7 Disclosure Violations That Void or Weaken an MCA in New York

What the Disclosure Law Does, and What It Does Not Do

New York is one of the handful of states where this page can be specific instead of hopeful, because there is a real statute with real required elements. Since the Superintendent of Financial Services adopted 23 NYCRR Part 600 on February 1, 2023, a non-bank funding commercial financing of $2,500,000 or less has to give a merchant standardized disclosures at the moment it extends a specific offer, and one of those elements is an estimated annual percentage rate calculated under the federal Truth in Lending Act methodology. Most of the advance paper we read from 2023 forward is out of compliance in at least one respect, and a meaningful share of it has no disclosure page in the file at all.

The word “void” in the headline needs a limit put on it right away, though, because the statute does not supply one. Look through Fin. Serv. Law article 8 for the provision letting you sue on a disclosure failure and you will not find one. Section 812 authorizes the Superintendent to order a provider to pay the people of this state a civil penalty of up to $2,000 per violation, or up to $10,000 where the violation is willful, and subdivision (b) lets the Superintendent add restitution or injunctive relief on a knowing violation. Section 811 gives the Superintendent rulemaking authority. Enforcement is regulatory throughout, and no reported New York decision we have located implies a private cause of action under the article. A disclosure violation does not void your contract by operation of law, and anyone telling you it does is selling something.

What it is instead: two things with real value. It is exposure a funder does not want documented, because a DFS examination of one file becomes an examination of a portfolio, and the penalty is per violation. And it is evidence. The estimated APR a funder calculated itself, the fixed daily payment it printed next to a “percentage of receipts” contract, and the estimated term it disclosed as a de facto maturity date are all admissions that feed the argument that genuinely voids advances in this state, which is criminal usury under N.Y. Penal Law §190.40 following recharacterization of the advance as a loan. The last two sections of this page connect those two halves.

1. The Deal Was Covered and Nothing Was Handed Over

Coverage first, because the exemptions in Fin. Serv. Law §802 do most of the sorting. The article does not apply to depository financial institutions, technology service providers to those institutions, lenders regulated under the federal Farm Credit Act, transactions secured by real property, true leases, a provider that makes no more than five applicable transactions in New York in a twelve-month period, certain motor vehicle dealer and rental company transactions, or any commercial financing transaction over $2,500,000. Strip those away and what remains is precisely the market you are in: a non-bank funder writing sales-based advances between $25,000 and $500,000, doing dozens or hundreds of them a year.

For that funder, §803 sets out the disclosures for sales-based financing and requires them at the time a specific offer is extended, in the format the Superintendent prescribes. Section 809 adds the piece owners forget: the provider has to obtain the recipient’s signature, which may be electronic, on all required disclosures before letting the applicant proceed further with the application. So the compliant file has a distinct, formatted disclosure document, dated on or before the agreement, with your signature on it, separate from the funding agreement itself.

Open the drawer and see what is actually there. In the non-compliant files we read, the sequence is a broker email with an approval summary, a PDF agreement executed through an e-signature platform, and nothing in between: no separate disclosure page, no estimated APR anywhere, no signature covering a disclosure. That is not a technicality, it is the whole obligation missed on a covered deal, and it is the version of this problem that reads worst in a regulatory complaint because it needs no expert to explain.

2. A Missing or Wrong Estimated Annual Percentage Rate

Section 803(c) is the provision the industry fought hardest, and it is the one to check first. It requires the estimated annual percentage rate, using that term, calculated according to the federal Truth in Lending Act and Regulation Z, 12 C.F.R. part 1026, based on projected sales volume, with the projection built either from the merchant’s historical volume or by an opt-in method. The parallel provision for factoring in §806(c) goes further and prescribes the Appendix J single advance, single payment treatment. The point of all of it is that a merchant should be able to hold two offers side by side and compare one number.

Two defects, and the second is more common than the first. The obvious one is silence: a factor rate of 1.42 stated as “the rate,” a total payback figure, and no APR on any page. The subtler one is an APR that is present but wrong, usually because the projected term was inflated. Consider a $100,000 advance with $145,000 total repayment. Divide the $45,000 charge by the amount financed over a six-month term and you are already near 90% on a simple annualized basis, and because a daily remittance amortizes the balance from day one, the correctly calculated estimated APR runs well above that. A disclosure reporting a figure in the thirties on those inputs has a defective calculation inside it, and the arithmetic is checkable by anyone with a spreadsheet.

In a negotiation this defect is worth more than the others, for a specific reason. Every other disclosure element is a fact the funder can characterize. The APR is a computation with a prescribed method, so either it was performed correctly or it was not, and a funder’s counsel knows that an examiner comparing the disclosed figure against Regulation Z will reach the same answer your expert did. When a demand letter attaches the recalculation, the conversation about settlement percentage tends to start from a different place.

3. An Understated Finance Charge or Total Repayment

Three elements of §803 have to reconcile arithmetically, and when they do not, one of them is wrong. Subdivision (a) requires the total amount of the commercial financing and, if different, the disbursement amount after any fees deducted or withheld at disbursement. Subdivision (b) requires the finance charge. Subdivision (d) defines the total repayment amount as the disbursement amount plus the finance charge. That last definition is the check. If the disclosure shows a $100,000 amount financed, a $45,000 finance charge, and a $145,000 total repayment, but $7,500 was withheld at funding so only $92,500 ever reached your account, the numbers do not close and the finance charge is understated by the withheld amount.

That withholding is where the money hides, and it travels under a dozen names: origination fee, underwriting fee, program fee, risk assessment fee, ACH setup, bank verification, closing costs to a third party who turns out to be affiliated. Section 803(g) separately requires a description of all other potential fees and charges not included in the finance charge, and it names draw fees, late payment fees, and returned payment fees as examples. So a fee is either inside the finance charge or described as an avoidable charge, and it cannot be neither.

The reason this defect matters beyond its own dollar value is cascade. The finance charge is an input to the estimated APR and to the total repayment amount, so a $7,500 understatement corrupts three disclosed figures at once, and a regulator counting violations per transaction is looking at a multiple rather than a single item. On your side of the table it is also the easiest defect for a business owner to find alone, because it takes one bank statement showing what was actually wired and one calculator.

4. Payment Amount, Frequency, or Estimated Term Described Wrong

Section 803(e) requires the estimated term, defined as the period of time required for the periodic payments, based on projected sales volume, to equal the total amount required to be repaid. Section 803(f) requires the payment amounts and the frequency, identified as fixed or variable, with average monthly projections where the payments vary. These two elements are supposed to tell you when this ends and what leaves your account in the meantime, and they are the two that most often contradict the agreement they were issued with.

The defects are concrete and you can spot them in a side-by-side read. The disclosure says weekly and the ACH authorization says every business day. The disclosure states a fixed $1,150 while the agreement calls for a specified percentage of receipts. The estimated term says twelve months while the stated daily amount retires the total repayment in roughly six. Or the payment is labeled variable, which would be consistent with a genuine purchase of receivables, and no average monthly projection appears anywhere, which is what §803(f) requires precisely so a merchant can see the cash flow.

The contradiction is worth more to you than the violation, because this is where the disclosure statute stops being about paperwork. A funder that discloses a fixed payment amount and a finite estimated term has documented two of the features New York courts examine when deciding whether an advance is really a loan: a repayment amount that does not move with revenue, and a de facto maturity date. That is the bridge to the section below, and it is why the disclosure page is often the most useful single document in a recharacterization file.

5. A Broken Itemization of Amount Financed and Disbursement

Beyond the headline numbers, §803 requires the parts that let you audit them: subdivision (a) on the amount financed and the disbursement after fees withheld, subdivision (g) on all other potential fees and charges outside the finance charge, subdivision (h) on early payoff or refinancing terms including any finance charges and additional fees that apply, and subdivision (i) on a description of collateral requirements or security interests. That last one is routinely blank on files where the funder filed a UCC-1 blanket lien against all assets the week after funding, and a blanket lien on everything the business owns is a collateral requirement by any reading.

Renewals are where the itemization breaks most badly, and New York wrote a section specifically for them. Section 808 requires a provider that conditions new financing on paying off existing financing from the same provider to disclose the amount of the new financing used to pay off prepayment charges and unpaid finance charge on the old deal, in terms the statute itself describes as double dipping, and to state the actual dollar amount by which the disbursement will be reduced to pay down the outstanding balance. If you are on your fourth renewal with the same funder and no document in your file ever showed you how much of each new advance went to unpaid charges on the last one, that is the §808 disclosure you never received.

In practical terms this cluster is what converts a vague sense of being cheated into a schedule. Build the table yourself: date, gross approved, actually wired, fees withheld, amount applied to the prior balance, and unpaid finance charge rolled forward. Four renewals in, the number at the bottom of that table is usually larger than the merchant expected by a wide margin, and it is the number that anchors a settlement discussion and a DFS complaint at the same time. Attorneys in the Delancey Street network build that schedule as a first step on stacked New York files, alongside the restructuring analysis covered in our page on business debt restructuring in New York.

6. The Broker Who Never Handed You Anything

The definition in §801 is the provision brokers hope you never read. A “provider” is a person who extends a specific offer of commercial financing to a recipient, and unless otherwise exempt, provider also includes a person who solicits and presents specific offers of commercial financing on behalf of a third party. A “specific offer” is defined as the specific terms, including price or amount, quoted to a recipient based on information obtained from or about that recipient, which if accepted is binding on the provider. That describes the independent sales organization that pulled your bank statements, came back with terms, and pushed you to sign that afternoon.

So the broker owed you the §803 disclosures in its own right, and §809 required a signature on them before you were allowed to proceed with the application. The defect looks like an inbox. Approval terms in the body of an email or a text message, an attached agreement, sometimes a one-page “term sheet” with a factor rate and a daily amount, and no formatted disclosure with an estimated APR. A second tell shows up in the e-signature audit trail: a single click at one timestamp covering eight or ten documents, which makes it very hard for anyone to claim a disclosure was separately presented and signed before you proceeded.

The negotiating value here is structural rather than numerical. It gives you a second responsible party, which complicates the funder’s story about what you were told, and brokers have thinner compliance files and much thinner appetite for a regulatory inquiry than funders do. It also tends to surface the marketing representations that ride along with the missing disclosure, and misrepresenting the cost or the terms is a different and older problem than a formatting failure. The fifty-state picture, including which states put registration duties on brokers, is in our page on MCA disclosure laws in all 50 states.

7. A Rate Quoted With No APR Equivalent, Under §810

Section 810 does two things. It confirms that a provider may give a recipient information beyond the required disclosures, and then it constrains how: a non-annualized metric may not be presented as a “rate,” and where a provider states a financing amount or a finance charge as a rate, it must also present that figure as an annual percentage rate using the term APR. This is the anti-euphemism provision, and it is aimed squarely at the vocabulary this industry runs on.

The violations write themselves and they are almost always in writing. “Our rate is 1.42.” “You’re looking at 22 points.” “Buy rate 1.28, sell rate 1.42.” “It works out to about 15%.” A factor is not a rate, points are not a rate, and none of those figures is annualized, so each one either had to be dropped or accompanied by an APR. Because the language typically lives in a broker email, an approval PDF, or a recorded sales call, this is the defect with the shortest distance between finding it and proving it.

It is also the defect most likely to be characterized as willful, which is the difference between the $2,000 and the $10,000 tier in §812(a). A funder or broker whose written sales language calls a factor a rate, in a state that has expressly prohibited exactly that since 2023, has a hard time describing the practice as an oversight in a single file when the same template went to every merchant. Bring that point to a negotiation and you are no longer discussing your file, you are discussing their process, and that is a conversation funders end quickly.

Where the Voidness Argument Actually Comes From

New York does void advances, and the path has nothing to do with disclosure. It runs through criminal usury: N.Y. Penal Law §190.40 makes it a class E felony to charge interest exceeding 25% per annum on a loan or forbearance, and Gen. Oblig. Law §5-521 confines a corporate borrower to the criminal usury defense rather than the civil rate. In Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320 (2021), the Court of Appeals held that a loan bearing criminally usurious interest is void in its entirety. That is the remedy owners have in mind when they use the word void, and it requires one predicate: the advance has to be a loan.

Which is why recharacterization is the fight. In LG Funding, LLC v. United Senior Properties of Olathe, LLC, 181 A.D.3d 664 (2d Dep’t 2020), the Second Department set out the factors a court may weigh, centered on whether there is a reconciliation provision, whether the term is finite, and whether the funder has recourse if the merchant’s business fails through no fault of its own. In Fleetwood Services, LLC v. Ram Capital Funding, LLC, No. 1:20-cv-05120 (S.D.N.Y. June 6, 2022), aff’d, No. 22-1885 (2d Cir. June 8, 2023), the agreement was treated as a disguised loan. And in Lateral Recovery, LLC v. Capital Merchant Services, LLC, No. 1:21-cv-09336 (S.D.N.Y. Sept. 30, 2022), the court examined three forms and split them: one was a usurious loan as a matter of law on its face, one raised a question of fact, and only the one with a genuine reconciliation provision was a true purchase of receivables, with the RICO unlawful-debt claims surviving dismissal.

The two halves meet on a single sheet of paper. The disclosure your funder prepared under §803 is evidence in the recharacterization analysis, written by the party you are arguing against. A disclosed fixed payment amount is evidence the remittance never floated with revenue. A disclosed estimated term is evidence of a de facto maturity date. A disclosed estimated APR of 180% is the funder’s own computation of the cost of the money, and it is far easier to put in front of a judge than a reconstruction your expert built. A disclosure violation gives you a regulatory complaint; the disclosure itself, when it exists, may hand you the usury case.

What the Statute Gives the Regulator and Not You

Be precise about remedies, because the precision is what keeps a strategy from collapsing. Section 812(a) provides that upon a finding by the Superintendent that a provider violated the article or its regulations, the provider shall be ordered to pay the people of this state a civil penalty of up to $2,000 per violation, or up to $10,000 per violation where willful. Section 812(b) adds that on a finding of a knowing violation the Superintendent may order additional relief, including restitution or an injunction, on behalf of an affected recipient. Section 811 supplies rulemaking power. Every remedy in the article is exercised by the Superintendent, and the penalties are payable to the state.

New York does sometimes imply a private right of action into a statute that lacks one, and the test makes this an uphill argument. A plaintiff must be one of the class for whose particular benefit the statute was enacted, recognition of a private right must promote the legislative purpose, and it must be consistent with the legislative scheme. See Sheehy v. Big Flats Community Day, Inc., 73 N.Y.2d 629 (1989), and Uhr v. East Greenbush Central School District, 94 N.Y.2d 32 (1999). It is the third factor that usually decides it, because where the legislature built an administrative enforcement mechanism, courts read that choice as the remedy the legislature intended. We have not located a reported New York decision implying a private right under article 8, and you should not plan on being the case that establishes one.

Two adjacent theories get raised and both have real limits. General Business Law §349 requires consumer-oriented conduct, and a negotiated commercial financing between a funder and a business generally is not that, a threshold New York has enforced since Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20 (1995). The federal Fair Debt Collection Practices Act reaches consumer obligations only, so it is not a remedy for how an MCA balance is collected from a business. What is left is the combination that actually works: a DFS complaint that costs the funder something, a demand letter that recalculates the deal from its own documents, and the usury and recharacterization arguments litigated by counsel who do this weekly, including the attorneys in the network handling MCA defense in New York.

Who Should You Call? Our Top-Rated Business Debt Firms

One firm on this list works the entire lifecycle of a business debt file, from stopping the daily debits through attorney-led negotiation, UCC lien removal, and a signed release. The other two cover broader debt categories that often sit alongside the advances. Choose accordingly.