According to lore, the merchant cash advance (MCA) industry was born in New York, and its law continues to be the law of choice in many MCA agreements. This has led to extensive litigation because, unlike dozens of other states, New York has a criminal usury cap of 25% for loans to corporations. In many litigations, MCA funders maintain that MCA agreements are not loans, and are therefore exempt; while business customers (referred to as "merchants") seeking to avoid their obligations, unsurprisingly, argue that they are in fact loans subject to the cap.

There are now dozens of trial-level, and several appellate-level, decision on this issue. This well-developed MCA jurisprudence has resulted in more careful MCA agreement drafting in recent years, but some recent decisions suggest that MCA litigation is about to get wilder.

MCA Agreements Are Purchases of Future Receivables, Not Loans. When properly drafted, MCA agreements should not be subject to a usury cap because an MCA is not structured as a loan. In practice, however, usury caps have fueled extensive litigation against MCA funders, particularly in New York.