The short answer
In January 2025 the New York Attorney General secured a $1.065 billion judgment against Yellowstone Capital and affiliates — the largest single-state consumer restitution in New York history. The state’s case was that the advances were disguised loans, some at rates reaching 820% APR. For brokers the consequence is not the headline number but the reasoning: courts and regulators increasingly ask whether an advance is really a loan, and the answer changes which laws apply.
This is the largest enforcement action the MCA industry has seen, and the number is not the interesting part. The reasoning is.
What was announced
| Announced | 22 January 2025, NY Attorney General Letitia James |
| Total judgment | $1.065 billion |
| Merchant debt cancelled | $534,552,724 |
| Immediate payment | $16.1 million, rising to $30 million on non-compliance |
| Remaining judgment | $514 million, for distribution to affected businesses |
| Rates alleged | Up to 820% APR |
| Other relief | Legal actions vacated; liens terminated on request |
The office described it as the largest single-state consumer restitution in New York history. In May 2025 it followed up by discharging roughly 1,100 MCA judgments held against small businesses.
The part that matters: recharacterisation
A merchant cash advance is not legally a loan. It is a purchase of future receivables, and that distinction is what keeps it outside usury caps and most lending licence regimes. The entire product rests on it.
The state’s argument was that these particular transactions only looked like advances. Strip the labels away, it said, and what remained had the economics of a loan — at which point usury law, licensing requirements and a very different set of consequences all apply retroactively.
What tends to attract the argument
Across the reported actions in this area, a recognisable set of features shows up. None is conclusive alone; together they are what regulators point at.
- Fixed daily or weekly amounts that do not move when the merchant’s receipts move.
- Reconciliation offered in the contract but difficult or effectively impossible to obtain in practice.
- A finite term in substance, which makes it look like a repayment schedule rather than a purchase.
- Personal guarantees broad enough that the funder carries little genuine risk of the receivables failing.
- Collection conduct — aggressive filings, confessions of judgment — that reads as debt collection rather than as recovering a purchased asset.
What changed after it
Two things, and both are still developing. States have continued adding commercial financing disclosure requirements, several with broker registration attached. And in New York the FAIR Business Practices Act took effect on 17 February 2026, extending the state’s unfair-and-abusive-practices protections to small businesses and non-profits rather than only individual consumers.
That second one widens what the Attorney General can examine to include collection conduct, demand letters and UCC-1 filing practices. For a broker, the exposure is indirect but real: it runs through which funders you place files with and how those funders behave once the file is theirs.
Questions worth asking a funding partner
- How does your agreement handle reconciliation, and what does a merchant actually have to do to get one?
- Do you use confessions of judgment? In which states?
- What is your policy on UCC-1 filings after a default, and when do you terminate them?
- How do you handle disclosure in the states that require it?
- Have you been subject to any state enforcement action?
None of those is an accusation. They are the questions a broker who wants to still be placing files in three years should be able to answer about every funder on their list.