MCA Laws in New York: What Business Owners Need to Know
New York is the most important state in the country when it comes to MCA regulation. Most merchant cash advance companies are headquartered in New York, and for years New York courts were the preferred venue for MCA-related legal actions. That has changed significantly in recent years as the state has passed landmark legislation to protect small business owners from predatory MCA practices.
If you own a business in New York or took an MCA from a New York-based funder, this guide covers the key laws and protections you need to understand.
Current MCA Regulations in New York
New York has taken the most aggressive regulatory approach to MCAs of any state in the country. While MCAs are still technically legal and do not fall under traditional lending laws (because they are structured as purchases of future receivables rather than loans), New York has enacted several measures that directly impact how MCA companies operate.
The state's approach has been shaped by high-profile investigative reporting and a series of court cases that exposed abusive practices in the MCA industry. The result is a regulatory environment that, while still evolving, provides more protection for business owners than almost any other state.
Commercial Financing Disclosure Law
In 2020, New York passed the Commercial Financing Disclosure Law, which requires MCA providers and other commercial lenders to provide standardized disclosures to small businesses before finalizing a transaction. The law, which took effect with implementing regulations in 2024, requires disclosure of:
- The total amount of funds provided
- The total cost of the financing, expressed as a dollar amount
- The estimated annual percentage rate (APR) or equivalent
- The payment amounts and frequency
- A description of any prepayment policies
This is significant because MCA companies have historically avoided APR disclosures by arguing they are not lenders. New York's law applies regardless of how the transaction is structured, closing that loophole for businesses operating in the state.
Confession of Judgment Restrictions
New York's most impactful MCA reform was the 2019 legislation restricting confessions of judgment (COJs). Before this law, MCA companies routinely had business owners across the country sign COJs that could be filed in New York courts. This allowed funders to obtain judgments, freeze bank accounts, and seize assets without giving business owners a chance to defend themselves.
The 2019 law made the following changes:
- Banned out-of-state COJs. MCA companies can no longer file confessions of judgment in New York courts against businesses located outside of New York.
- Added procedural requirements. For COJs that can still be filed, the MCA company must include a sworn statement that the debtor is actually in default, a description of the default, and proof that the debtor was given notice.
- Created penalties for abuse. Filing a fraudulent or improperly executed COJ can result in the judgment being vacated and the filer facing sanctions.
This was a direct response to Bloomberg's investigation that revealed thousands of COJs being filed against small businesses nationwide by New York-based MCA companies.
UCC Filing Rules
When you take an MCA in New York, the MCA company will typically file a UCC-1 financing statement with the New York Department of State. This filing puts a lien on your business assets and serves as public notice that the MCA company has a claim on your future receivables.
Key things to know about UCC filings in New York:
- UCC filings are public record and can be searched through the New York Department of State website
- A UCC filing can make it difficult to obtain other financing because lenders will see the existing claim on your receivables
- UCC filings in New York are valid for five years and can be renewed
- When you pay off an MCA, the funder is required to file a UCC-3 termination statement to remove the lien. If they do not, you can demand it in writing
If an MCA company refuses to file a termination after you have satisfied your obligation, you may have grounds for a legal claim under New York's Uniform Commercial Code.
Consumer Protection Laws That Apply
While MCAs are technically business-to-business transactions, New York courts have increasingly applied consumer protection principles to MCA disputes.
Unconscionability Doctrine
New York courts have been willing to examine whether MCA agreements are "unconscionable," meaning so one-sided that they should not be enforced. Courts look at both procedural unconscionability (was the business owner given a fair opportunity to understand the terms?) and substantive unconscionability (are the terms themselves unreasonably oppressive?).
Several New York courts have voided MCA agreements on unconscionability grounds, particularly when the effective cost of the financing was extremely high and the business owner clearly did not understand the terms.
Reclassification as a Loan
In a growing number of cases, New York courts have looked past the "purchase of future receivables" structure and reclassified MCAs as loans. When this happens, the MCA becomes subject to New York's usury laws, which cap interest at 16% for civil usury and 25% for criminal usury. Since many MCAs have effective annual rates well above 100%, reclassification can void the entire agreement.
Courts tend to reclassify an MCA as a loan when:
- The MCA company takes fixed daily payments rather than a true percentage of receivables
- There is no reconciliation process to adjust payments based on actual revenue
- The business owner has a personal guarantee that makes repayment mandatory regardless of business performance
Recent Legislation and Court Cases
New York continues to lead on MCA regulation. Recent developments include:
- Increased enforcement by the Attorney General. The New York Attorney General's office has pursued actions against MCA companies for deceptive practices, including misrepresenting terms and engaging in abusive collection.
- Proposed licensing requirements. Legislation has been introduced that would require MCA companies to obtain a license from the New York Department of Financial Services, similar to what is required for traditional lenders.
- Court decisions on reconciliation. Multiple New York courts have ruled that MCA companies must actually perform reconciliation (adjusting payments based on actual revenue) if it is promised in the contract. Failure to do so can result in the MCA being treated as a loan.
The New York Department of Financial Services continues to monitor the MCA industry and has signaled that further regulation is likely.
What New York Business Owners Should Do
If you are a business owner in New York considering an MCA, or if you already have one, here are the steps you should take:
- Demand full disclosures. Under New York law, the MCA company must provide standardized disclosures including the total cost and estimated APR. If they refuse, walk away.
- Refuse to sign a confession of judgment if possible. While some MCA companies still require them, the new restrictions make them less enforceable. Ask if the COJ can be removed from the agreement.
- Understand your UCC filings. Search the New York Department of State UCC database to see what filings exist against your business. Demand terminations when obligations are satisfied.
- Keep records of all payments. If the MCA company is taking fixed daily payments without reconciliation, document this. It could be critical evidence if you need to challenge the MCA in court.
- Consult an attorney before signing. A business attorney familiar with MCA law can review the agreement and flag dangerous terms. The New York State Bar Association can help you find one.
Helpful Resources
- New York Attorney General for filing complaints against MCA companies
- SBA New York District Office for alternative financing resources
- New York Department of Financial Services for regulatory information
- New York Small Business Development Center for free business counseling
Related Resources
- What Is a Merchant Cash Advance? — understand how MCAs work before diving into the legal details
- MCA Laws by State — see how your state compares to others
- MCA Contract Red Flags — 8 warning signs in MCA contracts
- MCA Confession of Judgment — the most dangerous clause in your contract
- MCA Cost Calculator — calculate the true cost of any MCA offer
Frequently Asked Questions
Are merchant cash advances legal in New York?
Can an MCA company still file a confession of judgment in New York?
What should I do if an MCA company is taking fixed daily payments without reconciliation?
Where can I file a complaint against an MCA company in New York?
Sources
- New York Department of Financial Services. Regulatory oversight of commercial financing in New York.
- Bloomberg News. Confessions of Judgment Investigation. Investigative series that prompted New York's COJ reforms.
- New York State Bar Association. Find an attorney for MCA-related legal matters.
- SBA New York District Office. Federal small business resources for New York businesses.