Merchant Cash Advance Defense Attorney

If a merchant cash advance (MCA) company has sued your business, frozen your bank account, or sent notices to your customers demanding payment, you are not alone — and you are not without options. New York City is the epicenter of the merchant cash advance industry, and New York courts hear thousands of MCA collection cases every year. The good news for business owners is that New York law has developed powerful defenses to abusive MCA agreements, including the criminal usury defense recognized by the New York Court of Appeals. The bad news is that MCA companies move fast, and the procedural tools they use — motions for summary judgment in lieu of complaint under CPLR 3213, restraining notices under CPLR 5222, and direct collection notices to your customers under UCC § 9-406 — are designed to end your case before it begins.

Our firm defends New York business owners against merchant cash advance companies in the Supreme Court of the State of New York and in out-of-court workouts. This page explains how MCA agreements actually work, the specific New York statutes that govern them, the deadlines you cannot afford to miss, and the defenses that have succeeded for merchants like you.

What Is a Merchant Cash Advance — and Why the Label Matters

A merchant cash advance is structured, on paper, as a purchase of future receivables. The funder pays your business a lump sum today (the "purchase price") in exchange for a fixed dollar amount of your future revenue (the "purchased amount" or "receivables purchased amount"), collected through daily or weekly ACH debits from your business bank account.

Here is a typical example:

• Purchase price (what you receive): $100,000
• Purchased amount (what you must repay): $145,000
• Daily payment: $1,450, debited every business day
• Effective repayment period: approximately 100 business days — roughly 4.5 months

Run the math and the problem becomes obvious. Paying $45,000 to use $100,000 for about four and a half months translates to an effective annualized rate well in excess of 100 percent. If that transaction were a loan, it would be flatly illegal in New York. Under General Obligations Law § 5-501 and Banking Law § 14-a, the civil usury cap is 16 percent per year. Under Penal Law § 190.40, charging interest above 25 percent per year is criminal usury in the second degree — a class E felony.

MCA funders avoid these caps by insisting the transaction is a sale of receivables, not a loan, because usury laws apply only to loans. The central battleground in nearly every New York MCA defense case is therefore recharacterization: proving that the "purchase agreement" is, in substance, a disguised usurious loan.

The Criminal Usury Defense: New York's Most Powerful MCA Weapon

Many business owners are told — often by the MCA company itself — that corporations cannot claim usury. That is only half true, and the half that matters cuts in your favor.

• General Obligations Law § 5-521(1) bars corporations from asserting the civil usury defense (the 16 percent cap).
• General Obligations Law § 5-521(3) expressly preserves a corporation's right to assert criminal usury under Penal Law § 190.40 (the 25 percent cap) as a defense.

In Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320 (2021), the New York Court of Appeals held that a loan bearing interest above the 25 percent criminal usury threshold is void ab initio — void from the moment it was made. The lender cannot recover principal, cannot recover interest, and cannot enforce the agreement at all. For an MCA recharacterized as a loan, this is a complete defense that can wipe out the entire obligation.

How New York Courts Decide Whether an MCA Is Really a Loan

New York appellate courts, most notably in LG Funding, LLC v. United Senior Properties of Olathe, LLC, 181 A.D.3d 664 (2d Dep't 2020), examine three principal factors to determine whether an agreement styled as a receivables purchase is actually a loan:

1. Is there a meaningful reconciliation provision? A true receivables purchase adjusts the daily payment up or down to match a fixed percentage of your actual revenue. If the agreement's reconciliation clause is discretionary ("the funder may reconcile"), buried, illusory, or never honored in practice, the fixed daily payment looks like a loan installment.
2. Is there a finite term or de facto finite term? If a fixed daily payment is applied to a fixed purchased amount, the repayment date is mathematically certain — a hallmark of a loan, not a purchase of uncertain future receivables.
3. Does the funder have recourse if the merchant goes bankrupt or the business fails? A true buyer of receivables bears the risk that the receivables never materialize. If declaring bankruptcy is an event of default, if the personal guaranty covers the full balance regardless of business performance, or if a decline in revenue triggers immediate acceleration, the funder has shifted the risk back to you — which is what lenders do.

In practice, we also examine how the funder behaved: Did it refuse reconciliation requests? Did it continue debiting fixed amounts after being told revenue collapsed? Did it treat a bounced ACH as a default and accelerate? Conduct evidence frequently defeats the funder's motion for summary judgment even where the contract language is carefully drafted.

CPLR 3213: The Fast-Track Lawsuit MCA Companies Use — and Its Deadlines

MCA funders frequently sue using a motion for summary judgment in lieu of complaint under CPLR 3213, available for claims based on an "instrument for the payment of money only." Instead of a normal complaint that you answer, you are served with a summons and a fully briefed summary judgment motion on day one. If you do nothing, the court can enter judgment against you at the first return date.

How the Timeline Works — A Concrete Example

Under CPLR 3213, the return date of the motion must give you at least the time you would have had to appear under CPLR 320: 20 days if you were served by personal delivery in New York, and 30 days if served by any other method (such as service on the Secretary of State under Business Corporation Law § 306 or LLC Law § 303). The funder sets a deadline in the notice of motion for your opposition papers.

Worked example: Suppose your LLC is served via the Secretary of State on March 1 with a CPLR 3213 motion returnable April 15, with opposition papers due April 5. If you do not file opposition by April 5 and no one appears on April 15, the court may grant the motion on default. Judgment can be entered within days, and the funder can serve restraining notices on your banks immediately after. Your realistic window to retain counsel, gather your bank statements and payment history, and build an opposition is measured in weeks, not months. Every day of delay narrows your options.

Defeating a 3213 Motion

Critically, New York courts have repeatedly held that MCA agreements often do not qualify as instruments "for the payment of money only" because proving the claim requires evidence outside the document itself — actual receivables generated, reconciliation history, and account performance. A successful opposition can knock the case off the fast track entirely, converting the motion papers into ordinary pleadings under CPLR 3213 and opening the door to discovery, depositions of the funder's underwriters, and the usury defense.

Confessions of Judgment: CPLR 3218 and the 2019 Reform

For years, MCA funders required merchants to sign affidavits of confession of judgment, allowing the funder to enter judgment without any lawsuit at all. In 2019, New York amended CPLR 3218(a) to prohibit the filing of confessions of judgment against non-residents of New York, which eliminated the practice for most out-of-state merchants. But if your business or the guarantor resides in New York, a confession of judgment may still be filed against you in the county specified in the affidavit.

If a judgment by confession has already been entered against you, the remedy is a plenary action to vacate the judgment on grounds such as fraud, breach of the underlying agreement (for example, the funder debited more than it was owed or declared default without basis), or that the confession did not comply with CPLR 3218's requirements — including the statute's mandate that the affidavit state concisely the facts out of which the debt arose. Judgments resting on criminally usurious agreements are also vulnerable, because a void agreement cannot support a judgment.

Frozen Bank Accounts and Restraining Notices Under CPLR 5222

Once an MCA funder has a judgment — by confession, by default, or after a granted 3213 motion — it will serve restraining notices under CPLR 5222 on your banks. A restraining notice freezes up to twice the amount of the judgment in the account and prohibits the bank from allowing transfers. For a business that needs to make payroll on Friday, this is an existential emergency.

Immediate responses available under New York law include:

• Order to show cause with a temporary restraining order staying enforcement while a motion to vacate the judgment is decided.
• Motion to vacate a default judgment under CPLR 5015(a)(1) — you must show a reasonable excuse for the default and a meritorious defense, and the motion must be made within one year of service of the judgment with notice of entry.
• Motion to vacate under CPLR 5015(a)(3) for fraud, misrepresentation, or misconduct — this ground has no fixed statutory time limit and is frequently the vehicle for challenging judgments obtained through inflated default balances or fabricated defaults.
• Motion under CPLR 5240, which gives the court broad discretion to modify or limit any enforcement procedure that is oppressive or improper.

Worked example: A funder enters a $145,000 judgment by confession and serves a CPLR 5222 restraining notice on your bank, freezing $290,000. If our review shows the funder had already collected $120,000 in daily debits and the confession affidavit overstated the balance, we move by order to show cause for a TRO lifting the restraint and to vacate the judgment under CPLR 5015(a)(3), with a criminal usury defense under Penal Law § 190.40 as the meritorious defense. Courts in New York County and Kings County — where most MCA judgments are entered — decide these emergency applications quickly, often within days.

UCC § 9-406 Notices to Your Customers

Because MCA agreements are typically secured by a UCC-1 financing statement covering your receivables, funders often send notices directly to your customers under New York UCC § 9-406, instructing them to pay the funder instead of you. These letters can destroy customer relationships overnight. But a § 9-406 notice is only effective if the funder holds a valid, enforceable assignment — and a criminally usurious, void agreement cannot support one. We respond to improper 9-406 notices with immediate demand letters, and where appropriate, claims for tortious interference with contract and business relations against funders who continue to intercept receivables they have no right to collect.

The New York Commercial Finance Disclosure Law

New York now regulates MCA disclosures directly. The Commercial Finance Disclosure Law, Financial Services Law Article 8 (§§ 801–812), with compliance required as of August 1, 2023 under 23 NYCRR Part 600, requires providers of commercial financing of $2.5 million or less — expressly including sales-based financing such as merchant cash advances — to disclose, before the merchant signs:

• The total dollar cost of the financing;
• An estimated annual percentage rate (APR), calculated in accordance with the regulation;
• The payment amounts and estimated term; and
• Prepayment policies and any finance charges payable on prepayment.

Enforcement authority rests with the New York Department of Financial Services, which may impose civil penalties under FSL § 812. While the statute does not create a standalone private lawsuit, a funder's failure to provide compliant disclosures is powerful evidence in defending an enforcement action, negotiating a settlement, and demonstrating to the court that the funder concealed the true loan-like cost of the transaction.

Common Defenses in New York MCA Litigation

• Criminal usury — the agreement is a disguised loan exceeding 25 percent per year and is void under Penal Law § 190.40 and GOL § 5-521(3);
• No default occurred — a bounced ACH caused by the funder's own over-debiting, or a bank error, is not a breach;
• Breach of the reconciliation provision — the funder refused to adjust payments to actual receivables as the contract required;
• Improper acceleration and inflated damages — default fees, "blocked account" fees, and attorney-fee add-ons not supported by the agreement;
• Unconscionability and fraudulent inducement — misrepresentations by brokers about the cost, term, or reconciliation rights;
• Payment and setoff — full accounting of every ACH debit, which frequently reveals collections exceeding even the stated purchased amount;
• Defective service and jurisdictional defenses — a basis to vacate default judgments under CPLR 5015(a)(4).

Personal Guarantees and Your Individual Exposure

Nearly every MCA agreement includes a personal guaranty — often styled as a limited "performance guaranty" that funders argue converts into full personal liability upon any breach. Because individuals, unlike corporations, may assert both civil usury under GOL § 5-501 and criminal usury, a guarantor sometimes has defenses even broader than the business itself: a void underlying obligation cannot be guaranteed. Business owners facing MCA guaranty claims often face overlapping pressure on other fronts as well — for example, restrictive covenants asserted by former partners or franchisors — and our firm handles those disputes too, including non-compete defense for New York business owners and executives.

What to Do Right Now If an MCA Company Is Coming After You

1. Do not ignore the papers. A CPLR 3213 motion or summons has hard deadlines — typically 20 to 30 days depending on how you were served. A default converts a defensible case into a judgment.
2. Do not sign a settlement or "reverse consolidation" under pressure. Many settlement agreements waive the usury defense and add new confessions or guarantees.
3. Gather your documents: the MCA agreement and all addenda, every bank statement showing ACH debits, all emails and texts with the funder and broker, any reconciliation requests, and any UCC or 9-406 notices.
4. Calculate what you have actually paid. Funders' affidavits routinely overstate balances; a debit-by-debit accounting is often the fastest path to leverage.
5. Consult counsel before your bank account is restrained — pre-judgment, we can oppose the 3213 motion and assert usury; post-judgment, the toolkit narrows to CPLR 5015 and 5240 motions and plenary actions, which are harder and slower.

MCA cases are won on speed, documentation, and precise application of New York statutory and case law. The funder's business model depends on defaults and uncontested judgments. A prompt, well-supported defense changes the economics of the case — and frequently produces dismissals, dramatic settlement reductions, or outright voiding of the agreement.

You can contact us by phone at 212-233-1233 or by email at [email protected].