6 MCA Funder Lawsuits That Changed How the Industry Works

Which Firm Can Help You Fight Back Against MCA Funders?

The cases above didn’t happen by accident. They happened because business owners hired attorneys who understood MCA law and were willing to fight. If you’re dealing with an MCA funder right now — whether they’re draining your account, threatening a confession of judgment, or coming after your personal assets — these are three firms that can help, ranked by their depth of MCA litigation expertise.

1. Champion Auto Sales v. Pearl Beta Funding — The Case That Made “Recharacterization” Real

Before this case, MCA funders had a pretty good racket going. They’d structure every deal as a “purchase of future receivables” — not a loan — which meant state usury caps didn’t apply. A funder could charge the equivalent of 300% APR and call it perfectly legal because, technically, they were “buying” your future revenue at a discount. Champion Auto Sales blew the door open on that fiction. The New York courts examined a Pearl Beta Funding MCA agreement and found something important: the daily payments were fixed dollar amounts, not actual percentages of the merchant’s daily receivables. The reconciliation clause — the provision that was supposed to let the merchant adjust payments when revenue dropped — existed on paper but had never been honored. And the agreement had what amounted to a fixed repayment term. The court applied a functional analysis rather than just reading the contract labels, and concluded that this MCA was, in substance, a loan.

Once the court recharacterized the MCA as a loan, everything changed. New York’s civil usury cap of 16% under General Obligations Law § 5-501 and criminal usury threshold of 25% under Penal Law § 190.40 suddenly applied. The effective APR on the Champion Auto Sales agreement was well north of 100%. A criminally usurious loan is void ab initio in New York — meaning the borrower owes nothing. Zero. The funder doesn’t just lose the interest; they lose the principal too. That’s a nuclear outcome for a funder, and it’s why Champion Auto Sales sent shockwaves through the entire MCA industry. Funders started rewriting their contracts, adding more robust reconciliation language, and in some cases actually honoring reconciliation requests — because they knew the next court could do the same thing. (NY Senate — GOB §5-501 (Usury)) (NY Senate — Penal Law §190.40)

2. Merchant Funding Services v. Volunteer Pharmacy — The Multi-Factor Test Courts Still Use

If Champion Auto Sales cracked the door, Merchant Funding Services v. Volunteer Pharmacy kicked it wide open. This case gave courts a structured framework — a multi-factor test — for deciding whether an MCA is really a purchase of receivables or a loan wearing a disguise. The case involved Volunteer Pharmacy, a small business in Tennessee that had taken an MCA from Merchant Funding Services. When the pharmacy defaulted, the funder sued to collect. The pharmacy fought back, arguing the MCA was actually a usurious loan. The court didn’t just pick one factor and call it a day. It examined the entire relationship between the parties and identified three questions that mattered most. First: does the funder bear any genuine risk of loss if the merchant’s business fails? In a true receivables purchase, the funder takes on the risk that the merchant’s revenue might decline or disappear entirely. If the agreement has a personal guarantee, a confession of judgment clause, or a fixed repayment obligation that doesn’t fluctuate with actual sales, the funder isn’t really bearing any risk at all.

Second: is the reconciliation provision real or illusory? A genuine MCA should allow the merchant to request a recalculation of daily payment amounts based on actual revenue. If the funder ignores reconciliation requests, imposes impossible documentation requirements, or structures the clause so it can never practically be exercised, that’s evidence the agreement is a loan, not a purchase. Third: does the agreement have a definite term? True receivables purchases are open-ended — the funder gets paid as revenue comes in, and if the business closes, the funder eats the loss. If the contract specifies a fixed repayment period or accelerates the full balance on default, it looks a lot more like a loan. Attorneys across the country now cite Volunteer Pharmacy in MCA litigation. The multi-factor framework gives judges a clear, repeatable method for evaluating these agreements — and it gives business owners a roadmap for building their defense.

3. New York Attorney General v. Richmond Capital Group — When the State Brought Criminal Heat

For years, MCA funders operated in a regulatory no-man’s-land. They weren’t banks, so banking regulators didn’t touch them. They claimed they weren’t lenders, so lending laws didn’t apply. And the FTC, which has authority over deceptive trade practices, was focused on consumer lending, not commercial transactions. That changed in 2020 when the New York Attorney General’s office filed a lawsuit against Richmond Capital Group, its owner Lucille Genkos, and affiliated entities. The AG’s complaint didn’t mince words. It accused Richmond Capital of running a scheme that extracted over $500 million from small businesses through MCA agreements that were, in the AG’s view, usurious loans disguised as receivables purchases. The complaint alleged that Richmond Capital charged effective interest rates exceeding 300%, used confessions of judgment to freeze merchants’ bank accounts without notice, and engaged in deceptive practices by misrepresenting the nature of the transactions.

The Richmond Capital case was significant for several reasons. First, it was a state-level criminal enforcement action — not a private lawsuit between two parties. The AG brought the full weight of the state’s consumer protection and anti-fraud statutes, including New York Executive Law § 63(12) and General Business Law § 349. Second, the case targeted not just the company but individual officers and owners, signaling that regulators would pursue personal liability. Third, it prompted other state attorneys general to start examining MCA practices in their own jurisdictions. The $500 million figure got headlines, but the real impact was structural. MCA funders suddenly realized they could face government enforcement — not just lawsuits from individual merchants who might settle quietly. The AG’s action, combined with Bloomberg Businessweek’s investigative reporting on MCA industry abuses, created momentum for legislative reform that eventually produced New York’s confession-of-judgment restrictions.

4. New York’s Confession of Judgment Reforms — The Legislative Response to Courtroom Abuses

Confessions of judgment were the MCA industry’s favorite weapon for a long time. Here’s how they worked: buried in the MCA agreement was a clause where the merchant agreed, in advance, to let the funder obtain a court judgment against them without any notice, hearing or opportunity to defend themselves. The funder could walk into a county clerk’s office in New York — regardless of where the merchant was located — file the COJ affidavit, and instantly have a judgment that could be used to freeze bank accounts, garnish wages, and seize assets. No judge ever reviewed the underlying claim. No merchant ever got a chance to argue that the MCA was usurious, fraudulent or already paid off. Bloomberg Businessweek published a devastating investigative series in 2018 documenting how MCA funders were using New York’s permissive COJ statute to destroy small businesses across the country. One trucking company owner in Georgia had his accounts frozen by a New York judgment he never knew existed. A restaurant owner in Virginia lost her business after a funder filed a COJ for a debt she disputed.

The Bloomberg series, combined with lawsuits like the Richmond Capital case and advocacy from small business groups, pushed the New York Legislature to act. In 2019, Governor Cuomo signed legislation amending CPLR § 3218 to severely restrict confessions of judgment. The new law prohibited New York courts from entering COJs based on transactions with out-of-state merchants — eliminating the practice of forum shopping that had made New York the COJ capital of America. It also required that the affidavit include specific disclosures and limited the circumstances under which a COJ could be filed. The reforms didn’t eliminate confessions of judgment entirely — they’re still available for in-state transactions under certain conditions — but they cut off the most abusive use case. Several other states, including Virginia and Pennsylvania, followed New York’s lead and either banned or restricted COJs in their own jurisdictions. For business owners, this means one of the MCA industry’s scariest collection tools has been significantly defanged.

5. Fleetwood Services v. Ram Capital — When Courts Drew the Line on Collection Tactics

The recharacterization cases established that some MCAs are really loans. The AG actions established that the government would enforce the law. But a separate line of cases addressed something equally important to business owners on the ground: the aggressive, sometimes illegal collection tactics that MCA funders used when merchants fell behind on payments. Fleetwood Services and similar cases challenged funders who went beyond standard commercial collection and into territory that looked a lot like harassment, intimidation and extortion. Court records in multiple jurisdictions document MCA collection agents who called merchants dozens of times per day, threatened to contact their customers and vendors to damage business relationships, showed up at business locations unannounced, and told merchants they would “never be able to open a bank account again.” In some cases, funders hired private investigators to follow merchant owners or contacted family members about the debt.

While the Fair Debt Collection Practices Act (FDCPA, 15 U.S.C. § 1692 et seq.) technically applies only to consumer debts, courts have been willing to apply state-level unfair and deceptive trade practice statutes to abusive MCA collection. New York General Business Law § 349 prohibits deceptive business practices broadly. California’s Unfair Competition Law (Bus. & Prof. Code § 17200) reaches commercial transactions. And common law torts like intentional infliction of emotional distress, tortious interference with business relationships, and abuse of process provide additional causes of action. Several courts have issued injunctions prohibiting specific collection practices and awarded damages to merchants who documented the abuse. These cases matter because they gave business owners a legal vocabulary for fighting back against collection behavior that crosses the line — and they created a financial disincentive for funders who relied on intimidation rather than legitimate legal process. (FTC — Fair Debt Collection Practices Act) (FTC — Debt Collection FAQs)

6. Davis v. Richmond Capital — Personal Guarantees Under Fire

Most MCA agreements include a personal guarantee — a clause that makes the business owner individually liable for the full MCA obligation if the business can’t pay. For funders, personal guarantees are insurance policies. For merchants, they’re existential threats. Lose your business and an MCA funder can still come after your house, your savings, your personal bank accounts. The Davis v. Richmond Capital litigation and related cases challenged personal guarantees in MCA agreements on several grounds. First, if the underlying MCA is recharacterized as a usurious loan and declared void, the personal guarantee that secures it is also void — you can’t guarantee an obligation that doesn’t legally exist. This argument flows directly from the Champion Auto Sales and Volunteer Pharmacy recharacterization framework. Courts in New York have agreed: when the primary obligation fails, the guarantee falls with it.

Second, attorneys have challenged personal guarantees on unconscionability grounds. Many MCA personal guarantees are presented on a take-it-or-leave-it basis with no negotiation, contain one-sided terms that waive virtually every right the guarantor has, and are signed under financial duress by business owners who need cash immediately to make payroll or cover rent. Courts have found personal guarantees unconscionable when the disparity in bargaining power is extreme and the terms are unreasonably one-sided. Third, some personal guarantees contain their own confession-of-judgment clauses, which are now subject to the same CPLR § 3218 restrictions discussed above. The practical impact of these cases is significant. MCA funders can no longer wave a personal guarantee around as an unbeatable trump card. Attorneys who understand the recharacterization framework, unconscionability doctrine, and COJ restrictions can challenge personal guarantees and, in many cases, get them invalidated or significantly limited — protecting the merchant’s personal assets from collection.

Which Firm Can Help You Fight Back Against MCA Funders?

The cases above didn’t happen by accident. They happened because business owners hired attorneys who understood MCA law and were willing to fight. If you’re dealing with an MCA funder right now — whether they’re draining your account, threatening a confession of judgment, or coming after your personal assets — these are three firms that can help, ranked by their depth of MCA litigation expertise.