MCA / Predatory Lending Defense: Frequently Asked Questions

A Merchant Cash Advance (MCA) is a transaction where a funder purchases a percentage of your future receivables at a discount. It is structured as a purchase agreement, not a loan, to avoid usury laws. However, if the MCA contains a fixed repayment amount with no true reconciliation, courts may recharacterize it as a usurious loan.

Yes, legitimate MCAs are legal. However, an MCA that functions as a loan in disguise, with fixed daily payments, personal guarantees, and no true reconciliation based on actual receivables, may be recharacterized as a usurious loan under New York law. Criminal usury in New York is any rate exceeding 25% annually.

Source: NY Penal Law 190.40 (Criminal Usury); GOL 5-501

A Confession of Judgment (COJ) is a document you sign allowing the MCA funder to enter a judgment against you without filing a lawsuit. Since 2019, New York law prohibits out-of-state lenders from filing COJs against out-of-state borrowers. COJs filed in violation of this law are void and can be vacated.

Source: NY CPLR 3218; 2019 Amendment (Ch. 575)

Yes. You can revoke the ACH authorization by contacting your bank in writing and requesting a stop payment on all future debits from the MCA funder. The funder may claim this is a breach, but protecting your operating cash flow is often necessary to keep your business running.

If a funder obtains a judgment (often through a Confession of Judgment), they can serve a restraining notice on your bank, freezing the account. You have the right to claim exemptions for certain funds. You should immediately seek legal counsel to challenge the restraint and unfreeze the account.

Source: NY CPLR 5222; CPLR 5222-a (Exemption notices)

Reconciliation is the process where MCA payments are adjusted to match your actual revenue. A true MCA should reduce daily payments when your sales decline. If the funder refuses to reconcile or demands the same fixed payment regardless of revenue, the agreement may be a disguised loan subject to usury laws.

Yes. If the MCA has a fixed repayment amount, no true reconciliation, and a personal guarantee that shifts risk to the merchant, courts may find it is a loan. If the effective rate exceeds 25%, it is criminally usurious and the agreement may be void.

Source: NY Penal Law 190.40; LG Funding v. United Senior Props

A UCC-1 financing statement is a lien filed against your business assets as collateral for the MCA. Multiple MCA funders may stack UCC liens, creating competing claims on your receivables. These liens can prevent you from obtaining traditional financing. They can be challenged if the underlying agreement is void.

Source: NY UCC Article 9

Options include: negotiating a settlement for a reduced payoff, challenging the agreement as a usurious loan, vacating any Confession of Judgment, revoking ACH authorization while negotiating, or filing for bankruptcy protection. The right strategy depends on how many MCAs you have and whether any have already obtained judgments.

Yes. If the MCA agreement is actually a usurious loan, you may have claims for usury, fraud, breach of contract (failure to reconcile), deceptive business practices under GBL 349, and violation of RICO if part of a pattern.

Source: NY GBL 349; NY Penal Law 190.40; 18 USC 1961 (RICO)

Stacking is when a business takes multiple MCAs from different funders simultaneously. Each funder takes a percentage of daily receivables, and combined withdrawals can exceed 100% of actual revenue. This creates a debt spiral where new MCAs are used to pay old ones, often leading to business failure.

16% annually is the civil usury cap under New York General Obligations Law. 25% annually is the criminal usury threshold under Penal Law 190.40. Loans or disguised loans exceeding 25% are void as criminally usurious. The $2.5 million threshold under GOL 5-501(6)(b) exempts certain large commercial transactions from the civil cap.

Source: GOL 5-501; Penal Law 190.40; GOL 5-501(6)(b)

Directly, no. MCAs are business transactions and typically do not report to personal credit bureaus. However, if the funder obtains a personal judgment against you through a guarantee or COJ, that judgment can appear on your credit report and impact your score for up to 7 years.

Do not ignore it. A demand letter typically precedes legal action. Review the original MCA agreement, check whether a Confession of Judgment was included, and determine whether the funder has already filed a UCC lien or restraining notice. Contact an attorney before responding to preserve your defenses.

Yes. Since 2023, New York requires commercial financing providers, including MCA companies, to disclose the total cost of financing, estimated APR, and other terms before execution. Non-compliance with the Commercial Finance Disclosure Law can support claims of deceptive practices.

Source: NY Financial Services Law Art. 8 (CFDL); 23 NYCRR Part 600