Expansion Capital Group Lawsuits and Regulatory Actions

Expansion Capital Group lawsuits and regulatory actions fall into four distinct matters: a 2022 consent order with California’s Department of Financial Protection and Innovation over its lending and merchant cash advance practices, a 2022 federal suit against the Small Business Administration over a denied PPP loan forgiveness, litigation with co-founder Matt Patterson that reached summary judgment in 2021, and collection actions the Sioux Falls-based lender has pursued against defaulted merchants.

The California DFPI Consent Order

California’s Department of Financial Protection and Innovation opened an investigation in 2019 into ECG’s marketing and what the agency called its “purported non-loan financing products.” The matter closed with a consent order signed on April 4, 2022. ECG neither admitted nor denied the findings.¹

The DFPI found two categories of violations under the California Financing Law. ECG had paid unlicensed loan brokers and independent sales organizations to solicit loan applications on its behalf. It had also failed to amend its state lending license within 30 days after changing its officers and directors in 2017, and its new CEO had not disclosed all required information on his application.¹

ECG paid a $167,500 penalty and agreed to stop compensating unlicensed companies for soliciting loan applications. The order also required contract changes on the MCA side: ECG had to remove a provision that triggered a default when a merchant had insufficient funds in their bank account on multiple occasions. The company was ordered to add compliance controls and employee training to keep its MCA activities from functioning as non-compliant loans, and to continue offering reconciliation options to MCA customers experiencing pandemic-related hardships.¹

The PPP Forgiveness Lawsuit Against the SBA

On February 28, 2022, ECG sued the Small Business Administration, SBA Administrator Isabella Guzman, Treasury Secretary Janet Yellen, and the federal government in the U.S. District Court for the District of South Dakota. At issue was an $874,000 Paycheck Protection Program loan the company received early in the pandemic.²

ECG applied for the loan on April 3, 2020 and was approved on April 10. According to the complaint, the SBA adopted a rule five days after that approval that specifically excluded lending institutions from the program. On April 26, 2021, the SBA told ECG it was ineligible for forgiveness, describing the company as “a financial business primarily engaged in lending, investments or an ineligible business engaged in financing or factoring.” ECG appealed. The SBA denied that appeal on December 21, 2021.³

ECG’s complaint called the SBA’s action a “bait and switch.” The company argued that Congress intended the PPP to reach all qualifying small businesses and did not authorize the agency to carve out lenders. The complaint noted that casinos, pawn shops, and check-cashing operations, all normally barred from SBA programs, had qualified for PPP forgiveness.²

Available records do not show a final outcome in the case. The wider legal picture shifted in 2024, when the Supreme Court overturned the Chevron deference doctrine in Loper Bright Enterprises v. Raimondo. Legal analysts wrote that the ruling weakens the SBA’s position in PPP exclusion disputes, because courts had previously deferred to the agency’s reading of the CARES Act when upholding denials to lending businesses. Other small lenders have brought parallel challenges, including a group represented by the American Financial Services Association in a Fifth Circuit appeal.⁴

The Co-Founder Lawsuit: ECG v. Patterson

ECG was co-founded in 2013 by Matt Patterson and Jay Larson. Patterson invested $100,000, earned additional equity through his work as CEO, and held his interest through a separate entity called Kirkcaldy Group, LLC. ECG later sued him in federal court in South Dakota, alleging breach of fiduciary duty, breach of contract, and tortious interference with business relationships.⁵

Court records describe allegations that Patterson made unauthorized expenditures as CEO, including a nearly $124,000 payment to an investor, failed to collect management fees, and formed a competing participation fund. On January 22, 2021, Chief Judge Roberto A. Lange ruled on cross-motions for summary judgment. He granted only limited portions of each side’s motion. The parties had offered conflicting accounts of material facts, so the court declined to make factual findings and left the remaining disputes for trial.⁵

Collection Suits Against Merchants

ECG has also been the plaintiff in collection cases against merchants who defaulted on their agreements. In one such action, ECG sued Mentat, LLC, a New York company, after Mentat stopped paying on a January 2017 agreement in which it sold $45,300 in future receivables for a $30,000 advance, with daily remittances of $377. ECG took a default judgment of $37,193.40 in a South Dakota court in November 2017, then moved to enforce it in New York.⁶

Mentat opposed enforcement. It argued that it had never been properly served in either proceeding and that the underlying agreement was an unlicensed loan rather than a legitimate purchase of receivables. In a July 2019 decision, New York Supreme Court Judge Melissa Crane held that the South Dakota judgment was valid and entitled to full faith and credit, and she rejected the service-of-process challenges. Service on a limited liability company through the Secretary of State was proper, the court said.⁷

Borrower Complaints and the MCA-vs-Loan Question

Outside the courtroom, ECG has drawn steady criticism from borrowers. It holds an A+ rating with the Better Business Bureau, but averages 1.2 stars from BBB customer reviews and 1.0 stars from 19 reviews on ConsumerAffairs. Common complaints describe effective APRs above 130%, an $899 origination charge, $25 “inconvenience fees,” and rigid collection when revenue drops. One borrower reported paying $30,000 to settle what began as a $19,000 advance.⁸

ECG describes its core product as “revenue-based financing,” a purchase-and-sale transaction in which the company buys a percentage of a merchant’s future receivables in exchange for an upfront advance. The company says the product is not a loan and that there is no repayment guarantee if the merchant fails.⁹ In responses to BBB complaints, ECG has pointed to reconciliation provisions in its agreements that allow adjusted payments when revenue drops, provided the merchant submits financial documentation.¹⁰

Whether a given MCA is a legitimate purchase of receivables or a disguised loan is the central question facing the industry, and it is the same question that drove the California consent order and Mentat’s failed defense. New York’s attorney general secured a judgment exceeding $1 billion against Yellowstone Capital and its affiliates in January 2025, alleging that the company marketed predatory high-interest loans as MCAs with effective rates reaching 820% per year. That settlement canceled $534 million in outstanding merchant debt and permanently barred Yellowstone’s executives from the industry. ECG has not been the subject of a similar action, but regulators in states including New York and California continue to scrutinize whether MCA contracts with fixed payment schedules and no meaningful reconciliation are functionally loans subject to usury caps.¹¹

1
California DFPI. Consent Order — Expansion Capital Group, LLC
2
Argus Leader. Expansion Capital Group Sues Small Business Administration Over COVID-19 Loan Forgiveness
3
Yahoo News. Sioux Falls Lender Sues Small Business Administration Over COVID-19 Loan Forgiveness
4
Ballard Spahr LLP. Overturning of Chevron Boosts Challenges to SBA PPP Loan Forgiveness Denials
5
vLex. Expansion Capital Grp., LLC v. Patterson, 514 F.Supp.3d 1095
6
New York Courts. Expansion Capital Group, LLC v. Mentat, LLC
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vLex. Expansion Capital Grp., LLC v. Mentat, LLC
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Inquirer USA. Expansion Capital Group Reviews
9
Expansion Capital Group. MCA Business Loan
10
BBB. Expansion Capital Group LLC — BBB Complaints
11
New York Attorney General. Yellowstone Settlement