MCA & predatory lending defense
Merchant Cash Advances and Predatory Lending: How New York Businesses Fight Back
A merchant cash advance can drain a healthy business in weeks. Daily ACH debits, stacked advances, confessions of judgment, UCC notices sent to your own customers, and frozen operating accounts. New York courts have become far more willing to look past the paperwork and call these deals what they often are: loans at triple-digit effective rates. If an MCA funder is squeezing your business, you have more leverage than the collection calls suggest.
How the MCA model works — and where it breaks
A funder gives you a lump sum today in exchange for a fixed percentage of 'future receivables,' repaid by daily or weekly ACH. Because it is styled as a purchase rather than a loan, funders argue New York's civil and criminal usury caps (16% and 25%) do not apply. That argument only holds if the risk is real. When the contract has a finite term, a fixed payment that never actually adjusts, and remedies that make nonpayment a default rather than a business risk the funder absorbed, courts have recharacterized the deal as a usurious loan — and a criminally usurious loan is void.
The reconciliation clause is the whole case
Nearly every MCA contract promises that if your receivables drop, the payment drops with them. In practice, funders bury reconciliation behind impossible documentation demands, ignore written requests, or simply refuse. Every ignored reconciliation request is evidence. Send them in writing, keep the proof, and stop making them by phone. A paper trail of refused reconciliations is often the difference between a settlement at 40 cents and a judgment against you at 100.
Confessions of judgment and surprise judgments
Older MCA agreements — and a surprising number of current ones — include a confession of judgment allowing the funder to enter judgment without ever suing you. New York restricted COJs against out-of-state debtors in 2019, but judgments already entered still bite, and funders now default-judgment businesses in venues chosen for convenience. If your accounts were restrained out of nowhere, the first move is an order to show cause to vacate, paired with a stay of enforcement so payroll clears while the fight proceeds.
Stacking, double-dipping and reverse consolidation
When the first advance becomes unaffordable, brokers offer a second, then a third. Each one takes a slice of the same daily deposits. 'Reverse consolidation' — a new funder paying your daily debits in exchange for a larger one — usually leaves the original contracts alive and adds a new obligation on top. Before signing anything a broker calls a rescue, have someone read the actual document. Stacked positions also create priority fights the funders would rather you never notice.
UCC liens and notices to your customers
Funders file UCC-1 financing statements against your receivables and then send notification letters directing your customers to pay them directly. It is a pressure tactic as much as a remedy, and it is frequently overbroad or sent on a lien that is defective, misdescribed, or subordinate. Improper UCC notices that torch a customer relationship can support tortious interference and lien-termination demands.
Personal guaranties are narrower than they claim
MCA guaranties are usually 'limited' or 'validity' guaranties: they make you personally liable for fraud, misdirecting receivables, or shutting the business to avoid payment — not simply for the business failing. Collection letters ignore this distinction and threaten your home and personal accounts. Reading the guaranty carefully often removes the most frightening part of the demand.
Broker fees, junk charges and disclosure rules
Origination, underwriting, ACH, risk-assessment and 'blocked account' fees routinely consume 10–15% of the advance before you touch it. New York's Commercial Finance Disclosure Law now requires funders to disclose the finance charge and an annualized rate on covered transactions. Missing or misleading disclosures are both a defense and a bargaining chip.
What we do for MCA clients
Audit every agreement and compute the true effective rate. Demand and document reconciliation. Vacate confessions and default judgments and lift account restraints. Terminate or subordinate overbroad UCC filings. Negotiate lump-sum payoffs and structured settlements with real release language. Where the facts support it, affirmatively sue for usury, deceptive practices, and interference. Flat fees per stage, so the cost of fighting is known up front.
If your accounts were frozen this week
Time matters more than anything else. Gather the funding agreement, every amendment, the bank statements showing the debits, all broker emails, any UCC notices, and whatever court papers exist. Do not sign a new advance to cover the old one and do not send a payment 'to buy time' before someone reads the file. Then contact us — same-day review for restrained accounts and payroll emergencies.
Is a merchant cash advance a loan?
MCA companies say no. They call it a purchase of future receivables, which is how they argue New York's usury caps do not apply. Courts look past the label: if repayment is fixed, the term is finite, and there is no real reconciliation when your sales drop, a judge can treat the deal as a disguised loan and apply usury law.
Can an MCA company freeze my bank account?
Yes, if they already have a judgment. Many MCAs were signed with a confession of judgment or obtained a default judgment after suing in a New York county you have never visited. Once entered, they can restrain accounts and serve levies on your processor. Moving fast to vacate the judgment is what stops the bleeding.
What is a reconciliation clause and why does it matter?
A genuine MCA must adjust your daily or weekly payment when receivables fall. If the contract promises reconciliation but the funder ignores requests, refuses documentation, or makes the process impossible, that is strong evidence the deal is a loan and potentially criminally usurious.
Am I personally liable if I signed a personal guaranty?
Most MCA guaranties are limited: they cover fraud or breach of specific covenants, not the mere fact that the business failed. Funders routinely sue guarantors anyway. The guaranty language decides the outcome, and it is frequently narrower than the demand letter claims.
Can I stop paying an MCA?
Not without a plan. Stopping cold triggers default provisions, stacking penalties, UCC notices to your customers, and suit. The safer path is a lawyer-managed pause: dispute in writing, demand reconciliation, and negotiate from a documented legal position.
What does it cost to fight back?
We work on flat fees for defined stages — demand response, vacating a judgment, negotiating a payoff, or litigating usury and RICO-adjacent claims. You know the price before we start.
Get an MCA reviewed by a New York attorney.
Flat-fee matter review. Straight answers, no runaround.