Arkansas Lawyer to Fight a Merchant Cash Advance Company
A merchant cash advance is designed to look like a sale of future accounts receivable rather than a loan. Funders use this strategy to contend that their transactions are not subject to interest rate caps. The contract is usually subject to the law of the State of New York. Customers are instructed to settle disputes in New York. The customer signs a personal guarantee. An Arkansas business owner may or may not need an Arkansas lawyer to fight a merchant cash advance company. It depends on where the dispute is in the process. If the funder has already sued, the most important lawyer is the one licensed in the state they sued in, usually New York. An Arkansas lawyer is needed if they are trying to collect a judgment in Arkansas, such as from a bank account or real property, or if the customer is considering bankruptcy.
Arkansas has no commercial financing disclosure law. As of a March 2026 survey of “commercial financing” disclosure laws, ten states (California, Connecticut, Florida, Georgia, Kansas, Missouri, New York, Texas, Utah, Virginia) have disclosure laws – Arkansas is not one of them, and no comparable bill was introduced in the Arkansas legislature in 2025. Arkansas does not license MCA funders or brokers, and Arkansas’ payday loan prohibition applies only to consumers, not business people. An Arkansas merchant has no right to a statement of total cost before signing any type of contract. An Arkansas merchant has no way to exploit a disclosure violation (as a Texas or Georgia merchant might be able to do).
Usury Law
Here is how bad Arkansas’ usury law is on its face. Amendment 89 to the Arkansas Constitution went into effect on January 1, 2011. The rate of interest on any loan (other than obligations of the government or loans made by a bank; those loans are generally exempted from state law by federal law), is limited to 17% per annum pursuant to section 3 of Amendment 89. Section 6 of Amendment 89 provides that any contract, exceeding that rate of interest, is void as to principal and interest. That is worse than the old rule, where the lender lost interest and had to pay back twice what he earned. If an Arkansas court were ever to rule that an MCA is a disguised loan under Amendment 89, the funder could lose his right to repayment of his loan.
I haven’t found a reported Arkansas court case which has applied Amendment 89 to an MCA. The closest I have is a very old one. In Cooper v. Cherokee Village Development Co. (1963), the Arkansas Supreme Court looked at a financing agreement which charged more than the Arkansas limitation of interest where the lenders were relying on New York law. The court stated that it was not bound by a choice of law clause which was a “sham” to evade Arkansas usury law. The Arkansas court generally will give effect to a contract selection of another state’s law provided that state has a reasonable relationship to the transaction and the effect of applying the other state’s law would not violate Arkansas public policy. Those precedents may provide an Arkansas merchant with a legal argument, but they are not a governing legal decision on MCAs.
New York Usury Law
If the case is heard in New York, New York usury law will likely control the merchant’s argument. In Adar Bays, LLC v. GeneSYS ID, Inc. (2021), New York’s highest court ruled that a loan charged at a rate in excess of 25%, New York’s criminal rate for usury, was void from the outset. It further ruled that a corporation may assert the defense, but must prove usury by clear and convincing evidence. New York courts determine whether an MCA constitutes a loan based on whether the contract contains a workable reconciliation provision, a fixed term, and recourse against the merchant in the event the business fails. In Oakshire Properties v. Argus Capital Funding (2024), New York’s intermediate appellate court allowed a merchant’s usury case to proceed based on this test.
Confession of Judgment
Code 16-65-301) only allows a confession of judgment to be entered into when the debtor appears in court to confess the judgment and the creditor consents. States like Arkansas do not recognize pre-signed confessions of judgment, so a merchant cannot sign a confession of judgment that can be immediately entered into an Arkansas court by a funder. Ark. Code 16-65-108 states that a judgment entered without notice is void. This may be relevant if a merchant only finds out that a judgment has been entered after money is taken from an account. New York closed its courts to the bulk of out-of-state confessions of judgment in 2019. A change to the Civil Practice Law and Rules section 3218 (CPLR 3218) was effective on August 30, 2019.
The amendment only allows a confession of judgment to be entered into in the New York county in which the defendant resided at the time the confession of judgment was signed. A business is a resident of a county if it maintains a place of business within that county. An Arkansas company without a New York place of business likely cannot have a confession of judgment entered against them in New York. Some funders may be using courts in other states such as Texas, Illinois, and Utah, so it may be useful to check in which state a judgment was entered into.
So it is worth checking whether a judgment was entered in some state other than New York. Most disputes involving MCAs with Arkansas businesses start as regular lawsuits filed in New York Supreme Court, the state’s trial-level court, because of a forum selection clause in the contract. Some are filed in circuit courts in Arkansas or in the U.S. District Courts for the Eastern and Western districts of Arkansas. Bankruptcy is different. There is only one bankruptcy court for both federal districts in Arkansas, the only state in the country where this is the case, with its main office in Little Rock and an office in Fayetteville. Bankruptcy filings for a business are generally in the district where the business’ chief place of business or chief assets were for most of the 180 days leading up to the filing, under 28 U.S.C. 1408.
Uniform Enforcement of Foreign Judgments Act
Ark. Code16-66-601 through 16-66-611 (Uniform Enforcement of Foreign Judgments Act) allows a funder to enforce its New York judgment against the merchant’s Arkansas assets. The funder files an authenticated copy of the judgment with a clerk of an Arkansas court and an affidavit stating the name of the merchant and the last known post office address of the merchant. Then the judgment is treated as though it was an Arkansas judgment and is subject to the same motions to reopen, vacate, or stay. The Arkansas court shall stay any action by the funder to enforce the judgment on any grounds that the court would have stayed enforcement of an Arkansas judgment, but the court may require the debtor to post the same bond as required for an Arkansas judgment.
After the judgment has been registered, the funder can begin to attach assets under a writ of garnishment according to Ark. Code16-110-401. A bank is required to immediately freeze the assets once served with the writ, and the bank is required to release the funds after the specified amount of time. Thus, the creditor must go back to court every so often to obtain new writs. A judgment is a lien against the real estate in a county in the state from the time the judgment is certified and filed with the county circuit clerk, and the lien is in effect for 10 years according to Ark. Code16-65-117. The motions to reopen, stay, protect exempt property, and the timing of the motions to stay the writs are all handled in Arkansas courts and require an Arkansas attorney.
The First Lawyer Needed May Be a Different Lawyer
Nor should it be overlooked that depending on what stage the legal problem is at the first lawyer needed may be a different lawyer. If the merchant has a lawsuit pending in New York, a motion to vacate judgment in New York, or a defense to usury under Adar Bays, then a New York licensed attorney will be needed. If the merchant is facing registration of the New York judgment, garnishment of funds, or judgment liens in Arkansas, then an Arkansas licensed attorney will be needed. If the merchant is behind in payments but not yet sued, then an attorney may be all that is needed to settle and negotiate a lower daily withdrawal or the balance. If the merchant has had more than one advance and is unable to keep up, then an Arkansas bankruptcy attorney may be the first needed. A bankruptcy will automatically stay all collection efforts, and the case will be transferred to the bankruptcy court in Little Rock or Fayetteville.
