Fighting Back Against Predatory Merchant Cash Advance Companies

Fighting Back Against Predatory Merchant Cash Advance Companies

Merchant cash advance (MCA) companies provide businesses with lump sum cash in exchange for a percentage of future credit card sales. This can seem like an attractive option for business owners who need quick capital and cannot qualify for traditional financing. However, some MCA companies engage in predatory practices that can sink a struggling business. If you feel an MCA company took advantage of you, there are ways to fight back.

How Merchant Cash Advances Work

With a merchant cash advance, the MCA company provides you an upfront sum of cash in exchange for an agreed upon percentage of your future credit card sales. This is an expensive form of financing, with an annual percentage rate often exceeding 100%.
You pay back the advance through daily withdrawals from your credit card merchant account. The MCA company takes a fixed percentage of your daily credit card receipts until the balance is repaid – plus fees and interest.

Signs of a Predatory MCA

While MCAs provide needed capital to many businesses, some providers exploit owners with deceptive terms and exorbitant rates. Warning signs of a predatory MCA include:

  • APRs over 60%
  • Double-dipping fees
  • Misrepresented terms
  • Aggressive collection tactics

High pressure and false promises are also common sales tactics among predatory MCA companies. They may try to obscure key details in complex contracts in order to trap business owners in punishing repayment terms.

Legal Options If You Were Scammed

If you feel an MCA company deceived or defrauded you, there may be legal avenues to fight back:

Breach of Contract

Review your MCA agreement to identify any breaches of contract, such as:

  • Charging rates or fees not outlined in the contract
  • Withdrawing non-credit card sales from your merchant account
  • Failing to provide detailed account statements

Document these violations and send formal written notice demanding the MCA company rectify the breaches. If they fail to comply, you may have grounds to terminate the contract and/or sue for damages. Consult a business litigation attorney to review your case.

Unfair Lending Practices

All states have laws prohibiting unfair lending practices. Common violations by predatory MCA companies include:

  • Misrepresenting rates, fees or other contract terms
  • Failing to adequately disclose key details
  • Charging excessive interest rates

If an MCA engaged in any shady lending practices, consider filing complaints with regulators like the Federal Trade Commission (FTC) and your state attorney general. These complaints help build cases against unscrupulous MCA companies.

Usury Law Violations

Most states have usury laws capping maximum allowable interest rates on loans. By classifying MCAs as merchant “purchases” rather than loans, companies try to skirt these laws and charge outrageous rates.

If the effective APR on your MCA exceeds your state’s usury cap, this contract violation may provide grounds to invalidate the agreement. An experienced lawyer can advise if usury law protections apply in your case.

Negotiating a Settlement

Even without clear cut legal claims, you may be able to negotiate a settlement. Consider contacting the MCA company directly to explain how the repayment terms cause financial hardship for your business. Be specific on how the payments impact your ability to cover expenses and stay afloat.
Then make a reasonable settlement offer, such as:

  • Lower interest rate
  • Reduced payment percentage
  • Longer repayment term
  • Partial debt forgiveness

Approach negotiations professionally and emphasize finding a mutually acceptable solution. While predatory MCAs rarely sympathize with struggling business owners, a well-structured settlement proposal may convince them to cut their losses. Having an attorney draft the settlement offer letter tends to carry more weight as well.

How to Report MCA Scams

If an MCA company defrauded your business, file complaints to warn others and help stop the abuse. Key agencies to contact include:

  • Federal Trade Commission (FTC) – Report fraud, deception and unfair practices: FTC Complaint Assistant
  • State Attorney General – File a complaint about violations of state consumer protection laws: Find Your State AG
  • Better Business Bureau (BBB) – Submit a complaint to inform the BBB’s rating for the company: BBB Complaint Form

Online reviews also help warn other businesses. After reporting the MCA company to the agencies above, leave detailed reviews on sites like Google, Yelp and the BBB explaining how this provider took advantage of you. Specific details on shady practices and losses suffered due to the MCA help substantiate complaints.

Alternatives to Predatory MCAs

Rather than resorting to a potentially abusive MCA, safer financing options for struggling businesses include:

SBA Loans

The Small Business Administration guarantees loans from approved lenders to help companies access affordable capital. Loan amounts up to $5 million are available for working capital, equipment, renovations and other uses.

Business Credit Cards

Business credit cards tend to offer lower interest rates than MCA cash advances. Terms of 0% interest for 6-12 months are common promotions. This temporary 0% financing gives breathing room to improve cash flow.

Invoice Factoring

With invoice factoring, you sell outstanding customer invoices to a funding company for immediate cash flow, often 75-90% of the invoice value. You then repay the balance (less the fee) once customers pay those invoices. This avoids taking on debt.

Hard Money Loans

Asset-based lenders provide fast financing using real estate, equipment, accounts receivable and other collateral as security. Interest rates are typically lower than MCA cash advances.


Crowdfunding platforms like Kickstarter and Indiegogo let you pitch your business to potential backers. By promoting your campaign to friends, family and followers on social media, you can potentially raise needed capital.

While not without risks, these options provide small business financing without the predatory practices common among some merchant cash advance providers.

The Bottom Line

Merchant cash advances saddle many struggling companies with crushing debt. If an MCA provider misled you or structured punitive repayment terms, take action. Consult an attorney to review your legal options, file official complaints, attempt direct negotiations for relief, and warn others through online reviews. There are also safer financing alternatives than dealing with predatory MCA companies when your business needs a cash infusion.

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