MCA usury defense
When an MCA agreement is really a loan.
Merchant cash advance funders market their products as purchases of future receivables — not loans. Courts have increasingly disagreed. When the economic reality of the transaction looks like a loan, usury law may apply, and the agreement may be void.
Request a confidential case reviewWhat usury means in the MCA context
Usury law caps the interest rate a lender can charge.
Usury statutes set a maximum legal interest rate. Loans that exceed that rate are either civilly or criminally usurious, depending on the rate and the jurisdiction. In New York, the criminal usury threshold for business loans is 25% per annum. An MCA agreement that functions as a loan — and carries an effective rate above that threshold — may be void and unenforceable under New York law.
This is general legal information, not advice about any specific matter. Whether usury applies depends on the specific agreement, facts, and jurisdiction.
True loan recharacterization
Courts look at substance, not labels.
An MCA agreement that calls itself a 'purchase of future receivables' is not automatically treated as one. Courts apply a multi-factor test to determine whether the transaction is, in substance, a loan. Key factors include:
Absolute repayment obligation
If the merchant is required to repay a fixed amount regardless of business performance — with no genuine reconciliation mechanism — courts may treat the obligation as a loan repayment, not a contingent receivables purchase.
Reconciliation in name only
Many MCA agreements include reconciliation provisions that are difficult or impossible to invoke in practice. Courts have found that a reconciliation clause that cannot realistically be exercised does not make the transaction a true receivables purchase.
Fixed term and daily payment amount
A fixed daily or weekly payment amount, combined with a defined repayment period, resembles a loan amortization schedule more than a variable receivables purchase. Courts have weighed this factor in recharacterization analysis.
Default and acceleration provisions
Provisions that treat a slowdown in business as a default — rather than a natural variation in receivables — suggest the funder is not truly bearing the risk of the merchant's business performance.
New York criminal usury
New York's 25% threshold and what it means.
New York Penal Law § 190.40 makes it a felony to charge more than 25% annual interest on a business loan. A contract that violates this statute is void as against public policy — meaning the funder cannot enforce it in court. Because most MCA funders file in New York courts, New York usury law is frequently at issue in contested MCA litigation.
The applicability of New York criminal usury law to any specific MCA agreement depends on the agreement's terms, the facts of the transaction, and how courts in the relevant jurisdiction have analyzed similar agreements. Attorney review is required.
How the defense is raised
Usury is an affirmative defense — it must be pleaded.
A usury defense does not arise automatically. It must be raised in a timely answer to the complaint. Failing to answer — or answering without raising the defense — may waive it. This is one of the most important reasons to retain counsel promptly after receiving a summons or complaint in an MCA matter.
Agreement and transaction review
Counsel reviews the MCA agreement, funding records, and payment history to calculate the effective interest rate and assess whether the transaction has the characteristics of a loan.
Answer with affirmative defenses
If the analysis supports a usury defense, counsel files an answer raising usury and related defenses — and, where appropriate, counterclaims based on the funder's conduct.
Motion practice
Usury defenses are often litigated through motions to dismiss or for summary judgment. Courts have dismissed MCA claims on usury grounds in a number of reported decisions.
A usury defense starts with the agreement.
Whether a usury defense applies depends on the specific terms of the MCA agreement and the facts of the transaction. Hartman Blake reviews MCA agreements and litigates usury defenses for business owners facing collection actions.
Request a confidential case reviewNo attorney-client relationship is created by submitting an inquiry. Attorney review required before representation.