Fighting Unlawful MCA Debt Collection Practices and Harassment

The collection call is not a negotiation. It is a performance of authority, rehearsed and repeated, designed to collapse the distance between a demand and a concession. For the small business owner on the receiving end, twelve calls before noon on a Tuesday in February, the effect is indistinguishable from coercion. That distinction matters. The law has begun to recognize it.

Merchant cash advance companies have operated for years in a jurisdictional seam. Because the transaction is nominally a purchase of future receivables rather than a loan, the federal Fair Debt Collection Practices Act does not apply with the same force. Or so the argument has run. But when the collection apparatus behaves identically to a debt collector, when it threatens seizure, when it impersonates legal process, when it telephones a guarantor's spouse at seven in the morning, the formal classification of the underlying instrument becomes secondary to the conduct itself.

In the first two months of 2026, alternative lenders filed approximately 6,000 lawsuits against small business owners in New York alone. That figure exceeds the comparable period in 2025 by more than a third. The acceleration is not incidental.

A reconciliation clause, the contractual mechanism permitting adjustment of daily remittance based on actual revenue, is the hinge on which the entire MCA structure turns. Where it exists as a functional provision, the funder acknowledges risk. Where it exists only as decorative language, the agreement begins to resemble something else. Courts in Fleetwood Services LLC v. Richmond Capital Group LLC examined precisely this question and concluded that a reconciliation right subject to the funder's "sole discretion" does not constitute a genuine contingency. The instrument was recharacterized as a loan. With recharacterization comes exposure to usury ceilings, and in New York, the criminal usury threshold remains 25 percent per annum.

And the methods themselves carry independent legal consequences. Unauthorized ACH withdrawals from a merchant's bank account after default, withdrawals exceeding the agreed percentage, withdrawals continuing after a business has formally requested reconciliation. Each constitutes a potential violation of the Electronic Fund Transfer Act or its state equivalents. Each is actionable.

On February 17, 2026, the FAIR Business Practices Act took effect. The statute abrogated the old requirement that enforcement under General Business Law Section 349 be limited to "consumer-oriented" conduct. The Attorney General may now pursue unfair or abusive acts in any business transaction, a category capacious enough to include MCA collection tactics: improper UCC-1 filings, threats of personal liability absent contractual basis, demand letters fabricating the existence of court orders.

This is the shift. Not a refinement. A reconstruction of the enforcement architecture.

One should consider the practical implications. The merchant who receives a threatening communication from a funder's agent, a communication that misrepresents the legal posture of the dispute or implies judicial consequences that have not materialized, now possesses a complaint pathway that did not exist twelve months prior. The FAIR Act permits the Attorney General to treat such conduct with the same severity reserved for consumer fraud.

Since August 2019, New York has prohibited the filing of confessions of judgment against out-of-state defendants. The amendment to CPLR Section 3218 was a direct legislative response to the documented practice of MCA funders obtaining default judgments in New York courts against business owners in Texas, Florida, California, individuals who had never set foot in the jurisdiction. Yet the instrument persists in certain agreements, included as a psychological device even where it cannot be legally enforced. Its presence in a contract signed after the statutory prohibition is itself evidence of deceptive practice.

Some funders have adapted. Others have not. Richmond Capital Group, once a prominent participant in the MCA space, faced a $77 million judgment from the New York Attorney General and a permanent federal ban from the industry. The FTC and the state acted in concert. The company's practices, which included charging effective interest rates that bore no rational relationship to the stated terms of the agreements, did not survive scrutiny.

The sequence is predictable. A missed remittance triggers an automated call. Within 48 hours, the volume of contact increases. By the second week, the calls arrive before business hours and continue past them. Emails adopt the tone of legal correspondence without the substance. References to "our legal department" proliferate. In 37 percent of the cases our firm has reviewed over the past eighteen months, the funder or its agent contacted individuals not party to the agreement: employees, family members, unrelated business associates.

That is not collection. That is interference with ordinary commercial life.

But the merchant who documents each contact, who preserves voicemails, who retains screenshots of text messages sent at 11:42 on a Saturday evening, assembles something more than a grievance. The merchant assembles a record. From the record, a cause of action emerges. From the cause of action, remediation follows, or the credible threat of it, which in the collection context often produces the same result.

California's SB 362, effective January 1, 2026, requires commercial financing providers to disclose the annualized percentage rate of any offer at the point of solicitation and upon every subsequent communication referencing a charge, pricing metric, or financing amount. The statute prohibits the use of the terms "rate" or "interest" in a manner calculated to obscure the true cost of the instrument. For a merchant cash advance carrying an effective annual cost of 350 percent, the obligation to state that figure in plain terms represents a material change in the informational asymmetry that has characterized these transactions.

The Yellowstone Capital settlement, announced in January 2025, resulted in a judgment exceeding $1.065 billion and the cancellation of more than $534 million in outstanding merchant obligations. The entity and its affiliates were permanently barred from the sales-based financing industry. Some of the instruments serviced by Yellowstone carried effective rates of 820 percent per annum. The Attorney General characterized them not as merchant cash advances but as predatory loans disguised as purchases of future receivables.

Winter does not last. The regulatory environment has consolidated around a single principle: the label affixed to a financial instrument does not determine its legal character. Conduct determines character. The manner in which a funder collects, communicates, and enforces reveals what the transaction always was.

The merchant facing unlawful collection practices possesses several instruments of response, no one of which is dispositive, all of which in combination alter the posture of the dispute. A demand for reconciliation under the terms of the agreement. A formal complaint to the state Attorney General under the applicable unfair business practices statute. A cause of action for tortious interference where the funder has contacted third parties. A request for injunctive relief where unauthorized ACH debits continue after written revocation of authorization.

The firm that understands the architecture of MCA collection, its pressures, its rhythms, its reliance on the merchant's isolation and exhaustion, is the firm positioned to intervene before the damage compounds. We receive these calls with regularity. The conversation begins with the same sentence, spoken in the same tone of quiet alarm: they will not stop. The answer to that sentence is not reassurance. The answer is procedure.