The Legal Ground You’re Standing On
New York MCA law: the three facts that shape every option
Every resolution strategy — renegotiation, settlement, defense, refinancing — plays out differently depending on these three pieces of New York law. A firm that can’t speak to them isn’t the best firm for a New York file.
1Usury limits & the recharacterization question
New York's civil usury cap is 16% per year (GOL § 5-501; Banking Law § 14-a) and charging over 25% is criminal usury — a class E felony (Penal Law § 190.40). Corporations can't raise civil usury as a defense (GOL § 5-521), but they can assert criminal usury; loans of $2.5 million or more are exempt. The caps apply only to loans — and this is where New York matters enormously to MCA files nationwide, because most MCA contracts choose New York law. Under LG Funding v. United Senior Properties (2d Dep't 2020), courts recharacterize an MCA as a usurious loan using three factors: whether the reconciliation provision actually works, whether the term is finite, and whether the funder has recourse if the merchant enters bankruptcy. The NY Attorney General's Richmond Capital and Yellowstone cases treated MCAs failing that analysis as fraudulently usurious loans.
Sources: NY GOL § 5-501 (usury) · NY Banking Law § 14-a (16% cap) · NY Penal Law § 190.40 (criminal usury, 25%) · NY GOL § 5-521 (corporate usury defense; criminal-usury exception) · LG Funding v. United Senior Properties (opinion)
2Confessions of judgment in New York
Barred against out-of-state businesses since 2019 CPLR 3218 authorizes judgment by confession, and for years funders' New York contracts required merchants nationwide to sign COJs enforceable in New York — the industry's fastest collection weapon. In 2019 the Legislature amended CPLR 3218 (S.6395, Ch. 214, effective August 30, 2019) to require filing in the county where the defendant resides, with a business "residing" only where it has a New York place of business — effectively ending COJs against out-of-state small businesses. COJs remain possible against New York-resident debtors, so for a New York business this clause still has teeth and deserves attorney review before and after signing.
Sources: CPLR 3218 (confession of judgment; residence requirement) · S.6395 (2019) — COJ restriction for out-of-state debtors
3New York Commercial Finance Disclosure Law (CFDL): what funders must tell you
New York's CFDL (Financial Services Law art. 8, §§ 801–812, enacted December 2020; implemented by 23 NYCRR 600, mandatory since August 1, 2023) requires providers of commercial financing of $2.5 million or less — expressly including sales-based financing like MCAs — to give TILA-style disclosures with any specific offer: amount financed and actually disbursed, finance charge, estimated APR calculated under a prescribed method, total repayment, estimated term, payment schedule, other fees, collateral, and prepayment terms. The Department of Financial Services enforces it, with civil penalties authorized under FSL § 812. If a funder never showed you an estimated APR on a covered offer, that is a compliance failure worth raising.
Sources: FSL § 803 (sales-based financing disclosures incl. estimated APR) · NY DFS — adoption of 23 NYCRR 600 (Feb. 1, 2023) · Buchalter — final CFDL regulation analysis (Aug. 1, 2023 compliance)
How funders actually enforce here: New York is the MCA industry's home court: once a funder holds a judgment, CPLR 5222 restraining notices served on your bank can freeze accounts for up to a year or until the judgment is satisfied, and UCC 9-406 notices can direct your customers, card processors, and platforms to pay the funder instead of you — after notice, an account debtor discharges its obligation only by paying the assignee. The AG's Yellowstone action documented these practices at industry scale and ended in a $1.065 billion settlement (January 2025) banning the network from the MCA business. CPLR 5222 (restraining notices) · NY UCC § 9-406 (account debtor must pay assignee after notice) · NY AG — Yellowstone $1.065B settlement (Jan. 2025)
