New York AG Sues "Sham" Arbitration Platform Tied to MCA Industry as State and Federal Oversight Diverge
New York's attorney general has sued the arbitration platform Rapid Ruling, alleging it was built by a merchant cash advance funder to guarantee wins against small businesses — one piece of a widening split between aggressive state enforcement and a retreating federal regulator.
No single MCA story broke in the last 24 hours, but the last few weeks have sharpened a trend worth tracking closely: state regulators are escalating enforcement against the industry's collection tactics even as federal oversight retreats, while bankruptcy courts keep encountering MCA debt as a recurring feature of small-business collapse. Here's where things stand.
New York AG Sues "Rapid Ruling" Over Allegedly Rigged Arbitration
New York Attorney General Letitia James has sued the online arbitration platform Rapid Ruling and its founders, Zachary Meyer and Andrew Sachs, alleging they marketed the service as a neutral forum for resolving merchant cash advance disputes while secretly designing its rules, in coordination with an MCA company, to favor funders. The Office of the Attorney General's investigation found that in Rapid Ruling's first three years of operation, roughly 97 percent of its approximately 3,000 arbitrations proceeded without any appearance by the small business being sued, and arbitrators routinely rejected merchants' defenses while awarding funders the fees and relief they requested. The suit seeks to shut down Rapid Ruling's arbitration business and secure restitution, damages, and civil penalties. It follows the same office's $1 billion settlement with Yellowstone Capital and an ongoing suit against Yellowstone's rebranded successor, Delta Bridge/Cloudfund, whose motion to dismiss the AG's claims was denied earlier this year.
MCA Debt Keeps Showing Up in Small-Business Bankruptcies
Separately, bankruptcy filings that list merchant cash advance funders as major creditors continued climbing into 2026, after bankruptcy cases involving MCA debt surged in 2023 and peaked with over 230 filings the following year. Attorneys tracking the cases describe a now-familiar pattern: businesses take on multiple stacked advances to keep up with daily or weekly debits from earlier ones, and the resulting cash squeeze becomes the trigger for a Chapter 11 filing that lists a dozen or more MCA creditors at once.
Courts Are Narrowing the Legal Cover Funders Have Relied On
The legal ground under aggressive MCA collection has been shifting too. A Tenth Circuit ruling (Weiser) has narrowed federal usury preemption arguments, allowing opt-out states like Colorado to apply their own interest-rate caps against out-of-state, bank-partnered MCA structures. In New York, an amendment to General Business Law Section 349 under the state's FAIR Business Practices Act took effect February 17, 2026, extending "unfair or abusive act" protections that previously applied mainly to consumers to small businesses and non-profits as well — giving merchants a new statutory hook to challenge aggressive MCA collection practices. Taken together, courts are increasingly willing to treat MCA agreements as loans in substance rather than accepting funders' "not a loan" framing at face value.
CFPB Moves the Other Direction, Dropping MCAs From Section 1071
At the federal level, the trend is running the opposite way. The CFPB has proposed removing merchant cash advances from its Section 1071 small-business lending data collection rule, reversing an earlier position that would have required MCA funders to report demographic and pricing data on their originations the way banks do for small-business loans. That leaves the state attorneys general and bankruptcy courts as the primary venues actively testing how MCA products should be treated under the law.
What It Means
The throughline across these developments is a widening gap between state and federal oversight of MCA financing. New York and other states are treating aggressive collection infrastructure — arbitration mills, confessions of judgment, stacked advances — as fair game for consumer-protection and fraud enforcement, while the CFPB pulls back the one federal data-reporting requirement that would have made MCA pricing and demographics visible nationally. For funders, that means compliance risk is increasingly concentrated in state AG offices and bankruptcy courts rather than in a single federal rulebook. For small businesses already carrying MCA debt, it means the strongest leverage right now is likely to come from state consumer-protection statutes and bankruptcy proceedings, not from federal regulators.