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Merchant Cash Advance Industry in New York – Not so Fast!

Merchant Funders, companies that purport to purchase future accounts receivables from small underfunded private and public companies, and their attorneys, should pause from patting themselves on their backs due to some MCA lower court wins in New York State. The New York Court of Appeals has granted AH Wines, Inc. leave to appeal the decision of the Appellate Division Fourth Department that will now establish the factors to determine whether an MCA is a loan or an actual purchase of receivables; whether the judicially created plenary action is necessary to challenge the transaction on criminal usury grounds, and whether the 1-year statute limitation under CPLR 215(6) is even applicable to said claims. As the results of the majority of the lower courts decisions currently stand, these transactions are not loans; that in order to challenge a confession of judgment connected to these transactions requires a borrower to commence a plenary action wherein the courts almost uniformly hold is seeking affirmative reliefbarred by the usury laws of New York (currently criminal usury is only an affirmative defense), and that nonetheless, if you waited more than a year from executing a confession of judgment to bring any suit to challenge it under the usury laws, your time ran out. All three positions are absurd and will now be reviewed by New York’s highest court.


The issues above have been rolled into one case that the New York Court of Appeals has decided to hear. AH Wines, Inc. v C6 Capital Funding, LLC, motion number 2022-783. The New York Court of Appeals rarely grants leave to appeal, and its history shows only 2.5% of all such requests are granted. We believe that the issues raised in our initial brief on the motion to the New York Court of Appeals emphasized how the lower courts have got both substantive and procedural law wrong when a criminal usury claim is made, especially considering the Court of Appeals holding in our Adar Bays case that examined the context and purpose of New York’s criminal usury statute. See Adar Bays, LLC v. GeneSYS ID, Inc., 179 N.E.3d 612 (N.Y. 2021).


For years, the Merchant Funding industry in New York has had its way with underfunded small businesses nationwide. These so-called “future receivables funding” programs have been scrutinized, not only by The New York Attorney General’s Office for disguising and calling their transactions merchant funding agreements when many of these transactions are likely loans that violate New York’s usury laws, but have also come under attack by their customers as well.


This case may prove to be the most important case that can directly affect the multi-billion-dollar merchant funding business in New York because it will examine the financial transactions, statutory defenses and claims as well as procedure effecting these transactions under the CPLR.


This very important case is now in the hands of New York’s highest court, and we expect a lot of participation in this case from both sides and maybe even some government agencies. We will keep everyone apprised on the progress of this case. For now, we move on to briefing.


Mark R. Basile, Esq. is the Senior Managing Attorney at The Basile Law Firm P.C. Mark can be reached at mark@thebasilelawfirm.com. To learn more about what we can do for you, please call us at 516.455.1500 for a free initial consultation.


With offices in New York, Texas, and Florida, we serve public companies and shareholders nationwide.

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