The merchant cash advance industry in New York has entered a period of sustained legal deterioration for funders. Between 2023 and 2025, a sequence of appellate rulings, attorney general enforcement actions, and proposed legislation has recast the MCA agreement from a protected commercial instrument into a transaction subject to criminal usury statutes and judicial rescission. Business owners carrying MCA obligations now possess defenses that did not exist three years ago. Those defenses require precise assertion.
Recharacterization and the Collapse of the Receivables Fiction
MCA funders have long maintained that their agreements constitute purchases of future receivables rather than loans. That distinction matters because New York’s civil usury cap of 16% and criminal usury threshold of 25% per annum apply only to loans, not to bona fide asset purchases. For years, the distinction held. It no longer does in most contested proceedings.
What the courts now ask is not whether the agreement says “purchase of receivables” in its header. The operative question is whether the funder bore genuine risk. In Crystal Springs Capital, Inc. v. Big Thicket Coin, LLC, the Second Department of the Appellate Division examined an agreement requiring fixed daily debits of $4,000, with no obligation on the funder to reconcile those payments to actual sales volume, and full recourse against the merchant in the event of bankruptcy. The court found the agreement constituted a criminally usurious loan. The funder did not dispute that the effective annual interest rate exceeded 25%. The judgment against the merchant was vacated.
That ruling did not arrive in isolation. In September 2024, the Third Department reached the same conclusion in a separate MCA enforcement action. Justice Andrew Borrok of the Commercial Division had already held, in People v. Richmond Capital Group LLC, that the agreements at issue were usurious loans. The analytical framework across these decisions is consistent. Courts examine three factors: whether the agreement contains a reconciliation provision, whether it imposes a finite repayment term, and whether the funder retains recourse upon the merchant’s insolvency. Where reconciliation is absent or illusory, where the term is fixed, and where recourse survives bankruptcy, the transaction is a loan.
The word “illusory” carries particular weight. Many MCA agreements include reconciliation clauses in their text. The clause appears. The mechanism does not function. Funders continue withdrawing fixed daily amounts regardless of actual revenue. Merchants who request adjustment receive no response, or receive denial under criteria never disclosed at origination. In MCA Servicing Co. v. Nic’s Painting, LLC, a 2024 ruling from the Supreme Court, the judge denied summary judgment and wrote that the court “will not be used as a cudgel to enforce potentially illegal and/or unconscionable loans.” That sentence reflects the present judicial posture across New York’s trial courts.
The Yellowstone Judgment and Its Procedural Aftermath
On January 22, 2025, Attorney General Letitia James announced a $1.065 billion settlement against Yellowstone Capital and its network of 25 affiliated entities. The settlement remains the largest consumer enforcement action ever obtained by the Office of the Attorney General outside a multistate proceeding. It cancelled over $534 million in outstanding merchant obligations. More than 1,100 judgments against New York businesses were vacated. Over 18,000 merchants nationwide received debt discharge. The principals of the Yellowstone entities received permanent bans from the MCA industry.
Eight hundred and twenty percent. That was the annual rate on some Yellowstone agreements. The underlying facts deserve attention. The Attorney General’s complaint, filed in March 2024, alleged that Yellowstone had been issuing short-term loans at rates as high as 820% per annum since 2009, disguised as purchases of future receivables. The agreements were structured to avoid the classification of loan. The servicing practices made that classification unavoidable. Fixed daily debits. No reconciliation. Full personal guarantee enforcement. Confession of judgment filings across multiple counties.
Before Yellowstone, the Attorney General had already secured a $77 million judgment against Richmond Capital Group, Ram Capital Funding, and Viceroy Capital Funding in February 2024, following a lawsuit initiated in 2020. The pattern of enforcement is accelerating rather than contracting.
These actions have produced a secondary effect that individual merchants can use. Where a funder’s practices have been adjudicated as predatory in an enforcement action, the evidentiary record from that proceeding becomes available to other defendants. A merchant sued by a Yellowstone affiliate in 2023, for instance, now has a $1 billion judgment confirming the nature of the agreement. That confirmation alters every pending collection matter involving those entities.
Confession of Judgment: Restricted but Not Eliminated
In August 2019, Governor Cuomo signed an amendment to CPLR Section 3218 prohibiting the filing of confessions of judgment against out-of-state defendants in New York courts. The reform responded to reporting by Bloomberg Businessweek that documented MCA funders filing COJs in New York against business owners in Texas, Florida, and California who had no connection to the state. After the amendment, a confession of judgment filed against a non-New York defendant is voidable.
The restriction applies to defendants. It does not prohibit COJs against New York-domiciled merchants. For businesses operating within the state, the confession of judgment remains a live instrument. Funders continue to include COJ provisions in their agreements, and New York county clerks continue to accept filings against in-state merchants. The defense against a COJ filed without proper basis is a motion to vacate. Where the underlying agreement has been recharacterized as a usurious loan, the COJ falls with it. The instrument depends on the validity of the obligation it purports to enforce.
Hundreds of COJ-based judgments in Rockland County alone faced vacatur proceedings in 2025, a direct consequence of the Yellowstone settlement. The geographic concentration is not incidental. MCA funders filed COJs in counties with high-volume clerks’ offices and limited judicial scrutiny as a matter of established practice. That practice is producing a concentrated wave of reversals.