FAQs on MCA Regulation: Merchants’ New Rights Under New York State Law?
- McDONNELL HOPKINS
- Dec 14, 2025
- 3 min read
Updated: Jan 17
McDONNELL HOPKINS - MCA News Desk Author: Paddy "The Pill" McDonnell
Merchant Cash Advances (MCAs) have long operated in a regulatory gray area, often described as “receivables purchases” rather than loans. In recent years, however, New York State courts have increasingly looked past labels and focused on substance over form. This shift has raised important questions for merchants: Are there new rights emerging under New York law? Below are frequently asked questions addressing how evolving New York State case law is reshaping MCA regulation and merchant protections.
1. Has New York changed its laws on Merchant Cash Advances?
There has been no single statute banning MCAs, but New York courts have developed a clear analytical framework to determine whether an MCA is truly a receivables purchase or an unlawful loan.
Judges now routinely evaluate:
Whether repayment is genuinely contingent on revenue
Whether the funder assumes meaningful risk
Whether reconciliation provisions are real or illusory
This judicial approach has materially altered how MCA agreements are evaluated.
2. Why does the “substance over form” doctrine matter?
Under New York law, courts examine what an agreement actually does, not what it is called.
If an MCA:
Requires fixed daily payments regardless of revenue
Makes reconciliation practically unavailable
Transfers all risk of business failure to the merchant
a court may conclude the agreement functions as a loan, even if labeled otherwise.
3. What rights do merchants gain if an MCA is deemed a loan?
If an MCA is recharacterized as a loan, several potential consequences may follow:
Usury defenses may become available
Certain contractual provisions may be unenforceable
Confessions of judgment may be challenged
Personal guaranties may be scrutinized
These outcomes depend on facts, contract language, and procedural posture.
4. Are reconciliation provisions now being closely examined?
Yes.
New York courts increasingly focus on whether reconciliation rights are:
Clearly defined
Reasonably accessible
Not subject to funder discretion alone
Reconciliation clauses that exist only on paper, but not in practice, may undermine the funder’s position.
5. Do daily ACH withdrawals affect enforceability?
They can.
Courts consider whether:
Payments are fixed rather than revenue-based
Withdrawals continue during documented revenue declines
The funder exercises unilateral control over merchant accounts
Fixed payment structures weigh against a true receivables purchase characterization.
6. What role do default and acceleration clauses play?
Aggressive default triggers such as missed paperwork, revenue declines, or reconciliation requests are receiving increased scrutiny.
Acceleration of the full purchased amount may indicate:
Lack of risk transfer
Loan-like repayment certainty
Predatory structural design
These factors influence judicial analysis.
7. How do New York courts view confessions of judgment in MCA cases?
Confessions of judgment (COJs) remain enforceable in some circumstances, but:
Courts increasingly examine the underlying transaction
COJs tied to recharacterized loans may face challenges
Procedural and jurisdictional issues are closely reviewed
COJs are no longer assumed to be automatic or untouchable.
8. Are merchants protected even if they signed the contract?
Potentially, yes.
Under New York law, enforceability depends on:
The agreement’s actual operation
Whether statutory or common-law protections apply
Whether contractual terms violate public policy
Signing a contract does not eliminate all defenses.
9. Does this apply only to New York merchants?
No.
New York courts frequently serve as the forum for MCA disputes nationwide.
Merchants located outside New York may still be affected if:
The contract selects New York law
Litigation is filed in New York
A confession of judgment is entered there
10. What should merchants do in light of these developments?
Merchants should not assume MCA contracts are immune from challenge.
A structured review of:
Contract language
Payment mechanics
Reconciliation history
Default events
can clarify whether recent New York case law meaningfully impacts their situation.
Final Thoughts
New York State courts have not outlawed MCAs, but they have raised the bar for enforceability. For merchants, this shift represents greater scrutiny, increased leverage, and clearer analytical standards than existed just a few years ago. Understanding how these standards apply requires careful, fact-specific analysis not assumptions
This article is for informational purposes only and does not constitute legal advice.
Comments