Key MCA Lawsuits and Court Decisions Every Business Owner Should Know

The law is not static. It is shaped by the cases that come before the courts. In the MCA space, several landmark decisions have reshaped the legal landscape, creating precedents that every business owner with MCA debt should understand.

MCA case law is developing rapidly. Courts across the country, primarily in New York, but increasingly in other states and federal courts, are examining the fundamental question at the heart of every MCA dispute: is the transaction a purchase of future receivables or a loan? The answer to that question determines whether the agreement is regulated, whether usury laws apply, and whether the obligation is enforceable. Several cases have become landmarks in this evolving legal landscape.

The Recharacterization Decisions

Multiple New York courts have ruled that MCA agreements lacking genuine risk transfer are loans, not purchases. The analysis examines whether the funder bore real risk of loss. When the court finds that fixed daily payments, personal guarantees, confessions of judgment, and non-functional reconciliation clauses eliminated the funder’s downside exposure, the court concludes that the funder was not purchasing receivables. The funder was making a loan. And the loan’s effective interest rate, when calculated, exceeds the criminal usury threshold.

These decisions are significant because they established the analytical framework that other courts now follow. The framework is straightforward: examine the contract, assess the risk, calculate the rate, apply the usury statute. Courts that follow this framework consistently reach the same conclusion, MCAs with no genuine risk transfer are loans, and loans with effective rates exceeding 25% in New York are criminally usurious and void.

Confession of Judgment Reforms

The judicial and legislative response to MCA confessions of judgment has been equally significant. Investigative reporting documented how MCA funders used confessions of judgment to freeze bank accounts, seize assets, and destroy businesses without any judicial process. The reporting led to legislative reforms in New York in 2019, which imposed new requirements on confession of judgment filings and restricted their use against out-of-state defendants.

Court decisions following the reforms have vacated confessions of judgment that failed to comply with the new requirements, providing precedent for future challenges. These decisions established that the procedural protections enacted by the legislature are enforceable and that confessions failing to meet the new standards will be set aside.