If your business is in New York, or your MCA contract picks New York law, the legal landscape changed dramatically after 2019. Three developments, the CPLR § 3218 amendment restricting confessions of judgment, the Financial Services Law § 5470-A disclosure regime, and a wave of appellate decisions tightening the line between a true purchase and a disguised loan, have given merchants more defenses than they had at any point in the last decade.
The CPLR § 3218 Amendment and Why It Matters
Until August 2019, an MCA funder could file a confession of judgment in any New York county without giving the merchant any notice. The funder simply walked into the clerk’s office with a signed COJ, got a judgment entered, and immediately served restraining notices on banks and customers.
The 2019 amendment limited that procedure to in-state debtors. If you are not a New York resident and your business is not located in New York, the New York County clerk cannot enter a COJ against you. Judgments entered in violation of the amendment are void.
That single change wiped out billions of dollars in MCA collection leverage. Out-of-state merchants who had judgments entered post-amendment have grounds to vacate them outright, regardless of the underlying merits.
The 5470-A Disclosure Regime
New York’s commercial financing disclosure law (Financial Services Law § 5470-A) requires MCA providers to give merchants specific written disclosures before funding: the total amount financed, the finance charge, the estimated APR, the term, and the prepayment terms.
Funders who skipped the disclosures, gave them late, or buried them in fine print expose themselves to two things: regulatory penalties from the New York Department of Financial Services, and a clean defense to enforcement. A merchant whose funder ignored 5470-A has a credible argument that the contract is voidable and certainly not entitled to expedited collection.
If you funded after January 1, 2024, when the 5470-A disclosure requirements took effect, pull the disclosure document from your funder’s file. Compare what they gave you against the statutory template. Missing disclosures are an enforcement defense an independent attorney can plead in any New York action.
Venue Defects in New York County
MCA contracts almost always pick New York County (Manhattan) as the venue, even when the merchant has zero connection to Manhattan. Courts have started pushing back on these forum-selection clauses, particularly when the merchant is a small business in another state with no agents, customers, or operations in New York.
An independent attorney from our network can move to dismiss or transfer on forum grounds. Even if the motion does not succeed, it slows the engagement down, increases the funder’s costs, and creates settlement pressure.
Restricts confessions of judgment to merchants whose principal place of business is in New York.
Mandatory disclosure of APR, total cost, and payment amount on commercial financings under $2.5M.
Three-factor test for recharacterizing MCAs as loans: reconciliation, term, recourse.
Civil usury cap of 16% APR; loans above the cap forfeit all interest if reclassified as loans.
The Recharacterization Defense
The most powerful defense in New York is the argument that the transaction was never a true MCA. New York courts have laid out a multi-factor test:
- Is there a real reconciliation provision tied to actual receivables?
- Is the repayment term finite, or does it adjust based on revenue?
- Does the funder bear genuine risk of business failure, or is the personal guarantee broad enough to make payment certain?
- What is the effective rate of return if you back into APR?
When the factors line up against the funder, courts have recharacterized the transaction as a loan. If the implied APR exceeds 25 percent, the loan is criminally usurious under New York Penal Law § 190.40, and the entire obligation is void.
Putting the Strategy Together
Defending an MCAn engagement in New York is not one move. It is a coordinated sequence: challenge service, contest venue, plead recharacterization and usury, raise the 5470-A defense if applicable, and run parallel settlement discussions while discovery proceeds.
Our senior advisors map the strategy and connect you with an independent attorney from our network who litigates MCAn engagements in the relevant New York courts. We handle the financial negotiation; the attorney handles the legal filings and court appearances. Not every New York merchant should mount a full-scale defense, but for advances over 250,000 dollars or cases involving COJ-based restraints, the New York legal toolkit can produce settlements at 25 to 45 cents on the dollar.
Delancey Street is a business debt-relief company, not a law firm. When a matter requires legal work, we refer you to an independent attorney from our referral network; the attorney–client relationship is between you and that attorney.
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