New York Court Lets Merchant Cash Advance Criminal-Usury Defense Proceed Over Reconciliation Dispute
A NY court let a merchant cash advance criminal-usury defense proceed over reconciliation disputes. Learn what this ruling means for your business.
News · · 3 min read
Review your merchant cash advance reconciliation clause and document every remittance adjustment request now: in an October 30, 2026 order, a New York court denied Ilend’s motion to dismiss an MCA merchant’s thirteenth affirmative defense of criminal usury at the pleading stage, leaving for discovery whether A&D requested reconciliation and whether an inflated purchased percentage raised the reconciliation threshold.
Why the New York Court Kept the Merchant Cash Advance Criminal-Usury Defense Alive
In the New York Supreme Court, Kings County decision and order in Ilend Advance LLC v A & D Fitness LLC, published October 30, 2026 (an uncorrected opinion that will not be published in the printed official reports), the dispute centered on an agreement styled as a purchase of future receivables. In its October 30, 2026 order at the pleading stage before discovery, the New York court granted Ilend’s motion to dismiss some affirmative defenses but denied it as to the thirteenth affirmative defense alleging criminal usury.
For business owners watching this New York MCA lawsuit, keeping the thirteenth defense alleging criminal usury alive means the court did not decide the transaction’s final legal status on the initial filings. Instead, the parties in the Ilend Advance lawsuit move into discovery.
What Is a Merchant Cash Advance Reconciliation Trigger and How Does an Inflated Percentage Affect It?
Although owners sometimes search for merchant cash advance lenders, a merchant cash advance is structured as a purchase of future receivables rather than a commercial loan: when comparing the two products, a provider supplies an advance at a purchase price with a factor rate and collects a holdback or remittance from future receipts. A reconciliation clause is meant to align those remittances with actual receipts.
The court explained that the agreement’s reconciliation trigger compares the amount already debited with the purchased percentage of actual revenue collected since the agreement began, and an inflated percentage raises the threshold for reconciliation. Whether that purchased percentage was inflated remains in issue for discovery, making the trigger’s math a key cash-flow and borrowing-readiness point for owners to assess.
When Does a Court Weigh Merchant Cash Advance Loan Classification?
When comparing a receivables purchase against a commercial loan, a court may examine how the agreement’s terms allocate risk. Without making a final ruling that the transaction was a loan, the court found that an inflated purchased percentage and guaranty and default provisions giving Ilend recourse in circumstances associated with bankruptcy would weigh in favor of loan classification. When comparing products, if discovery supports inflation of the purchased percentage, that would weigh toward classifying this arrangement as a commercial loan subject to criminal-usury law rather than a receivables purchase.
What Small Business Merchant Cash Advance Agreements Say About Reconciliation Requests and Bankruptcy Recourse
In Ilend’s case, the small business merchant cash advance dispute turns on whether the merchant triggered the adjustment clause and how default remedies were drafted. The court stated that whether A&D requested reconciliation requires further factual development because the defendants say they tried and Ilend refused to adjust remittances, while Ilend says there is no evidence of a request. Because the guaranty and default provisions gave Ilend recourse in bankruptcy-related circumstances, that factor also weighed against receivables-purchase treatment under one factor.
What to Check With Merchant Cash Advance Companies Before Signing or Requesting Reconciliation
When reviewing agreements from merchant cash advance companies, owners can use practical steps informed by the October 30, 2026 order alongside broader borrowing-readiness checks:
- Check the reconciliation math (from the court’s findings): Verify how the trigger compares amounts already debited against the purchased percentage of actual revenue collected.
- Document reconciliation requests (from the court’s findings): Keep dated records whenever asking a provider to adjust remittances.
- Review guaranty and default clauses (from the court’s findings): Check whether the contract grants recourse in circumstances associated with bankruptcy.
- Compare disclosures and alternatives (general borrowing-readiness check): Beyond the court’s findings, a growing number of states require commercial financing cost disclosures, including estimated APR, from providers and in some states brokers. Reviewing state MCA cost disclosure rules and sales-based financing disclosures clarifies how factor rates work, while comparing a commercial loan such as an SBA loan refinance for MCA against receivables positions helps owners evaluate options.
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Frequently asked questions
Are merchant cash advances illegal?
Merchant cash advances are not automatically illegal; they are structured as purchases of future receivables. However, in an October 30, 2026 order in Ilend Advance LLC v A & D Fitness LLC, a New York court allowed the merchant's thirteenth affirmative defense alleging criminal usury to proceed to discovery over disputes about reconciliation requests, an allegedly inflated purchased percentage, and bankruptcy-related recourse.
Is merchant cash advance a good idea?
Whether a receivables purchase suits a business depends on how remittances, the purchased percentage, and reconciliation triggers align with actual revenue and borrowing readiness. Checking how the reconciliation threshold compares debited amounts to actual revenue collected and reviewing guaranty and default recourse helps owners assess cash-flow risk.
About the author
The Credisian Editorial Team writes plain-English guides and news on business credit and borrowing, sourced and checked under our editorial policy, to help owners make informed funding decisions.
