In November 2020, California’s state financial regulator scrutinized the “merchant cash advance” product sold by Allup Finance, LLC, finding that it was not in fact the sale of receivables. The state Department of Financial Protection and Innovation (DFPI) found that “because Allup (1) acquired fixed debits from the accounts of merchants through the Automated Clearing House (ACH) network, (2) charges ‘bounced payment’ fees, and (3) retains numerous remedies for default, all this transaction was actually a loan, and that it did so unlicensed, in violation of the California Financing Law.” The DFPI also noted that “The purchase of receivables that a business has already earned has traditionally been referred to as ‘factoring’. California statutes and case law have not extended the same treatment to the purchase of future receivables.” The DFPI’s consent order of November 12, 2020 required Allup to “cease and desist from making loans in California, until properly licensed, and refund any excess of amounts collected from California customers above the 10% maximum allowed by the California Constitution,” and to pay $20,000 for the cost of the investigation.
The answer to the question of how to avoid a New York judgment is in the Allup consent order: If the owner of a California business looks at his contract and notices it has a New York choice of law provision, and that the funder’s lawyer is located in New York, what should the California business owner do first? Call a California lawyer! The defences of the California business owner are the California law, argued in a California superior court: the California prohibition on confessions of judgment; the 30 day limit on vacating a New York judgment registered in California; and the California usury/unlicensed lender defence argued in the Allup consent order. A New York lawyer is only necessary if there is a lawsuit in New York. A bankruptcy lawyer is necessary if there are multiple cash advances stacked up, or the business can’t pay its debts for other reasons. A solo debt settlement negotiator is not able to raise any of these defences.
Senate Bill 688
A confession of judgment is the funders’ Saviour. But it doesn’t really work for California merchants anymore. Senate Bill 688 amends Section 1132 of the Code of Civil Procedure. A confession of judgment shall not be entered into in any superior court in the state of California on and after January 1, 2023, and shall not be enforceable. A confession of judgment shall be enforceable if the agreement to confess judgment was obtained or entered into prior to the effective date of this legislation. New York closed down its end of the world too. As of an amendment to the New York CPLR 3218 in 2019, a confession of judgment signed after August 30, 2019, can only be filed in the New York county in which the defendant resides. A business in California with no residence in New York is safe from the New York law. All that the funders have left is a lawsuit. A lawsuit can be defended.
Sister State Money Judgments Act
After obtaining its judgment in New York, the funder (now “judgment creditor”) will likely seek to enforce the judgment against the merchant’s assets in California. In order to do so, the funder will have to register its judgment in a California superior court. California Code of Civil Procedure section 1710.10-1710.65 (the California “Sister State Money Judgments Act”) addresses the way in which funders register their judgments. Once the funder registers its judgment, it must serve notice of the judgment upon the merchant. Under section 1710.40, after the notice is served, the merchant is entitled “to vacate the judgment within 30 days ‘upon any ground that could have been asserted as a defense to a California action on the New York judgment. (In other words, for example, the merchant could allege that the funder miscalculated the amount of interest). If the merchant does not file a motion to vacate the judgment within that time, the judgment becomes final.
Early Enforcement
The ruling is final in California unless a motion is timely filed. Except under specific circumstances, generally no writ of execution or other enforcement of the judgment may issue until 30 days have expired. (Code Civ. Proc. 1710.45) If the judgment is against a non-resident of California or a corporation not qualified to do business in California, the funder may move for early enforcement of the judgment. A court may grant the early enforcement on an ex parte motion if the movant demonstrates that the failure to immediately enforce the judgment will cause substantial or irreparable damage to the funder. However, even if a funder levies early, generally it will not be permitted to sell or distribute the levied property until after the 30 days have expired. An exception is perishable property.
California’s Usury Limitation
The primary substantive defense to the judgment is California’s usury limitation. Article XV, section 1 of the state constitution limits interest on loans that are not for personal or household use. The limitation is 10% per year, or 5% plus the Federal Reserve Bank of San Francisco’s rate if that rate is higher. Lenders licensed pursuant to the California Financing Law are exempt from usury, which means the funder’s licensing status is critical. Essex Partner Ltd. v. Merchant Cash and Capital (C.D. Cal., Aug. 1, 2011) applied California usury laws despite a New York choice-of-law provision to treat an MCA as a usurious loan. Essex is a 2011 federal district-court decision reported primarily in secondary publications, and it is not binding on any other court. No California appellate decision either way on MCAs was found.
Many websites say that an LLC or corporation is always allowed to raise usury, but apparently that’s not so certain. Secondary sources say you can, and there’s no appellate case ruling on MCAs. DFPI itself seems to do it too. The order in the Allup case said refunds were due above the 10% cap to California customers that were merchants not consumers. In a consent order on August 4, 2026, DFPI found that Amerisource Funding, Inc. had made unlicensed equipment and commercial loans in violation of usury laws, charging more than the 10% limitation. It ordered them to give credits totaling about $88,958 to 18 California business entities and pay a $44,000 penalty. This order was not about an MCA, but illustrates their usury limitation applied to business.
Disclose an Annual Percentage Rate
SB 362 – What California Merchants Should Know? California’s SB 362 became law on January 1, 2026. SB 362 Says: “For any commercial financing product for which an offer is made to a customer of an amount not greater than $500,000, an offeror shall not use or refer to the term’interest’ or the term’rate’ in a misleading manner. If an offeror uses a charge or other pricing metric, the offeror shall disclose an annual percentage rate.” SB 362 kills “factor rate” for California MCAs according to trade press. SB 362 is enforced by the DFPI. A licensee’s violation of SB 362 is a violation of the California Financing Law, and the violation of SB 362 by an unlicensed offeror is a violation of the California Consumer Financial Protection Law as an unfair, deceptive or abusive practice violation.
I did not see that SB 362 provides a private right of action to California merchants. An attorney would cite the violation of SB 362 in a complaint to the DFPI, or use it as leverage. The earlier disclosure requirements were upheld, affirmed in the Ninth Circuit in April 2025.
The 30 Day Window
Does Merchant have copy of notice of entry of New York Judgment? Here’s how I would do it. First make sure that any CA judgement hasn’t become final in the 30 day window with no motion. Make your motion to vacate 1710.40. Obviously, you need a CA lawyer. Don’t waste your 30 days making settlement calls. Get CA lawyer. Move to vacate. Then do negotiations. Merchant has all the leverage if the “credit agreement” being sued on has a pending motion for USURY, LIC, DEFECTIVE INTEREST CALC. Merchant has NO leverage if he has no defenses. Funders know this. After your 30 days are over without the motion to vacate, CA judgement becomes final. Now find out how much the funder has to collect.
It depends on the judgment debtor. An operating account of an LLC or corp. is probably not protected from a levy in any meaningful sense. The state’s automatic deposit account exemption, CCP 704.220 is minimum of care for a family of 4. Didn’t find anything on whether that applied to a business or not. A sole proprietor or personal guarantor would be more likely to be able to protect at least that.
