NY AG Targets 'Sham' Arbitration Firm as MCA Regulatory Crackdown Intensifies

The merchant cash advance industry faces a multi-front regulatory reckoning in 2026, with the New York Attorney General filing a fresh lawsuit against what it calls a fraudulent arbitration service purpose-built to favor MCA funders, while Connecticut debates stripping lenders of a legal tool that has made the state a hub for aggressive collections.

NY AG Sues Rapid Ruling Over 'Sham' MCA Arbitration

On June 8, 2026, New York Attorney General Letitia James sued Rapid Ruling and its founders, Zachary Meyer and Andrew Sachs, alleging the online arbitration platform was never neutral — it was designed from the start to help MCA funders collect from small businesses without a fair process.

According to the AG's complaint, an MCA company wrote and repeatedly revised Rapid Ruling's own arbitration rules, tailoring them to favor funders: merchants had just seven days to respond to claims, service could be made by email, discovery was sharply restricted, and default awards were issued against merchants who failed to appear. The OAG's investigation found that 97 percent of approximately 3,000 arbitrations Rapid Ruling administered in its first three years took place without any appearance by the small business on the receiving end, and Rapid Ruling ruled in favor of the MCA company that initiated arbitration in nearly all of those cases.

The lawsuit alleges violations of New York's FAIR Business Practices Act — which went into effect on February 17, 2026 — and seeks a court order preventing Rapid Ruling from operating, plus civil penalties and restitution for affected merchants.

The Rapid Ruling action follows the landmark Yellowstone Capital settlement announced in January 2025, which delivered over $534 million in debt relief and canceled all outstanding MCA debts owed to Yellowstone and its subsidiaries. Settlement payments were mailed to qualifying claimants on April 3, 2026.

Connecticut Under Pressure to Close the 'Prejudgment Remedy' Loophole

After New York banned out-of-state confessions of judgment in 2019, many MCA firms relocated to Connecticut, which allows lenders to add contract language directing a borrower's banks to freeze all accounts — swiftly and without judicial review — when payments stop. NPR reported in March 2026 that Connecticut is now reconsidering that arrangement.

State Representative Jonathan Jacobson, spearheading legislation to ban prejudgment remedy waivers for MCAs, testified that he views "the industry to be nothing less than the golden age of piracy, with the state of Connecticut becoming a main port of call." A 2023 Connecticut law already restricted use of these waivers for advances under $250,000, but some MCA attorneys quickly found ways to structure contracts to pursue those borrowers anyway. A new bill would close the gap by outlawing prejudgment remedy waivers for MCAs entirely.

Tariff Pressure Is Fueling MCA Demand — at Steep Cost

A February 2026 NPR investigation documented how surging import tariffs — at their highest levels in decades, with some categories well above 100% — have driven a new wave of small businesses into the MCA market. Some importers are carrying annual tariff bills approaching $800,000, financed through multiple stacked cash advances. Because MCAs are legally structured as purchases of future receivables rather than loans, rate caps don't apply; the equivalent annual cost averages 94%, with some terms reaching 350%.

Despite that demand surge from tariff-stressed businesses, overall MCA volume declined 12% in 2026 — the first drop in five years — as the SBA's MCA refinance ban and expanding state disclosure requirements push volume toward structured revenue-based products. Illinois and New Jersey both enacted standardized APR-equivalent disclosure laws in 2026, joining California, New York, Utah, Virginia, Georgia, and Connecticut.

What It Means

The Rapid Ruling lawsuit is the clearest signal yet that New York's AG intends to use the FAIR Business Practices Act as an active enforcement tool, not just a deterrent. The pattern — funders routing collections into purpose-built forums that small businesses can't navigate — is precisely the kind of "abusive" conduct the law was written to address. For Connecticut, the question is whether this legislative session produces a real fix or another workaround. Meanwhile, MCA funders capitalizing on tariff panic are attracting scrutiny from state regulators and press alike: with disclosure mandates spreading and AG offices emboldened by the Yellowstone win, the era of unchecked fee opacity is contracting even as parts of MCA demand grow.