Merchant Cash Advance Lawyer Update


There may finally be some relief for struggling businesses and consumers dealing with the notorious Merchant Cash Advances. Merchant Cash Advances are fairly new in the debt industry as we only saw them evolve a bit over a decade ago during the midst of the great recession. The idea is that businesses would receive funding for future sales of receivables so that these would not be labeled as loans and would not be scrutinized as such. With almost no regulation in the industry, MCA’s were allowed to basically due whatever it is they wanted. This way the MCA’s would not have to deal with the usury cap for example. With interest rates that are three or four times higher than regular banks, businesses are crippled with daily or weekly payments that the MCA companies draw directly from their bank accounts leaving them with little to no money to continue operating. Many of these businesses, especially small businesses are forced to go into bankruptcy or become defunct. To make things worse, a personal guarantee is almost always obtained in these situations so that the MCA companies can also pursue the individual business owner or owners even after the business has been destroyed. MCA companies would then levy personal bank accounts and lien property or assets of people all over the country.

Merchant Cash Advance companies are extremely aggressive when pursuing defaulted agreements. They have their collection people call the business, their clients, their vendors, their family members and other randoms all to embarrass, harass, scare, and pressure businesses back on to payment plans. Recently we have seen a new tactic, using UCC liens in order to levy business assets online and with business client’s and vendors. These UCC liens which from our standpoint are supposed to be used to establish which creditor has priority are instead being treated as judgment like. Merchant Cash Advance Companies have been able to use them to levy online accounts such as Amazon, Airbnb, Cashapp, Intuit, Paypal, Square, Stripe, Turo, Venmo, as well as smaller merchant processor companies. This way they can levy accounts without even having to spend the money on attorneys in litigation.

The landscape first began to change when New York State realized they had a problem on their hands due to the thousands of Confession Judgment filings especially in courts in obscure parts of the State that never saw much volume. Soon after, the law was changed so that a Confession Judgment, which is essentially when a business gives up their right to defend themselves in litigation and allows the moving party to automatically enter judgment against them, could no longer be entered by businesses outside of the State of New York. Most of the MCA companies we have run across reside outside of New York. These companies were then forced to litigate matters just as any other creditor or bank would have to do so, on the merits. However, they still have the upper hand as regulation is still minimal and previous state court decisions have mostly stated that these MCA agreements were not loans and thus could not be afforded the same defenses. However, now multiple federal judges from the Southern District of New York, or Manhattan have found that the payment arrangements set by merchant cash advance companies are in fact loans and not sales of receivables.

Recently, in HT Bar Capital v. Parkway Dental Services, New York Supreme Court Judge Leon Ruchelsman agreed with the federal cases identifying the merchant cash advances as really high interest loans instead of receivables contracts which means that usury laws finally apply. This is a major change from previous State law decisions and may open the window for other judges to interpret the law in the same way. It may also finally force the New York State Appellate courts to take up these cases so that a consensus decision can be made. We hope that these decisions will turn the tide so that small and medium businesses will finally be able to defend themselves at the same level as Merchant Cash Advance companies. These cases will also certainly give businesses leverage in negotiating settlements outside of court to resolve these matters.