New York Court and AG Actions Deepen Legal Pressure on the MCA Industry

There's no single blockbuster headline out of the merchant cash advance world in the last day, but the last several weeks have added up to a meaningful shift: courts and regulators in New York keep chipping away at the legal protections MCA funders have historically relied on. Here's a roundup of the developments worth tracking.

Bankruptcy Judge Rules Kossoff PLLC's Merchant Cash Advances Were "Disguised Loans"

Judge David S. Jones of the U.S. Bankruptcy Court for the Southern District of New York ruled that 19 merchant cash advance agreements between Capital Stack LLC and the collapsed real estate law firm Kossoff PLLC, totaling nearly $10.9 million, were "well drafted attempts to characterize high-return financing as asset sales" rather than genuine purchases of receivables. The July 27 partial judgment could let the firm's bankruptcy trustee claw back roughly $8.7 million in pre-bankruptcy payments, though the exact recovery amount is still to be decided. It's one of the more detailed judicial opinions yet applying "disguised loan" reasoning to a stack of MCA agreements, and funders should expect it to be cited in future recharacterization fights. (Bloomberg Law)

NY Attorney General Sues Arbitration Platform Over Alleged MCA Collusion

Attorney General Letitia James sued Rapid Ruling, an online arbitration platform, along with founders Zachary Meyer and Andrew Sachs, alleging the service was created in coordination with an MCA company that helped write its arbitration rules to favor funders while presenting itself publicly as a neutral forum. The complaint says the arrangement produced thousands of one-sided judgments against small businesses struggling with MCA debt. It's a notable escalation because it targets the dispute-resolution infrastructure around MCA collections, not just the funders themselves. (NY Attorney General)

New York's FAIR Business Practices Act Widens the Door for AG Enforcement

As of February 17, 2026, New York's FAIR Business Practices Act amended General Business Law Section 349, dropping the old requirement that a deceptive practice be "consumer-oriented" to trigger liability. That change extends the statute's unfair-and-abusive-practices standard to small businesses and nonprofits — exactly the population MCA funders sell to — giving the Attorney General a broader hook to bring cases like the Rapid Ruling suit above. (Mizrahi Law)

More States Are Requiring MCA Funders to Disclose an APR-Equivalent

California, New York, Utah, Virginia, Georgia, and Connecticut already require MCA funders to disclose a standardized APR-equivalent and total repayment amount before a business owner signs. In 2026, Illinois and New Jersey added similar commercial financing disclosure laws, and Florida is reportedly debating its own version. The trend continues a multi-year push to make MCA pricing comparable to a conventional loan quote, even though the product is structured as a receivables sale rather than credit. (MCA Track: Merchant Cash Advance Regulation by State)

What It Means

Taken together, these four items point the same direction: New York remains the epicenter of MCA legal risk, and the state is attacking the industry from multiple angles at once — bankruptcy courts recharacterizing advances as loans, the AG's office going after the arbitration and collection ecosystem, a broadened consumer-protection statute, and an expanding patchwork of state disclosure mandates. For funders, the practical takeaway is that documentation quality and collections practices are under more scrutiny than at any point in recent memory. For small business owners considering an advance, it's worth understanding that the legal landscape is shifting toward more disclosure and more avenues to challenge an agreement after the fact — but that protection still varies significantly by state.