New York Sues a "Sham" Arbitration Service as Courts Keep Testing MCA Contract Structures

Nothing broke overnight in the merchant cash advance world, but three storylines that surfaced over the past several weeks continue to define where the industry is headed: a New York fraud suit over a "sham" arbitration service, a Texas bankruptcy ruling that keeps chipping at the sale-versus-loan defense, and a Senate bill that would make it easier for over-leveraged small businesses to reorganize.

New York AG Sues "Sham" Arbitration Service Built for MCA Funders

New York Attorney General Letitia James filed suit against Rapid Ruling, an online arbitration platform, and its founders Zachary Meyer and Andrew Sachs, alleging the service was created in coordination with an MCA company to rig arbitration outcomes in funders' favor. According to the Attorney General's office, an investigation found that in roughly 97% of the roughly 3,000 arbitrations Rapid Ruling handled in its first three years, the small business never appeared — and Rapid Ruling ruled for the MCA company that initiated the case in nearly all of them. The suit seeks restitution and damages for affected merchants, civil penalties, and an order barring the defendants from continuing the practice. (ag.ny.gov; Fingerlakes1.com)

Texas Bankruptcy Court Lets Usury Claim Against an MCA Funder Move Forward

In Sommers v. Global Merchant Cash, Inc. (In re Anadrill Directional Services, Inc.), Chief Bankruptcy Judge Eduardo V. Rodriguez of the U.S. Bankruptcy Court for the Southern District of Texas denied most of an MCA vendor's motion to dismiss a Chapter 7 trustee's fraudulent-transfer claims. The court found the trustee plausibly alleged the advance — $650,145.18 funded against $1,016,000 in required repayments — was, in substance, a criminally usurious loan rather than a true purchase of future receivables. If the trustee prevails at trial, payments the debtor made to the funder could be clawed back for the estate. It's the latest in a string of bankruptcy-court rulings willing to look past "sale of receivables" language in MCA contracts. (White and Williams; Falcon Rappaport & Berkman)

Senate Passes Bill to Permanently Raise the Subchapter V Debt Ceiling

On August 3, 2026, the Senate passed S. 3977, the Bankruptcy Threshold Adjustment Act of 2026, which would permanently set the debt limit for Subchapter V small-business reorganizations at $7.5 million (and raise the Chapter 13 aggregate debt limit for individuals to $2.75 million). The temporary $7.5 million threshold enacted during the pandemic had lapsed back to roughly $3 million in 2024, pushing many small businesses — including ones weighed down by stacked merchant cash advances — into costlier, slower Chapter 11 cases. The bill now awaits action in the House. (Bernstein Shur; Law360 Bankruptcy Authority)

What It Means

None of these developments is a single knockout blow, but the direction is consistent: attorneys general and bankruptcy judges are increasingly willing to treat aggressive MCA structures — from rigged arbitration to receivables "sales" that look like loans — as exactly what merchants have long argued they are. At the same time, Congress is quietly making it easier for over-stacked small businesses to reorganize rather than liquidate. For funders, the message is that boilerplate contract language and captive dispute-resolution forums are drawing more scrutiny than ever; for merchants and brokers, it's a reminder that both the courts and state regulators are active players in this space right now, not passive bystanders.