What Small Businesses and MCA Defendants Need to Know
In a major enforcement action that could reshape the merchant cash advance (“MCA”) litigation landscape, Letitia James has filed suit against an online arbitration platform accused of operating a “sham” dispute resolution system designed to benefit predatory lenders.
According to the official press release, the lawsuit alleges that the arbitration provider—known as Rapid Ruling—was secretly created and structured to ensure that MCA companies would prevail in disputes against small businesses.
For business owners facing MCA claims—and the attorneys defending them—this case is more than headline news. It is a roadmap for challenging arbitration awards and exposing systemic abuse.
The New York Attorney General’s Office alleges that Rapid Ruling falsely marketed itself as a neutral and independent arbitration forum, while in reality operating as a tool for MCA lenders.
Key allegations include:
- The arbitration rules were allegedly drafted and influenced by an MCA company, ensuring a lender-friendly process
- The platform was marketed as impartial, but functioned in coordination with the MCA industry
- Small businesses were often unaware or unable to participate effectively in proceedings
Most notably, the investigation found that approximately 97% of arbitrations resulted in default or uncontested rulings, overwhelmingly in favor of MCA companies. We can confirm that this is accurate having been enforced to go through the Rapid Ruling process on dozens of occasions in the past. Our experience is consistent with the Attorney General’s allegations and we always believed that Rapid Ruling was heavily skewed to favor MCA companies if not already working with them altogether. Rapid Ruling gave almost no chance to businesses trying to defend themselves against MCA creditors.
These arbitration awards were then converted into court judgments—allowing lenders to pursue bank restraints, asset seizures, and aggressive collections against already struggling businesses.
This lawsuit is part of a broader crackdown on the MCA industry, which regulators and defense attorneys increasingly view as disguised lending with usurious characteristics.
MCA companies often structure transactions as purchases of future receivables. However, regulators—including the New York Attorney General, and many courts—have argued that many of these agreements function as high-interest loans with effective rates far exceeding legal limits.
The enforcement trend is accelerating:
- A $1 billion settlement previously secured against MCA-related entities
- Court orders voiding debts and requiring restitution to businesses
- Expanded enforcement powers under New York’s FAIR Business Practices Act, targeting “unfair” and “abusive” conduct
The Rapid Ruling lawsuit underscores a key theme: it’s not just the MCA contracts under scrutiny—it’s the enforcement mechanisms themselves.
Why This Matters for MCA Defendants
For businesses facing MCA lawsuits or judgments, this case creates powerful legal arguments, particularly where arbitration is involved which has become a more popular route for MCA creditors instead of direct litigation.
1. Challenging Arbitration Awards
If an arbitration forum is proven biased or structurally unfair, its awards may be subject to vacatur under New York law.
2. Fraud and Misrepresentation Defenses
Allegations that arbitration providers misrepresented neutrality may support claims of:
- Fraud in the inducement
- Unconscionability
- Deceptive business practices
3. Collateral Attacks on Judgments
Judgments obtained through tainted arbitration proceedings may be vulnerable to:
- Motions to vacate
- Injunctive relief
- Declaratory judgment actions
4. Increased Leverage in Settlement Negotiations
With heightened regulatory scrutiny, MCA companies may face greater litigation risk, and be forced to spend significantly more on litigation costs creating opportunities for favorable resolutions to reduce the debt significantly and give a business the opportunity to repay the reduced balance over an interest-free payment arrangement.
The lawsuit reflects a broader enforcement philosophy: state regulators are stepping in where federal oversight has been limited, particularly in financial services and small business lending.
For MCA funders and litigation counsel, this signals increased exposure—not just for lending practices, but for:
- Arbitration clauses
- Forum selection strategies
- Collection practices
For defendants, it represents a growing opportunity to push back.
At The Lebedin Kofman Law Firm, we represent businesses nationwide in defending against MCA claims, including:
- Vacating unfair arbitration awards
- Defending MCA breach of contract actions
- Asserting fraud, usury, and deceptive practices defenses
- Negotiating strategic settlements
If your business has been subjected to an MCA claim or arbitration proceeding, this latest enforcement action may directly impact your rights. Businesses have more tools than ever to vacate judgments and dismiss unfair and deceptive arbitration and litigation matters filed by Merchant Cash Advance lenders.