Reducing The Regulatory Risk Of Merchant Cash Advances And Factoring

Law360 (May 17, 2019, 3:58 PM EDT) -- A growing number of courts and regulators have reached different conclusions on whether factoring and merchant cash advances constitute loans subject to state lender licensing and usury regulations, leaving many factoring companies and their clients without legal certainty about the nature of the transactions between them.

Companies engaged in factoring (purchasing unpaid invoices) or merchant cash advance transactions (purchasing a percentage of future invoices and credit card sales) generally take the position that purchasing existing or future receivables is fundamentally different than lending.

New York is one of a number of states that have taken that position, with courts deferring to...

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