anything to college kids, of course.) They took in premiums and kept ninety-percent of it as profit.
My comment was just on how APR is calculated for short term loans.
Also, you only double your money every 3 months if none of your loans default and you collect everything. Most of these loans default. Profits are way slimmer than you're imagining, even for the scammers (Who I definitely agree should be punished for these practices).
A prior place I worked at paid somewhere around a million of dollars as part of a fax blasting settlement (an employee sent around 1000 faxes iirc). I don't know how this business didn't get nailed to the wall for it, the fines are per fax and crazy.
One errant employee can fax blast once and wreck an entire company.
As long as they collect their money from the victims, they can't be too hard to pin down. Sounds more like a bureaucracy issue, falling between the responsibility boundaries of different agencies.
The problem is with how user acquisition is done on the shady side of the industry.
At the top, there's a lender. In this story, the lender is Yellowstone. The lender actually gives money to the customer.
A lender like Yellowstone has 200+ brokers they work with. The brokers are independent companies - "Business Lending LLC" or some generic name.
The brokers do whatever they can to find customers interested in a loan. They package that customers info into a loan application, and send it to Yellowstone. Yellowstone then decides to fund it or not. If they do, the rest of the contact is between Yellowstone and the small business borrower.
How does the borrower know which broker they worked with? Fax letterhead? Fake generic business name. Email of the rep they worked with? Possibly some random gmail. Etc. They get super unlucky and get fined? Declare bankruptcy, make a new company called "Business Lending 2 LLC".
It's not impossible to catch these guys, but it is hard enough to enforce that no current agency is especially interested.
I still assume there are wire transfers of money involved, even if its between the enterprises. The whole point of this activity is criminal profit. There is absolutely no way to anonymously cash out that in 2018 unless transferring out to offshore havens. And often even then, if the US govt throws its weight.
But those fine/regulation doesn't seem to stop the telemarketers.
Any idea on why that's the case?
The gov agency is not enforce it?
The lawyers can't do class action and make $ from filing those cases? Can they file any cases against AT&T or other phone companies?
The spammers are outside the US?
Agreed. No one can know the exact way everything played out, but the warning signs are there for the savvy person willing to look for them.
However, I do wonder if their lack of caution may have helped their downfall to begin with. Housing isn't like tech startups. You can't just "grow at all costs" by hiring 50 employees and taking money from anyone and everyone.
There's a saying in New Zealand which describes how the Duncan's got themselves into that situation and their choice of business, "there's always real estate...".
Yeah, the loan sharks are absolutely scammers, and the courts are absolutely corrupt to let this happen, but... there's also an element of "you can't con an honest man" at work here.
The only really "dishonest" part involves people "lying to themselves" or refusing to cut the losses when all evidence points to it. All of the anecdotes are basically the same: "business in dire straits, we just need short-term financing to weather the short-term crisis". The people are "lying to themselves" by not making a more honest assessment of the situation. It's easy to read a situation and make a rational judgment when you aren't a participant, but a lot more difficult when it's your business
They were up to date on their payments. There was no hint they were ever going to default. It's pure supposition - of the blame the victim kind - to imply they were running some kind of inverse scam, even subconsciously, or that they would have stiffed the lender.
In all seriousness... how do you protect naive people from scams like this? I guess my despair is that: you might protect them from this obvious scam. What if the scam is a little more polished?
I think this kinda thing will always happen to gullible folks. I'm not sure what the solution is.
Only if we are willing to say the same once someone decides to fight back with actual force. If someone outright kills a scammer doing this, are you willing to write it off as "Darwin's law" and let it be?
At least with conventional scams it’s up to the victim to voluntarily hand over the money to the scammer. In this case it’s different because the government is complicit in the scam and forcefully takes the money from the victim to give to the scammer.
So imagine instead of scammers you had hyenas who lived around a particular stretch of road and ate anyone who wandered by.
You could say "Darwin", anyone dumb enough to get eaten deserves it.
But you could also say "anything that eats people is gonna get shut down hard", because you don't get to be at the top of the food chain if you let things keep eating you.
This article describes what is essentially a scam operation, dressed up in legal garb, aimed at exploiting desperate borrowers looking for short-term funds to help fund their business operations.
No one signs up to a loan charging 350% annual interest who is not desperate.
No doubt the arrangement is structured in a way that also circumvents usury laws of various jurisdictions.
The confession of judgment form is an integral part of the abuse inflicted on borrowers here. This is indeed a long-standing legal vehicle, perfectly legal in itself, by which a lender can go to court and get an ex-parte judgment (that is, a judgment following an application process by which only one party appears and no one is there to oppose the application or contest it in any way) in highly expedited fashion. With a confession of judgment, actual review by a judge is bypassed altogether in most cases and a clerk performs a ministerial act to enter it. By ministerial, I mean that no one attempts to evaluate anything other than to determine that the form itself is indeed a confession of judgment and that is it signed by the party purporting to confess judgment. Once such a judgment is entered, it has all the attributes of any other judgment and can be used to seize assets and otherwise employ the full range of means by which it can be enforced against a judgment debtor.
A confession of judgment can serve a legitimate purpose. Very often, when litigation is settled, a party cannot pay a given amount in full but agrees that he owes it and promises to pay it over time in installments as part of the settlement. Rather than entering into a stipulated judgment that becomes public record to document the debt, the parties will agree, in effect, to keep it off the public record by signing both a formal settlement agreement and also a confession of judgment providing that the debtor confesses judgment for the full amount of the debt. The settlement agreement will in turn define the conditions by which the confession of judgment may be filed and an actual judgment obtained. Typical terms provide that it can in no case be filed as long as payments under the arrangement are being timely made but can be filed (either with no notice or with a very short notice) if the debtor defaults under the arrangement (even then, any payments actually made must be credited to reduce the amount of the balance that becomes part of any judgment). If the debtor pays everything off in full and on time, then the confession of judgment can never be filed or used in any manner. If someone tries to file it and obtain a judgment contrary to the agreement, severe consequences follow to punish the party abusing the process.
That sort of limited use is helpful in resolving disputes while limiting harm to debtors who wind up having to sign such things. Attorneys are typically involved who, in effect, assume fiduciary duties not to abuse the process. In this sense, and for such uses, the confession of judgment is a tried, tested, and useful part of our U.S. legal system. It goes back many decades, if not centuries, in the English common law.
In contrast, what is described in this article makes a mockery of our legal system. There you have a shady business that incorporates the confession of judgment into every loan as a matter of routine and effectively sets up a process where even a minor missed payment can result in devastation and ruin to a debtor with no notice, no opportunity to be heard, and no defense. When you add to this their institutional practices of conveniently fabricating evidence to justify use of the confession, you turn the full force of the law against a hapless and defenseless debtor who innocently assumed that normal loan rules would apply.
If this is technically legal under New York law (don't know), it is a practice that can be banned by legislative action. There are all sorts of cases in which a technically binding contract is nonetheless barred from enforcement because it violates public policy. I suppose there may be arguments on the lender's side to support this sort of practice but I can't imagine they would be compelling. Time for lawmakers to apply a fix either by banning the practice or, at the least, by requiring some strong form of disclosure of the risks.
Of course, the real issue here is the problem with being a desperate borrower. The more life experience I get, the more I am dismayed by how vile people can sometimes be. It is truly depressing to watch.
Ultimately, this is a consequence of out-of-control complexity in the legal system in America (and, I think, in many other countries). The current status quo is that in order to do many commonplace things, you will be required to sign long, arcane legal documents that are difficult or impossible for people without specialist knowledge to understand, and which in most cases you have no real negotiating power to argue against.
And so people don't read them. You can't.
When my wife and I sat down to buy our first house, we planned to read every document before signing it. The mobile notary they sent to our house was aghast. He was like, "Uh, I guess if you want to try, I can leave these here and try to come back in 8 hours or so, but obviously I will not stay here while you read everything you sign." Even if we had read it, what are the odds that we could've found some gotcha clause dressed up in weird language in that mound of documents?
When the status quo is for people to sign documents that they have not fully read or understood, things like this are going to happen.
There are a couple of solutions, neither of them perfect:
1. We need lawyers-in-a-box that can protect us from the most outrageous abuses. You should be able to point your smartphone at a Confession of Judgment and your phone should make a big red X and say, "WARNING! This kind of document is considered predatory! Exercise extreme caution before you sign it!" (You should also be able to get one that would tell you that the non-compete they want you to sign in California is not binding, that this contract contains a mandatory arbitration clause, and other things like that).
2. But that would only help a little bit. Ultimately, we would need to really rework the legal code in ways that I think everyone is more than a little uncomfortable with.
It's even worse than you say. Standard english words have secondary meanings as legalese. You might read "The cat sat it the box" and think "Ok, I know what this means" or maybe look up the bits you don't know in a dictionary, only later to learn that "sat" has a special legal meaning in your jurisdiction.
You literally can't read these yourself because everything has special hidden meanings that you won't even know exist without special training.
To offer a real life example, in Hurst v. W.J. Lake & Co., the court ruled that 49.5% was not "less than 50%" because of "the peculiar meaning attached to the words" by the trade in question.
In Germany, the notary is actually required to read out loud the entire contract and make sure each clause is clear, valid and understood by all parties.
I always thought this was a stupid, overly expensive and bureaucratic process when incorporating a company. However, for a house purchase contract it was surprisingly useful (but still ridiculously expensive...notary costs here are more or less a fixed percentage of the transaction worth).
In the Philippines the notary is the scam. Only lawyers can be notaries. The lawyers association (the Bar) for each jurisdiction sets the fee. Any lawyer caught charging lower than the standard fee is subject to sanctions. And what's the fee? It's a percent of the value of the contract. For land sales it's typically 2-3% in most jurisdictions. And of course, this scam hits the poor the hardest. They get stuck paying these preposterous fees while the rich just cut deals with the attorneys.
I think this is one of those things where the Anglospheric absence of notaries and generally simpler bureaucracy is a good thing - company formation cost me £25 and there's even an API for it now. For small companies the duties are simple and the required accounts basic.
Real estate purchases in England still have a number of surprises for which you have to retain a solicitor, but in Scotland the system is almost entirely standardised.
(Real estate involves not only surprises in or below the building but in feudal or other attached liabilities or easements (e.g. "chancel repair liability") - and don't get me started on the US weak title system)
It should have the effect of discouraging bad behavior by any party in the contract as well as encouraging a more succinct and simple contract.
I am constantly amazed at how much 'boiler plate' stuff needs to be re-defined in each and every contract (at least in America). It's as if the concepts of a standard contract, where one thing is exchanged for another or payments are made on a term, doesn't exist.
In this case the documents weren't particularly complex or difficult to understand, though. And I think most of the parties fully understood the meaning and intent of the text they signed. But this company takes advantage of people in vulnerable situations (as most predatory lenders do) and circumvents all of the normal checks and balances in a way that should be absolutely illegal. If this sort of activity is what they need to do to stay in business, they shouldn't be in business (and I say this for both sides of this case, as an aside. Massive interest loans to temporarily prop up failing businesses just costs everyone).
While I might understand a lender needing agility to act quick if they think a borrower is failing, a rubber-stamp immediate default judgment is outrageous. More so is the notion that a form-filled template is worth a $9,900 legal fee (which is likely why they chose this route -- retrieving the capital to lend to someone else and filling a bit of business for their bottom-feeder in-house lawyer made it a net win)
You can read those docs, it just requires that you insist on it delivery of documents ahead of time, which may require your real estate agent to actually schedule an extra day or two for the timeline of closing.
I really like your sentiments but I think the full underlying issue is simply power. These contracts are simply a catalyses for the total power of the state and the legal system to be used as a weapon by those who seek to exploit others. Fundamentally it is the enforcement of exploitative (either by knowlege or position) contracts that needs to end. This is likely what you were hinting at in " Ultimately, we would need to really rework the legal code in ways that I think everyone is more than a little uncomfortable with."
A Lawyer in a box would be great, an android app. But the problem is these companies are pushing a loan as a cover to take assets. They are setup to force a failure, so they can collect.
The subprime loan fiasco, a good portion of people could make normal interest rates on mortgages, but most had arms with big baloons. Many people re-finance their homes thru the government, with normal interest rates.
If you are making your payments, why would you think the loan would be called in all at once? Its a scam, thats why.
> The lenders’ weapon of choice is an arcane legal document called a confession of judgment. Before borrowers get a loan, they have to sign a statement giving up their right to defend themselves if the lender takes them to court. It’s like an arbitration agreement, except the borrower always loses. Armed with a confession, a lender can, without proof, accuse borrowers of not paying and legally seize their assets before they know what’s happened.
This is nuts. It says "they HAVE TO sign a statement giving up their right to defend themselves if the lender takes them to court." (capitalization is mine).
Does anyone know if the borrower can refuse to sign and still get the loan?
Also why is this arcane clause still in the loan docs? And do mortgage loans also have this?
No reputable loan would have this kind of clause, and no one should ever even consider signing such a thing.
It’s a testament to the miserable state of financial education, poor regulation, and even a corrupt legal system that is willing to even entertain such a document.
Allowing a document like this in court is like letting desperate people sell their organs for cash. It stinks to high heavens, and it seems obvious there’s plenty of fraud at Yellowstone for a decent honorable DA to bring down a hammer on these guys. But will they? Don’t hold your breath.
We live in a world where arbitration clauses are expected, so what does that tell you?
They start as one entity's predatory practice, but when they work in court, they spread rapidly and become a standard that you simply have to deal with.
Edit: This is also a world where student date can never be discharged because that's what the lenders wanted and they wrote the law.
I looked in to this in general a couple years ago. At least that that time the lending agencies that were NOT banks and actually HAD public statements as to the terms/conditions being offered __ALL__ included that. You might just not see them in Stripe/PayPal worded as such, but the liability is pushed entirely on the seller.
This is where a contractual fulfillment tracking system would be useful, a matter of public record as to whom is paying whom and if the other side(s) in the transaction held up their end of the deal. The sort of thing that witnesses would sign; like your bank, their bank, and regulatory organizations (for some special or large value transactions).
It's nothing about "financial education", it's about an artificial right being created by a dysfunctional government and granted to thieves. Common law prohibits "unconscionable contracts", and this is surely one.
IANAL, but this seems pretty vulnerable to countersuit. If you have the terms of your loan and proof you paid, it doesn't matter if you sign a confession of guilt.
Practically speaking, it's still not possible for most people to defend. Lawyers cost money, and you're trying to sue who just took all yours.
It's a testament to a corrupt legal system and poor regulation, that's for sure. It's a predatory practice and no doubt brings revenue to Orange County NY and other places.
However this isn't really about financial education. For many people, if there's even a slim hope of a business succeeding, the fees and risks associated with an absurd loan are preferable to being forced to close the business. The anecdotes are almost always of the form "we just needed a small liferaft until business picks up. Once business is good, we can pay it off." That's human nature to an extent.
And there are plenty of war stories in “business success” books where $founder leveraged his credit cards and mortgages to the hilt, before the wave broke to
make him a billionaire.
They curiously tend to avoid mentioning that, 9 times out of 10, that sort of behaviour ends up in bankruptcy and tears.
This is absolutely not legal advice, but this author misunderatands what a confession of judgment is. A confession would be void if signed prior to debt being due, because you can only confess to debt that is defaulted on. See: https://oregoncivpro.com/orcp-73-judgments-by-confession/
“B(4) it must have been executed after the date or dates when the sums described in the statement were due.”
I am assuming most states share this rule, but I could be wrong.
I would suspect the businesses involved rely on legal costs preventing things from even getting to the point of the confession of judgment being declared void.
Even if they have to sign it to get the loan, there’s a straightforward solution: don’t get the loan. This wasn’t a mugging. Nobody put a gun to anyone’s head to force them to do anything here. This loan industry is scummy and shameful, and it’s tactics should be curtailed, but the small business owners had agency: they ultimately made the decision.
I'm sorry, but the fact is that all lenders and banks are like this.
I once missed 3 payments in a row during the last 6 months of a five year car loan (never missed any other payments). OK, not great, my bad (hey, I was broke). The GMAC loan company then set The Machine in action. My car was repossessed as one would expect. However, everything was stacked against me recovering the car: It was sent 100 miles away to be auctioned off, with any amount of the loan not covered to still be owed by me. Yes, they could sell the car for $10, and I'd owe the rest. To get the car back, I needed to pay off the rest of the car loan in full, plus interest, plus penalties, plus "storage" fees (per day - this really pissed me off), the city of Menlo Park charged me with something as well because of the tow, and I had to get myself out to Vacaville somehow and go to the regional distribution center with all the paperwork to get the car.
This happens so infrequently, the people there were shocked when I showed up (I had gotten a loan from a friend, and spent a week on the phone getting it done before they auctioned the car). Standing in the line with all the dealers looking for cheap cars at auction and repo men who just arrived with BMW's they just stole (ahem, recovered) that morning. It was surreal. They had my car in the middle of a sea of other repossessed vehicles parked bumper to bumper. It took them an hour or so just to fish it out. All my possessions in the car had been thrown away.
This doesn't compare to the horror stories from the subprime loan craziness, nor the abuse in the article, but it just shows that when you take a loan, you are at the mercy of the lender, and they are never merciful. They are normally giant corporations who farm out the work to thousands of happy conspirators who make a living from other people's misery, justifying it because the person who took the loan must somehow deserve the treatment.
I had a very similar experience. Cash flow issues during a desperate push to market of a self-financed business. My car was surprise repossessed.
I quickly pulled the cash together (it was on the cusp of a large payment coming to me) to buy it out and pay penalties and encountered a very similar experience to you. I immediately demanded to buy it out to be told I had to wait until they "calculated the amount owing". This simple bit of arithmetic took almost a week, during which they were charging me something to the tune of $200 a day. Finally they gave me the pay out amount so I headed to the fortified bunker where they keep the vehicles -- some gray building in an industrial park surrounded by giant fences -- and an employee saw me so I said I was there to see the guy who told me to come. He walked me into their bullpen and when the guy realized who I was it was like they thought I was going to shoot the place up. It was apparently a major security breach for them, all while I could hear their lines of employees doing what sounded like credit sales calls (I guess they multipurpose).
Every single penalty was grossly beyond any reasonable amount (every player in this scheme wanted their pound of flesh), but I paid it all and got my SUV. Found out later that one of the airbags mysteriously went missing during this period.
They can get away with this because as a society we have a sort of moral attitude about debt. A "they had it comin'" attitude that many people have, until the system turns on them.
Thanks so much for responding and sharing your story! "We have a sort of moral attitude about debt," is spot on! So much so, I was a tentative sharing my experience, afraid I'd get blasted for missing the payments in the first place by people who've never had to deal with the system before. It really was an eye-opening experience for me, and a window into what tens of thousands of people deal with every year.
I forgot to mention I was broke because of my own self-financed startup as well, which didn't work out. (It turns out, I'm a horrible business person. Happily, I was able to sell the assets of the company to a BigCo for a small amount and pay off my debts.)
Lessons for future entrepreneurs in debt: You can ignore the daily credit card robo-calls, make arrangements with your landlord and the electric company, but they'll come for your car faster than you think. (They grabbed mine the day after Christmas).
3 months isn't that fast. Electricity won't go more then 2 usually and landlords often won't go past the last week of the month, unless your renting from a non-corporate landlord.
I have a stretch in the past where my landlord filed on me 4 months out of the year and I pulled together the funds to pay rent + court costs + filing & lawyer fees before the end of the month...
Also had Electricity turned off and that requires paying bill in full + deposit, so usually close to double your bill, or 1.5 times if you owe 2 months. They sure take their time turning it back on too.
(edited to fix formatting)
What a sad state of affairs. Predatory contracts are one thing, but why on earth do we as a society more or less ignore white collar crime? The article just glosses over the fact that in the Duncan's case, the agreement sent to the court was a forgery. And I can't even blame the author for not making more of a big deal about that because most people don't see that as seriously as they ought to.
If you go into a bank, completely unarmed and pass a note to a teller demanding money, you'll be locked away for years for stealing what in most cases is only a few thousand dollars. Whoever forged that document stole ~$60,000 and no one seems interested in doing anything more than issue a sternly worded "don't do that again".
What is it going to take to get society to get its act together and actually start enforcing the law when it comes to white collar crime? If the details of this article are correct, there are several employees of Yellowstone capital that should be thrown in a jail cell for a substantial amount of time.
The worst part is, is that there is a viable market for short term business loans that don’t involve APYs over 300% or loan snarking, or counterfeiting legal documents, or plundering unrelated accounts, or exploiting every legal loophole known to man and lining the pockets of NY “marshals” while you’re at it.
The level of corruption is mind boggling. I’ve often wanted to learn more about the industry and was very interested in the rise of P2P lending, but when you have to compete with scum like this, obviously that makes it near impossible.
> The worst part is, is that there is a viable market for short term business loans that don’t involve APYs over 300% or loan snarking
Yes, there is... but there are still people who those reputable lenders won't do business with because the risk is too high for the return. Those high risk people are the ones these predators are lending to.
There are already companies that offer short term business loans where you borrow against your receivables. This helps companies make regular payments for mortgages and payroll when their receivables are unpredictable. Without these sorts of loans businesses would not be able to function.
The thing is... if you forbid unethical lending, then organized crime fills in the gap. And when you can't pay the mob, they don't take you to court, they take your knee caps.
Just like making drugs illegal doesn't make them go away, making unethical lending illegal doesn't make it go away either. To me, this is "harm reduction" of financial services. Yes, it's bad, but not as bad as leaving it on the black market.
But if it's being done by the mob, the police and the courts are on your side; in this case, the courts are against you, and the police can only shrug and say, "Tough luck.". I'd rather have inarguably predatory lending be on the wrong side of the law, even if it can't be eliminated.
But, you can do things like making arbitration or assumptions of guilt illegal in contracts. Also, limiting effective APR to a reasonable extreme goes a long way too.
Welcome to the inevitable result of financial deregulation. The people who run Yellowstone should never have been allowed near other people's money ever again. There should not be a loophole treating something that's obviously alone as though it weren't. Such high interest rates should be illegal (and are for things legally recognized as loans). Clerks should not be allowed to rubber-stamp an unverified creditor's statement as legal fact, without giving the other party any notification let alone a chance to challenge those so-called facts. Other states, and banks in other states, should not accept such blatantly corrupt behavior.
A whole lot of people - not just the principals but also the legislators, judges, clerks, and bankers who enable them - should spend the rest of their lives in jail for this.
> Welcome to the inevitable result of financial deregulation.
Courts in NY are executing these blatantly unfair contracts, after other courts all over the country decided they were blatantly unfair, and you're blaming deregulation?
Wow. As a person who pays NYC and NYS taxes, I'm disgusted by this and sort of ashamed.
I will definitely be writing to my state reps to outlaw this practice.
Also, the fact that NYC enriches someone responsible for helping this is shameful and inviting corruption (though it is unsurprising to me that this is the norm here).
Confessions aren’t enforceable in Florida, where the Duncans signed theirs. But New York’s courts are especially friendly to confessions and will accept them from anywhere, so lenders require customers to sign documents allowing them to file there.
Well, that's diabolical. Wow.
Duncan was running a struggling Florida real estate agency with her husband, Doug. She began each day in prayer, a vanilla latte in her hand and her Maltese Shih Tzu, Coco, on her lap, asking God for business to pick up.
This was the first line that made me feel they are just not very good business people. Praying to god for business to pick up instead of starting the day searching for ways to improve the business sounds like the exact sort of thing that "No one plans to fail, they just fail to plan" quote is aimed at. She's just kind of hoping things get better.
The couple had owned their agency, a Re/Max franchise, for three years and now had 50 employees, but they still weren’t turning a profit.
See, I don't get this. How do you have 50 employees and no profit? I don't understand that.
We clearly need better support for small businesses in the US. Small businesses are frequently being run by people who simply cannot compete with corporations and otherwise successfully "swim with the sharks."
We also need better support for micoenterprise -- for businesses with fewer than the ten employees that you need to qualify as a small business. The lack of good support for that sector is part of what is wrong with this country. We haven't created such support and I feel it is destabilizing the country.
Everything is "go big or go home" and that simply isn't healthy. It's fine to have some folks shooting for the stars, but that shouldn't be the only viable option.
> See, I don't get this. How do you have 50 employees and no profit? I don't understand that.
Ask Uber? :-) But Silicon Valley jokes aside, you can have a small business where the amount of money coming in pretty much exactly matches the money going out, and that is essentially no profit. For a real estate business, most of those employees would be brokers who would make no salary but would make a piece on the commission of each sale. So the percentage of the commissions that the agency kept covered rent, and admin staff, and maybe a salary for the principals.
Well, you will have to excuse me, but I'm some ninny who gave up a National Merit Scholarship to a big university elsewhere and went to the local college for a couple of years, then dropped out, in part because I knew two people with tons of student loans and no serious career who were mooching off of family (the mother in one case, the wife in another). So I didn't drink the koolaid and buy the idea that a sheepskin was a slam dunk path to having a real career and life on easy street. Thus, I wasn't willing to run up student loans to get a degree. I felt I could deliver newspapers (because that's what these two guys were doing) without a student loan and my life would be better without the debt if that was what I would be doing anyway.
I also found ways to make money on the internet while homeless and that helped get me off the street. It was critical that it actually turn a profit for me. Low pay was acceptable. High through-puts of money -- some going out and some coming in -- without a real profit absolutely was not acceptable.
So while I'm well aware of Twitter and Uber and all that, I cannot fathom running a small business that doesn't turn a profit. I just don't get that. To my mind, that makes no sense. Why on earth would I do that?
To my mind, you find something that is actually profitable and then grow it. It seems to me there has to be something wrong with a person's thinking that they take on 50 employees and still don't make money.
I just cannot wrap my brain around such a choice. I look at what I read and I think the people running the business, who were praying to God for business to improve -- presumably instead of actively researching how to make things work better (I realize you can do both and that assumption could be in error, but I can only go by the info included in the article) -- must have been doing something wrong in some important way.
If they are real estate agents those 50 people aren't really employees, they are real estate brokers working under the Duncan license. They aren't paid unless they sell something or someone sells something they listed. Then everyone, including the Duncan's, gets a cut of the commission.
> Praying to god for business to pick up instead of starting the day searching for ways to improve the business sounds like the exact sort of thing that "No one plans to fail, they just fail to plan" quote is aimed at.
Prayer is not necessarily contradictory with action, and the optimistic mindset it enables for some people can be invaluable in stressful situations.
My initial reaction to this is one of outrage: "How the hell is this even legal?!" Though the article makes it clear that David Glass has found loopholes in the legal system, and that therefore it is technically legal, it strikes me as utterly contrary to the spirit of the financial regulations he's managed to dodge. I would shed about as many tears for him and similar predators being smote by the courts as I shed for Prenda Law.
There's plenty of "WTF?" to go around in this article, the usurious interest rates, the confession of judgement, and that people are falling for this.
I am sadly not surprised that the banks are offering up their customers funds if said bank has an office in NY, even if not based there. I imagine the banks' legal departments are risk averse and consider that they'd have more to potentially lose fighting such bogus claims than just offering up their customers' money, whether said claims are legitimate or not.
IMO, the New York practice of the marshals is some abuse-ripe legal cruft that needs to go.
I do find myself wondering if remedy for this couldn't come from a federal angle. The US Constitution says that once affairs cross state lines, they become a federal issue, plus there's Wickard vs Filburn that's been used to make anything a federal issue if the fed wants it to be. I wonder if claims of violation of due process or the usurious interest rates could be used to smite Glass and other predators in this financial space.
This is fraud facilitated by NYS.
https://en.wikipedia.org/wiki/Fraud
Needs a major class action lawsuit and some rocks overturned to find the scum working for the state who are getting rich off this with their mob associates.
Unfortunately, most consumer protections for financing don't apply to businesses. Many of us here on Hacker News have benefited from seed or VC investments without having to put our house on the line, but for the majority of american entrepreneurs access to capital remains the number one issue.
I'm currently working on a startup to solve the access to capital problem for local small businesses (mainvest.com). Open to any feedback or suggestions on how we can tackle this issue. We're currently based in MA, but we're planning on bringing our product to NYS soon. Hopefully they've fixed "confession of judgement" before then.
Boy they sure tried to reel my business in. However, having done some time in the past, I knew a mafia-like scheme when I saw it.
They basically wanted full control of my bank account and my credit card processor, and wanted the loan repaid at $100 a day and at a 50% cost.
The guy calling me got really pissed when I told him I could increase my product prices by 3% and raise the loan amount they offered over the same period as the loan, interest free.
This is a terrible situation. Predatory lenders dealing with owners who are in no position to take on a loan.
I run my company with Quickbooks Online, and they have a "feature" called QuickBooks Capital, where you can secure short term loans at not terrible interest rates (~10%), and they report your payment history to your DUNS number, building your company's credit history.
I take out $20k every 6 months and pay it back weekly over their 6 month payment window and end up paying something small like 4-5% interest on it.
The word disruption is so often misused, abused and overused. That said, if ever there was an industry in need of a swift kick in the stones it's the predatory lenders in this market, as mentioned in the article.
Yes, they are meeting a need, I can't fault them for that. But their heavy-handedness and general over-focus on the their bottom line begs to be taken to the mat and punched in the face.
Certainly there's got to be someone reading this who can make that happen. TIA
There's actually been a ton of disruption of this space in the past 5 years. OnDeck, Kabbage, LendingClub, Square, are all great, established tech-lending companies. But the remaining victims are the bottom 20% of the borrower population - it's basically not possible to profitably fund these people unless you're straight up scamming them. So the solution has to come from regulation, not the market.
This “merchant advance” business, in a (hopefully) less predatory form, is driving revenue at Square and Stripe. I would like to see some comment from someone like Patrick on how they are going to help reform this mess. They’ve got the resources to do it, and if they don’t they will get lumped in as part of the problem when regulation finally arrives.
Not sure how they actually classify it, but Square does have Square Capital, which is a product that gives loans to small businesses. It is different than many loans most are used to in that it uses a "Factor Rate" rather than an APR. You pay back the same amount, regardless of how long it takes you to pay. Daily payment is a percentage of what you process through square in a day and are automatically taken out, so you won't miss a payment.
Due to the oddity in how you pay, and the use of factor rates, it requires knowing your business really well to understand what the APR will be. And the better your business does, the higher the APR as you will pay the interest sooner. In contrast, a traditional business line of credit, you will typically have an upfront APR and doing better means you pay it off sooner and pay less interest.
edit: and to be clear, I'm confident that Square doesn't do the scammy practices in the article.
>New York judges took the view that debtors waived their rights when they signed the papers.
where is the boundary of validity between "sign here to waive your right to defend yourself" and "sign here to waive the right to keep your head (i.e. decapitation)" legally defined?
is it possible to sign and allow a person to decapitate me? if not why not? and why is the right to defend yourself not similarily protected?
it seems at some point both bankers and judges expect civilians to subjugate themselves unconditionally...
> ...and federal regulators banned them for consumer loans in 1985. But New York still allows them for business loans.
perhaps they can soon apply it to consumer loans as well, claiming the consumer failed to register as a business towards the government?
it's like Alice in Wonderland where she or someone else is accused of writing a letter, but after pointing out it's not even the accused's handwriting, this is viewed as cementing the malicious intent when the accused supposedly wrote the letter...
The article contains some personal info[0] on a few of the sociopaths who are running this thing. Seems to me that if the government won't step in to do something, hackers certainly could...
Reminds me of the article about the people (and a judge) taking over the financials of elderly people and forcing them into nursing homes. Draining all of their accounts and charging them for their stay in the home.
Putting people put in positions like that and sending gloating "I will f you up" messages is almost an invitation to be murdered, to people who are about to lose everything.
I’m betting on either RICO, class action, or both against these guys. If they’re so inept to be forging documents their process is surely riddled with worse mistakes. Bravo to Bloomberg for some real journalism.
Confessions of Guilt are an interesting concept and maybe they shouldn't be thrown out by NYS entirely, but signing one when there isn't guilt (especially in advance of the loan) is a horrible practice.
Perhaps Confessions of Guilt should have an expiration date like that it must be filed within 7 days of being signed or it's invalid.
Whats up with the comments blaming the victims here? Duncans’ only fault was being naive. But how many of us commenting here know about “confession of judgement”?
This shouldn’t have happened in the first place, regardless of how naive the borrowers were.
Why and how are Bloomberg articles constantly getting to the top of Hacker News? Was there every any resolution to their murky article about their claim that Supermicro mainboards were apparently getting compromised on the production line?
Did you ever think you would read such a sentence - and that it would be real?
> The advance turned out to be for $36,762, repaid in $800 daily debits from their bank account starting the day after they got the money. This would continue for about three months, until they’d repaid $59,960, amounting to an annualized interest rate of more than 350 percent. A small price to pay, Doug figured—soon he’d have all the money he needed in cheaper, longer-term debt.
totally speechless. $800 in DAILY payments, at 350% interest, for a TRYOUT loan that he didn't even need, in order to get a bigger loan of $800K. FROM A SPAM FAX. And to top it off - they didn't talk to their lawyer, or (i assume) accountant.
> Jerry Bush, who ran a plumbing business with his father in Roanoke, Va., signed confessions for at least six cash advances from companies including Yellowstone, taking one loan after another as his payments mounted to $18,000 a day.
A day! how could any small business handle that?
This is just heartbreaking. While these were horrible (or desperate) financial decisions - it's not their fault for being victims. This is what laws and regulations are for. We can and will eventually stop this from happening. I think this being a series of stories will help give it the spotlight it needs.
Sounds kind of like that plumber got himself into a hole, realized there is no way he could get out of it, and decided fuck these guys and took out every loan he could before he would be forced to declare bankruptcy regardless. I can't really blame him after he already got into a hole, hopefully he stashed a bunch of the value do after things blow over.
One thing to consider - taking six loans like this is called stacking, and is expressly forbidden in merchant contracts and on the phone when dealing with any SMB lender. In most cases the person taking the loan lies to each lender that they don't have any other loans out. It's a huge cause of defaults, and it doesn't come from borrower innocence.
That being said - one thing stands out, as it often does with this sort of story. There's often a turning point that should make any one of us scratch our heads and learn for the future. This was it for me:
"The Duncans’ ordeal began in November 2017 with an unsolicited fax from a broker promising term loans of as much as $1 million at a cheap rate...The spam fax felt like a gift from God."
That's the moment right there that should scream RED FLAG RED FLAG RED FLAG to everyone. Spam never delivers a gift from the heavens. Never. Never. Never. This is the same sort of thing that 409 scammers bank on -- desperate folks that think they're just the luckiest darn people on earth for happening to get this great deal right at their feet. This is not how the world works.
It goes on...
"Without talking to a lawyer, they did. Why not? Doug thought. They intended to pay the money back on time."
Red Flag #2.
"This would continue for about three months, until they’d repaid $59,960, amounting to an annualized interest rate of more than 350 percent. A small price to pay, Doug figured—soon he’d have all the money he needed in cheaper, longer-term debt."
And again...
I'm not blaming the Duncans here entirely, but this situation was avoidable. I hope everyone here on HN reads this tale and learns from it for your own businesses / life experiences.