Defending against Merchant Cash Advance lenders is an extremely niche field of law. MCA’s became common about ten years ago but then they erupted a few years later filing a ton of confession judgments against small businesses and their personal guarantors primarily in New York State. This practice ultimately overwhelmed the court system and forced the legislature to pass a new law banning most confession judgments primarily because of MCA lenders. Multiple lawsuits have followed by the NY Attorney General and other regulatory agencies alleging violations of Usury, Deception, and even Fraud amongst others.
Although the Attorney General won some of these suits and settled with others, the MCA industry continued to evolve and found new ways to take advantage of current state laws. Part of the problem is that there have been many awful judicial decisions, mostly from early on allowing MCA companies to practice their sort of business. The initial viewpoint from judges back then was that these were business to business transactions so consumer protections did not apply and that businesses should know who they were engaging to do business with. Fortunately, we believed that viewpoint has changed in recent years as judges have finally caught on to what the actual intentions of the Merchant Cash Advance lenders are. We now have a substantial amount of case law in both the State and Federal lower and appellate courts providing that many of the MCA agreements are both usurious as well as deceptive. In recent years, the MCA companies decided to forum shop or pick certain courts that they believed would be favorable to them. These courts usually consisted of smaller towns in rural upstate New York. Ironically, the judges in places like Monroe, and Rockland counties have written some of the best recent decisions against MCA’s and for small businesses. We are now seeing many of these MCA lenders suing in other states like Utah, Florida and Virginia, likely because of the shifting law in New York.
There are many obstacles that a small business has to navigate when defending against an MCA company whether in lawsuit or when attempting to vacate a default judgment which is all too common in this field. Unfortunately, one of those obstacles is dealing with many of the companies on the internet who claim to be able to negotiate and reduce the debt owed to the MCA’s. This is almost always a bad idea from our experience. These are not regular debt matters as MCA defense is an extremely complex field that requires legal knowledge and strategy. These so-called debt settlement companies often cannot defend businesses once a lawsuit is filed as they are not attorneys or retain a random attorney who has little knowledge or experience in the MCA field. In some frightening scenarios, we have been told by many clients that the debt settlement company that was supposed to help them turned out to be connected to the MCA company that they were allegedly helping them against. We hear these sort of horror stories all too often, so it is critical to retain an attorney who has experience against MCA creditors.
When a business discusses potential engagement on a MCA matter, an attorney should analyze the businesses exposure to UCC liens which can derail a business entirely. They should also explore and explain what potential defenses and or counterclaims a business may have against the MCA lender in litigation. Finally, they should discuss current business hardship that can be used to their benefit if they are interested in coming to a negotiated settlement and discussing a potential settlement range so that the client has a realistic idea of what payments could look like once a reduced amount is obtained whether during or prior to litigation.