Ohio’s usury framework and consumer protection law give MCA borrowers meaningful tools to challenge agreements that function as high-interest loans regardless of their labels. The state’s restrictions on cognovit notes add an additional layer of protection.
Ohio’s small business economy, manufacturing, healthcare, construction, retail, technology, and professional services across Cleveland, Columbus, Cincinnati, Dayton, and smaller markets, generates significant demand for working capital. MCA companies target Ohio businesses with products that carry costs far exceeding traditional financing options, and the stacking of multiple advances is common.
Ohio’s legal framework provides several avenues for MCA borrowers seeking relief, including a usury statute with criminal penalties, a consumer protection law with a private right of action and treble damages, and significant restrictions on cognovit provisions that limit the funder’s ability to obtain judgments without notice.
The Legal Landscape in Ohio
Ohio’s criminal usury statute, O.R.C. § 2905.21 et seq., applies to interest charges exceeding 8% per annum above the federal discount rate. The criminal usury threshold fluctuates with the federal rate but is consistently far below the effective APRs produced by recharacterized MCAs. Even at the most generous calculation of the threshold, recharacterized MCAs carrying effective rates of 100% or more exceed it by multiples.
Ohio’s Consumer Sales Practices Act, O.R.C. § 1345.01 et seq., prohibits unfair, deceptive, and unconscionable consumer and commercial sales practices. The statute provides for actual damages, attorney’s fees, and treble damages for knowing violations. The Act’s broad scope encompasses the marketing, solicitation, and servicing of MCA products. Deceptive representations about the cost of the advance, the availability of reconciliation, and the nature of the transaction are actionable under the CSPA. The treble damages provision for knowing violations provides significant financial leverage.
Ohio’s cognovit statute, O.R.C. § 2323.13, permits cognovit notes (confessions of judgment) only in certain commercial transactions and imposes specific requirements including a conspicuous warning in prescribed language. If the MCA’s cognovit clause does not meet Ohio’s specific statutory requirements, the confession of judgment may be unenforceable. Ohio courts have vacated cognovit judgments that fail to comply with the statute’s formal requirements, providing an additional avenue for challenge.
Recharacterization and Usury
The recharacterization analysis in Ohio follows the same national framework. If the MCA funder bore no genuine risk of loss, because the payments were fixed, the guarantee shifted the risk to the owner, and the reconciliation clause was ignored, the transaction is a loan. Ohio courts can apply the analytical framework developed in New York and other jurisdictions, adapted to Ohio’s specific statutory provisions.
When a recharacterized MCA’s effective APR exceeds Ohio’s criminal usury threshold, the agreement is subject to criminal penalties and civil consequences. Given that most recharacterized MCAs produce effective rates of 100% to 300%, the threshold is easily exceeded. The usury defense, combined with the CSPA’s treble damages for knowing violations, creates comprehensive legal exposure for the funder.
