Hundreds of merchant cash advance (MCA) lawsuits are filed each month in Upstate New York Counties, often against businesses located outside New York. The most common question raised about these MCA loans is about contract enforceability, where lawsuits are filed, and default judgments entered when business owners do not respond.
When Is a Merchant Cash Advance Actually a Loan?
Merchant cash advances are typically structured as purchases of future business receivables rather than traditional loans. But the contract’s label may not determine how a court treats the transaction. Most recently, U.S. Bankruptcy Judge David Jones examined the MCA agreements at issue in In re Kossoff and concluded that they functioned as loans subject to New York’s usury laws, rendering those agreements unenforceable. That decision does not mean every MCA contract is automatically invalid but is a major step forward in the defense against MCA creditors.
The court’s analysis focused on fixed repayment obligations, whether the funding company assumed a meaningful risk of loss, and whether payment adjustments genuinely reflected the business’s receipts. Those adjustments—known as reconciliation—were particularly important: provisions that were discretionary or allowed only future adjustments contributed to the court’s conclusion.
Why Venue and Default Judgments Matter
Lawsuits are often filed in Upstate New York counties including Rockland for example, despite contracts naming other counties or even another state as the agreed location for litigation. This is a common scenario that we have encountered and been able to use to dismiss these lawsuits. Unfortunately, many businesses do not defend against these cases, usually do to not having been properly served with the lawsuit, allowing funding companies to pursue default judgments. These issues highlight procedural questions alongside disputes about the underlying financing agreements.
Legal Review Starts With the Specific Agreement
For businesses facing an MCA collection lawsuit, it is critical to examine the actual contract, reconciliation provisions, repayment demands, and court filings. The central questions are not simply what the agreement is called, but how it operates and whether the lawsuit follows the parties agreed terms. The enforceability of any particular agreement requires an individual assessment; the reported Kossoff ruling is not a blanket defense to all MCA claims. An experienced MCA litigation attorney is critical for businesses looking to protect and defend themselves against aggressive merchant cash advance lenders.