The alarming call came from Jane’s daughter at college: the family debit card was declined. The bank told Jane the funds were still in the account — but the money was frozen. The lock came not from a court but from a finance firm that had lent to Jane’s small medical-industry business. There had been no prior hearing.
Jane (she asked that NPR use her middle name so she could speak openly) says the action “devastated my family and my business, with zero warning.” The freeze affected every account the family shared, not just the business’s funds.
She had turned to a murky, fast-growing corner of small-business finance: merchant cash advances (MCAs). Entrepreneurs use MCAs for quick cash when traditional banks decline them because their firms are new or risky. MCAs can deliver money within hours and require little paperwork, which makes them attractive in an emergency — but they are expensive and largely unregulated.
In October, Jane took an MCA for $50,000. After fees she received just under $47,000 but agreed to repay $72,500. MCA repayment is structured as a purchase of future sales, so the lender automatically withdrew a percentage of revenue — in her case, an automatic daily deduction of $558. Because MCAs are treated as sales transactions rather than loans, many consumer- and lending-protection laws do not apply, and there are generally no caps on fees.
“I was panicking — payroll, rent were coming due,” she says. Sales were steady but not enough to cover expenses, and traditional banks had rejected her. She took the quick cash, then took more. The daily withdrawals left her sleepless and hungry; the payments became a snowball. She ultimately took four MCAs, each meant to relieve the strain from the last.
The freeze that hit Jane’s accounts relied on a contractual tool available in Connecticut: the prejudgment remedy waiver. Although Jane lives in Indiana and her lender is based in New York, their contract selected Connecticut law to govern disputes. Connecticut allows lenders, under certain contracts, to present an affidavit saying a borrower defaulted and then direct a bank to freeze accounts — quickly and without prior judicial review — while the lender pursues collection.
Many MCA firms migrated to Connecticut after New York tightened rules in 2019. Use of Connecticut’s process has surged; in a deposition a lender reportedly called the state’s process “probably the most effective way of getting a merchant at least to speak to you again after they have defaulted.” A borrower can challenge an attachment in court, but doing so requires hiring counsel (often in Connecticut), paying fees and waiting while access to funds remains blocked. For most small-business owners, settling quickly is a cheaper, faster option than mounting a legal fight.
Connecticut did restrict prejudgment remedy waivers for cash advances under $250,000 in 2023, but some MCA lawyers have interpreted the law in ways that let them continue pursuing borrowers. This legal gray area has prompted lawmakers to try again.
Representative Jonathan Jacobson, a Connecticut attorney who began representing out-of-state merchants facing these tactics, calls the industry “the golden age of piracy” and has introduced a bill that would outlaw prejudgment remedy waivers for MCAs. The proposed legislation also would require MCA providers to disclose fees in a manner similar to APR disclosures used for credit cards and mortgages — a requirement the industry has resisted elsewhere.
At a hearing, an attorney who has handled hundreds of such cases warned that banning waivers would discourage lenders and reduce options for small businesses. Even so, the Revenue Based Finance Coalition, which represents many funders and brokers, publicly supported the ban on prejudgment remedies as an important protection. Jacobson’s bill has drawn bipartisan support from more than two dozen co-sponsors, including leaders of both parties in the Connecticut House; the legislature planned a vote before May 6.
Back to Jane: by December she had been contacted by a firm that said it could help negotiate high-cost debt. The intermediary advised stopping communication with lenders and blocking autopayments, then charged a fee and disappeared. By then she had missed enough payments that her original lender declared her in default. When that lender filed a collections suit in Connecticut, an affidavit about missed payments was sufficient for a state marshal to instruct her bank — which had a Connecticut branch — to freeze her accounts.
With no access to funds, Jane figured the business had about 10 days of runway left. She borrowed from friends, scraped together money and hired a Connecticut lawyer. In January she settled with that lender with a large payment; she is still negotiating with other MCA providers but says the business is hanging on.
Looking back, she says a warning was buried in the paperwork — a full page in bolded, all-caps type: “THIS PREJUDGMENT REMEDY WAIVER MAY RESULT IN THE ATTACHMENT OF YOUR BANK ACCOUNTS WITHOUT PRIOR NOTICE OR COURT HEARING.” Jacobson says almost no merchants understand the clause when they sign.
Jane’s story illustrates how quickly an emergency lifeline can become a crisis when high-cost advances, daily extractions from revenue and aggressive collection tactics intersect. The Connecticut bill aims to limit one of the most blunt tools lenders have used; supporters say it will protect vulnerable small businesses, while opponents say it could shrink an already precarious source of capital. The legislature’s pending vote will determine whether that particular power remains available to MCA lenders.