The Merchant Can Be the Plaintiff
Most people who have dealt with a predatory merchant cash advance company think of themselves as defendants. The MCA files; the merchant responds. But the transaction, in many cases, provides independent grounds for the merchant to initiate litigation — not merely to assert defenses, but to affirmatively seek damages and equitable relief. The nine grounds that follow have each served as a basis for affirmative merchant claims in MCA litigation.
1. Criminal Usury
A criminally usurious loan is void in New York, and a merchant who paid under such an agreement can seek restitution of amounts paid above the principal. The 2024 Appellate Division ruling confirming that at least one class of MCA agreement constitutes a criminally usurious loan opened the door to affirmative restitution claims by merchants who had already completed or substantially completed payment under such agreements.
2. Civil RICO
The systematic collection of interest on usurious loans, across multiple merchants, constitutes collection of an unlawful debt under the federal RICO statute. Civil RICO plaintiffs recover treble their actual damages plus attorney’s fees. The Second Circuit affirmed RICO liability for an MCA funder in an opinion that remains the primary case authority for this theory in the MCA context. The enterprise element requires showing that the funder, its principals, and its collection agents operated as an associated group with a common unlawful purpose.
3. Fraudulent Inducement
Where the broker or funder misrepresented the cost, structure, or character of the advance at the time of execution — describing a usurious loan as a purchase of receivables, concealing the effective annual rate, or misrepresenting the function of the reconciliation clause — the merchant has an affirmative fraud claim. Recovery includes the full amount of losses proximately caused by the misrepresentation, including consequential business damages that flowed from the decision to enter the agreement.
4. UDAP Violations
State unfair and deceptive practices statutes provide causes of action for commercial deception that are, in some jurisdictions, more accessible than common-law fraud because they do not require proof of intent. California’s Unfair Competition Law, in particular, permits claims based on any unlawful, unfair, or fraudulent business practice and provides for restitution and injunctive relief. New Jersey’s Consumer Fraud Act extends enhanced remedies, including treble damages and attorney’s fees, for UDAP violations in commercial settings.
5. Wrongful UCC Filing
The filing of a UCC-1 financing statement on a void contract — or the filing of an inaccurate or overbroad financing statement — gives the merchant a claim for wrongful lien. Where the underlying agreement is void for usury, the UCC filing is unauthorized, and the merchant may seek a court order requiring its termination together with damages for any financing the merchant was unable to obtain because of the lien’s presence on the public record.
6. Breach of the Implied Covenant of Good Faith
Every contract carries an implied covenant of good faith and fair dealing. Where the funder structured its reconciliation provision to appear in the written agreement while systematically refusing to perform reconciliations in practice, the merchant may assert breach of that implied covenant as an independent basis for recovery. The New York Attorney General’s 2024 lawsuit documented precisely this pattern — reconciliation provisions that existed on paper and were systematically ignored in operation.
7. Negligent Misrepresentation
Distinct from intentional fraud, negligent misrepresentation provides a damages claim where the funder or its broker provided inaccurate information about the transaction in circumstances where accuracy was reasonably expected and the merchant’s reliance was foreseeable. Where a broker failed to accurately disclose the effective cost or described the product as something it was not, negligent misrepresentation provides an alternative theory that does not require proving intentional deception.
8. Electronic Fund Transfer Act Violations
Where the MCA company continued to initiate ACH debits after the merchant revoked authorization in writing, those debits may constitute violations of Regulation E and the underlying Electronic Fund Transfer Act. Recovery includes actual damages plus statutory damages, with attorney’s fees available where the claim is sustained. The revocation must have been properly made and documented, but where it was, the continued debits create an independent federal claim.
9. State Consumer Protection Statutes for Commercial Deception
Several states have extended consumer protection frameworks to cover small business transactions. California’s Consumers Legal Remedies Act, New York’s General Business Law Section 349, and analogous statutes in other jurisdictions provide a third-party enforcement mechanism for deceptive practices that affect the public interest. These statutes, where applicable, can support claims that individual merchants could not cost-effectively pursue on their own through common-law theories alone.
