The threat is the product. Not the capital, not the advance, not the purchased receivables. The entire commercial apparatus of certain merchant cash advance companies exists to create a psychological condition in which the business owner believes compliance is the only survivable posture. That belief is manufactured. It is also, in a growing number of jurisdictions, illegal.
By February of this year, the mechanisms available to a merchant confronting intimidation from a funder had changed in ways that would have been unrecognizable even 18 months prior. New York's FAIR Business Practices Act extended protections against abusive acts to small businesses. California's Rosenthal Fair Debt Collection Practices Act began covering small business debts, including merchant cash advances. And in a federal courtroom in Philadelphia, the architect of one of the largest MCA fraud operations in the country received a sentence of 186 months in prison.
The Anatomy of the Threat
It begins with the telephone. Fourteen calls in a single day to a restaurant owner in Tampa. Messages left with employees. Messages left with the merchant's spouse. The caller does not identify a specific legal consequence. The caller implies all of them.
Then the correspondence. A letter on what appears to be legal stationery, referencing a confession of judgment, a UCC lien, a forthcoming asset seizure. The language is selected for its capacity to alarm. One merchant we represented received a letter stating that federal marshals would arrive at his place of business within 72 hours. No federal proceeding existed. No marshals had been dispatched. The letter was a fabrication dressed in the costume of authority.
And then the contact with third parties. The funder reaches out to the merchant's clients, to credit card processors, to platforms like Stripe and PayPal and Amazon, asserting a right to intercept payments. A bakery in Queens lost its primary wholesale account because the funder contacted the buyer and claimed the bakery was under legal action. The legal action did not exist.
Intimidation Is a Litigation Strategy, Not a Collection Method
One must distinguish between aggressive collection and unlawful coercion. The distinction is not subtle. A creditor may contact a debtor to request payment. A creditor may file a lawsuit. A creditor may report a default to credit agencies. These are lawful acts, however unpleasant.
What a creditor may not do is threaten legal action it has no intention of pursuing. What a creditor may not do is contact a merchant's customers to damage business relationships as a means of extracting payment. What a creditor may not do is misrepresent the existence of court orders, the involvement of law enforcement, or the imminence of arrest. Each of these acts constitutes a separate violation of state and federal law.
The funder's utter disregard and contempt for the merchants he purported to serve.
That characterization appeared in a federal court's assessment of Jonathan Braun, who controlled RCG Advances. The FTC obtained a $20.3 million judgment and a permanent industry ban. Braun's operation employed threats of physical violence. But the legal standard that prohibited his conduct does not require physical violence as a threshold. Deception, misrepresentation, and the creation of a false sense of legal jeopardy are sufficient.
The Confession of Judgment as Instrument of Fear
Before August 2019, a merchant cash advance company could take a signed confession of judgment, file it with a county clerk in New York, and obtain a default judgment against a business owner in another state without notice, without a hearing, without the merchant knowing the judgment existed until a bank account was frozen. Hundreds of such judgments accumulated in Rockland County alone.
New York's amendment to CPLR Section 3218 prohibited this practice against out-of-state merchants. The prohibition was necessary because the practice was occurring at industrial scale.
But the reference to a confession of judgment remains a tool of intimidation even where the instrument itself is no longer enforceable. A funder that tells a merchant in Oregon, "We hold your confession of judgment and will file it in New York," is describing an act it can no longer perform. The merchant does not know this. The funder is aware that the merchant does not know this. That awareness transforms the statement from aggressive posturing into fraud.
The UCC Lien as Weapon
A UCC-1 financing statement is a public filing. It announces to the world that a creditor claims a security interest in a debtor's assets. In the context of merchant cash advances, funders file blanket liens covering accounts receivable, inventory, equipment, deposit accounts, general intangibles, and property the merchant has not yet acquired.
The filing itself is not the weapon. The weapon is what follows. The funder sends a copy of the filing to the merchant's bank. The bank freezes the account. The funder sends a copy to the merchant's payment processor. The processor suspends disbursements. The funder contacts Amazon, Shopify, Square, and asserts a right to redirect revenue.
A merchant who wakes to a frozen bank account and a suspended payment processor has approximately 72 hours before the business ceases to function. The funder understands this timeline with precision. The pressure is calibrated not to collect a debt but to compel capitulation before the merchant can retain counsel.
Under the FAIR Business Practices Act, the New York Attorney General may now scrutinize improper UCC-1 filings as abusive acts against small businesses. The same filing that a funder regarded as a routine enforcement tool in 2024 may constitute a violation of state law in 2026.
What a Merchant Should Do Before Responding
Silence is the first obligation. Not permanent silence, but the disciplined refusal to respond to a threat before documenting it. Every voicemail should be preserved. Every letter should be photographed and stored with its envelope. Every email should be forwarded to a separate account that the funder cannot access. The instinct to call back and argue is human. It is also tactically disastrous.
Documentation converts a threat from an ephemeral event into evidence. A funder who threatens to contact your customers has committed a violation only if you can prove the threat occurred. The burden belongs to the merchant. The merchant should accept that burden before the first conversation ends.
No, or rather, the merchant should accept that burden before the first conversation begins.
The Correct Sequence of Response
After documentation, the merchant should retain counsel experienced in merchant cash advance defense. Not a generalist. Not a bankruptcy attorney who treats MCA disputes as a subspecialty of commercial debt. The legal architecture of these agreements, the interplay between the purchase-of-receivables fiction and usury law, the procedural mechanisms available under the FAIR Act and California's expanded Rosenthal Act, requires a practitioner whose concentration corresponds to the instrument.
Counsel's first act is a cease-and-desist communication to the funder. This is not a gesture. In jurisdictions where the funder's conduct implicates the Fair Debt Collection Practices Act or its state analogues, a cease-and-desist letter triggers statutory obligations. The funder must cease communication except to confirm cessation or to notify the merchant of a specific legal action. Continued contact after receipt of the letter constitutes an independent violation.
The second act is an examination of the agreement. As we have described in prior analysis, the threshold question is whether the agreement constitutes a purchase of future receivables or a loan. If the daily payment amount is fixed, if reconciliation has been requested and denied, if the obligation survives bankruptcy through a personal guarantee, the instrument is a loan and may be void under state usury statutes. An agreement that is void ab initio cannot be collected upon, and any threat to collect upon it is a threat to enforce an instrument that does not exist.
When the Threat Becomes Criminal
Joseph LaForte, the chief executive of Par Funding, received a sentence of 15 and a half years in federal prison in March 2025 for RICO conspiracy, securities fraud, and related offenses. The enterprise he directed had collected from merchants through threats of violence. The court imposed a forfeiture judgment of $120 million and restitution of $314 million. Par Funding employed an individual the government described as an "enforcer," who received a separate sentence of 11 and a half years.
That case occupied the extreme end of the spectrum. But the spectrum itself is continuous. A threat to destroy a merchant's business relationships, a false claim that legal proceedings have been initiated, a statement that a merchant's personal assets will be seized without judicial process, these are acts that may constitute criminal coercion, criminal fraud, or both, depending on the jurisdiction and the specificity of the misrepresentation.
The merchant who receives such a threat is not a debtor managing a collection dispute. The merchant is a victim of a crime.
The Institutional Response Is Accelerating
In January 2025, the New York Attorney General announced the Yellowstone Capital settlement: $1.065 billion in judgments, $534 million in cancelled merchant debt, 18,000 impacted businesses. That enforcement action did not originate in a legislative chamber or a regulatory hearing. It originated in the accumulated complaints of merchants who documented the conduct they experienced and reported it to the state.
Every complaint filed with a state attorney general, every report submitted to the FTC, every record preserved and transmitted to a regulatory body contributes to the evidentiary foundation upon which enforcement actions are constructed. The Yellowstone settlement was built over years, from thousands of individual accounts of predatory conduct. Each account, in isolation, appeared insufficient. In aggregation, they produced the largest MCA enforcement action in history.
The Funder Depends on Your Isolation
The entire strategy presumes that the merchant will respond alone, will negotiate alone, will capitulate alone. A merchant who retains counsel, who files complaints with regulatory authorities, who documents and preserves evidence of unlawful contact, has exited the framework the funder constructed. The funder's advantage was informational asymmetry. That advantage dissolves upon the merchant's first communication with an attorney who recognizes the instrument for what it is.
We have represented merchants who believed they owed debts that did not exist, who believed they had signed agreements that were enforceable when those agreements were void, who believed they had no recourse when multiple avenues of relief were available. In each instance, the funder's strategy depended on the merchant's belief. Not on the law. On the belief.
A threat has precisely the power one assigns to it. The assignment should be made by counsel, not by the recipient of a voicemail at six in the morning.