NY AG Sues 'Sham' MCA Arbitration Platform Rapid Ruling; CFPB Carves MCAs Out of Small Business Data Rule

New York's crackdown on predatory merchant cash advance practices accelerated this week with a major enforcement action, while a federal regulatory update brought more clarity—and new uncertainty—to how MCAs fit into the national lending framework.

NY AG Sues Rapid Ruling for Rigging Arbitration Against Small Businesses

On June 8, 2026, 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 company served as a front operation for the merchant cash advance industry rather than a neutral dispute forum.

According to the AG's complaint, Rapid Ruling was created in direct coordination with an MCA company, which actually wrote the platform's arbitration rules to favor lenders. MCA funders then embedded Rapid Ruling arbitration clauses into their contracts as a standard term. The numbers are stark: 97% of the roughly 3,000 arbitrations Rapid Ruling handled in its first three years occurred without any participation by the small business respondent—and in nearly all those cases, Rapid Ruling ruled for the lender, including awarding what the AG characterized as exorbitant junk fees and padded attorneys' fees that business owners were forced to pay.

The AG is seeking restitution for affected businesses, civil penalties against Rapid Ruling and its executives, and a court order forcing the platform to cease operations. The suit invokes New York's FAIR Business Practices Act, signed by Governor Kathy Hochul on December 19, 2025, and effective February 17, 2026—which extended "unfair and abusive practice" protections to small businesses for the first time under New York's General Business Law § 349. (Law360 coverage | Fingerlakes1)

CFPB Final Rule Excludes MCAs From Small Business Data Reporting—But Doesn't Resolve Their Legal Status

In May 2026, the CFPB issued a final rule amending small business data collection requirements under Section 1071 of the Dodd-Frank Act (Regulation B). The rule takes effect June 30, 2026, with a compliance date of January 1, 2028, and explicitly carves merchant cash advances out of its data collection and reporting requirements.

The move was not a clean win for the industry, however. The CFPB retreated from its 2023 position that MCAs are "credit" under the Equal Credit Opportunity Act—but stopped short of declaring them not credit. The bureau indicated that additional analysis is needed to determine which MCAs qualify as credit on a case-by-case basis, leaving the fundamental question of MCA legal classification unresolved under federal law. (See Federal Register notice)

The rule also narrows coverage broadly: the covered institution origination threshold rises from 100 to 1,000 originations per year, and the "small business" revenue cap drops from $5 million to $1 million.

Eight States Now Mandate Commercial Financing Disclosures

As federal MCA classification remains in limbo, state-level disclosure requirements continue to expand. Eight states now require Truth-in-Lending-style commercial financing disclosures on MCA contracts—including California, New York, Virginia, Utah, Georgia, Connecticut, and Florida. These laws require funders to disclose estimated APR-equivalent rates, total repayment amounts, and other standardized terms, significantly narrowing the information gap between funders and merchants that critics have long cited as the industry's core problem.

Litigation Volume Running at Record Highs

The regulatory pressure comes amid surging litigation. Credible Law's 2026 MCA Litigation Trends Report found that over $1.6 billion in MCA judgments and settlements have been handed down across 2025 and 2026 combined—led by the $1.065 billion Yellowstone Capital case, in which the New York AG secured cancellation of $534 million in merchant debt. The report tracks ongoing issues including frozen business bank accounts, bank levies, UCC liens, default judgments, and commercial collection disputes.

What It Means

The Rapid Ruling lawsuit is the clearest sign yet that New York intends to use the FAIR Act broadly—going after not just MCA funders, but the ancillary infrastructure built around MCA collection, including arbitration forums that were allegedly designed to be one-sided from the start. Meanwhile, the CFPB's ambiguous stance on MCA legal classification under ECOA leaves funders facing continued uncertainty about their federal regulatory status. With eight states mandating disclosures, a record litigation environment, and state AGs actively expanding enforcement scope, MCA funders and brokers should treat 2026 as a pivotal year for compliance review.