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Safety Concerns
The Safety You Were Promised
The merchant cash advance contract contains no safety clause. Not in the sense that the protections are weak or poorly drafted, though they are often both; in the sense that the concept of safety for the borrowing business does not appear as a structural concern of the agreement. The contract contemplates default. It contemplates remedies for default. It contemplates the funder’s right to pursue those remedies with speed and without the ordinary procedural obstacles that attend commercial litigation. What it does not contemplate, in any section of the fourteen or so pages most of these agreements occupy, is the possibility that the terms themselves could cause the failure they purport to remedy.
The reconciliation provision is, in most of the contracts we review, not honored when the business actually needs it. On paper, the provision permits the funder to adjust daily payment amounts when the borrower’s revenue declines. In practice (and this is a point the defenders of the MCA industry will insist is a matter of individual bad actors rather than structural design), the adjustment mechanism requires the borrower to initiate a formal request, provide documentation of the revenue decline, and wait for a review process that proceeds at the funder’s discretion and on the funder’s timeline. A business whose revenue has collapsed does not have weeks.
The contract, in its operational reality, assumes the business will survive the terms.
The Confession of Judgment
Before the first missed payment, before the business owner has retained counsel or reviewed the default provisions, the funder already possesses the instrument that ends the contest. A confession of judgment is a signed, notarized affidavit, executed by the borrower at the time of funding, that permits the funder to obtain a court judgment without filing a lawsuit, without providing notice, and without affording the borrower an opportunity to respond. That is the instrument. A signed concession of every procedural right the borrower would otherwise possess.
New York’s CPLR 3218 governs the mechanics. The 2019 amendments to that statute imposed new requirements: the affidavit must include specific factual allegations about the default, attach the underlying agreement, and provide a detailed calculation of the amount claimed. The amendments also prohibited the filing of confessions of judgment against borrowers who do not reside in New York, a change prompted by reporting that revealed funders were using New York courts to reach business owners in dozens of other states who had no practical means of defending themselves.
The contract was enforceable. It was also, on the court’s analysis, usurious. In Funding Metrics, LLC v. D&V Hospitality, Inc., the Westchester County Supreme Court examined the funder’s actual servicing practices and determined the transaction was, in substance, a loan. The court’s reasoning turned not on the contract language but on what happened when the borrower’s revenue declined: the funder (who, it should be noted, had restructured the same debt twice before selling it to a third party at a discount that suggests even they doubted its collectibility) declined to adjust payments, declined to engage the reconciliation provision, and instead filed the confession of judgment. The funder had the right to collect; what it lacked, upon examination, was the obligation to adjust.
We file the motion to vacate before we do anything else, because the sequence matters and the emergency relief application cannot wait for a full litigation strategy to develop. The motion addresses procedural defects under 3218, jurisdictional challenges if the borrower is out of state, and substantive defenses including usury and fraud. If the bank account is restrained, the motion includes a request for a temporary restraining order releasing the funds. Courts understand what a frozen operating account means for a business that must meet payroll.
The motion is where the defense begins, not where it concludes.
Connecticut and the Migration of Risk
When New York amended CPLR 3218 in 2019 to prohibit confessions of judgment against out-of-state borrowers, the industry did not pause. It relocated. The enforcement apparatus migrated to Connecticut, which offered a different procedural mechanism that achieved a similar result: the prejudgment remedy waiver, a contractual provision through which the borrower agrees in advance to permit the attachment of bank accounts and assets before any judgment has been entered and, in many cases, before the borrower is aware that legal proceedings have commenced.
Business owners who signed contracts in Indiana or Florida discovered that their bank accounts could be frozen by a court in Hartford without prior notice and without a hearing. The mechanism operates through the MCA contract itself, which typically designates Connecticut as the governing jurisdiction and includes the waiver as a standard provision buried, in the contracts we have reviewed, somewhere between pages eight and twelve, in a paragraph of bolded capital letters that reads as impenetrable precisely because it is designed to be skipped.
THIS PREJUDGMENT REMEDY WAIVER MAY RESULT IN THE ATTACHMENT OF YOUR BANK ACCOUNTS WITHOUT PRIOR NOTICE OR COURT HEARING.
That sentence appears in the contract. The borrower signs below it. The question of whether the borrower understood what it means is, in the experience of every attorney who handles these cases, already answered by the fact that they are calling us.
Lawmakers restricted the use of prejudgment remedy waivers for advances under a certain threshold in 2023, but some MCA attorneys reinterpreted the statute to continue pursuing those borrowers regardless. The gap between legislative intent and enforcement practice is not unusual in this area of law, though it is unusually consequential for the business owners caught inside it. Whether the legislature intended to close the loophole or merely to signal concern is a question that the pending bill may answer.
The phone calls arrive on Fridays, when cash flow is already tight, and they arrive from numbers the business owner does not recognize. By the time the borrower understands that a court in a state where they have never conducted business has authorized the freezing of their operating account, the payroll is due, the vendors are waiting, and the cost of hiring a Connecticut attorney to challenge the attachment has become one more debt layered onto the original obligation. The daily withdrawals were, if I recall correctly, something around five hundred dollars, which does not sound catastrophic until one calculates the monthly total against actual receivables.
A bill currently before the Connecticut legislature would prohibit prejudgment remedy waivers in MCA contracts entirely. The industry’s own trade group, the Revenue Based Finance Coalition, has expressed support for the ban on prejudgment remedies even while opposing other provisions of the bill. The bill had bipartisan support from more than two dozen co-sponsors at last count.
The Stacking Problem
The second advance is where the architecture fails. A business owner who has taken one MCA and finds the daily withdrawals consuming too large a share of revenue will, in a pattern we see with regularity, accept a second advance to cover the shortfall created by the first. The second funder is aware of the first. The second funder extends the advance anyway, on terms that account for the increased risk by increasing the cost, which increases the daily withdrawal, which accelerates the collapse of the very cash flow the second advance was meant to preserve.
What the borrower perceives as a solution to the first advance is, in the funder’s model, a new revenue stream secured by the same collateral.
Three advances become five. Five become the point at which the business is servicing debt rather than operating. The stacking accumulates the way a condemned building accumulates code violations: quietly, and without anyone expecting an inspection. By the time the business owner calls an attorney, the total obligation across all advances frequently exceeds the annual revenue of the business, a ratio that makes repayment impossible and restructuring the only remaining option.
And the confession of judgment clauses in each advance are independent instruments. A default on one does not require a default on the others for the funders to begin enforcement.
The funder extending the fifth advance is not ignorant of the preceding four.
Disclosure Requirements and Emerging State Frameworks
California’s SB 362, as updated for 2026, requires that any post-offer communication stating a price or fee must simultaneously disclose the annual percentage rate. The practical effect is a prohibition on marketing MCA products using factor rates alone. A funder cannot describe an advance at a 1.45 factor rate over twelve months without also disclosing that the effective cost, expressed as an annual percentage rate, frequently reaches triple digits.
Texas enacted HB 700, which requires MCA providers and brokers to register with the Office of Consumer Credit Commissioner and restricts automatic ACH debits unless the provider holds a first-priority perfected security interest in the merchant’s account. The registration and disclosure requirements are useful, though they arrive after the borrower has already signed. Contracts containing confession-of-judgment provisions are void under the new Texas law.
The New York Attorney General’s enforcement action against Yellowstone Capital resulted in one of the largest settlements in the state’s consumer protection history. The companies were required to cancel outstanding balances, make payments toward the judgment, and were permanently barred from the MCA industry. Judgments and liens placed on small business properties were required to be vacated.
Texas and California are proceeding along different timelines and with different enforcement mechanisms, which is itself part of the problem.
What a First Conversation Accomplishes
The contract you signed is not the final word on what you owe. The question is not whether the contract exists. One does. The question is whether the contract, as drafted and as performed by the funder, survives scrutiny: whether the reconciliation rights were honored, whether the confession of judgment was properly executed, whether the jurisdictional provisions hold, and whether the transaction, examined in its totality, constitutes a loan subject to usury limits the funder chose to ignore.
The defenses available depend on what the funder did, not only on what you agreed to. We approach these cases by requesting the funder’s servicing records before we assess the strength of any defense, because the contract language and the funder’s actual conduct are, in our experience, rarely identical. The discrepancy is where the case begins.
A first consultation is where that conversation begins.