MCA Defense Lawyers Provide Expert Assistance with Merchant Cash Advance Debt

Merchant cash advances (MCAs) can provide quick access to capital for small businesses. However, the terms are often predatory and can leave business owners trapped in cycles of high-interest debt. If you took out an MCA and are now facing aggressive collection attempts or even threats of criminal charges, you need an experienced legal team on your side.

How MCAs Work and Why They Can Be Problematic

A merchant cash advance provides an upfront lump sum to a business in exchange for a percentage of future credit card sales. There are typically no fixed monthly payments. Instead, the MCA company takes a set percentage of daily credit card receipts until the advance has been repaid in full plus fees and interest equivalent to an annual rate over 50-90%.This open-ended structure allows companies to extract 2-3X the original advance amount. Businesses can quickly find themselves owing far more than they anticipated. The contracts also often contain hidden fees and traps that lock companies into expensive debt spirals.Once indebted, owners face endless harassment as MCA funders leverage aggressive collection tactics to seize as much money as possible. They may:

• Impose arbitrary payment increases
• Freeze bank accounts
• File confessions of judgement
• Send breach of contract notices
• Threaten criminal charges like fraud

Fighting back requires experienced legal counsel. An MCA defense lawyer can assess your situation, identify constructive solutions, and protect your interests so you can move forward.

Common MCA Abuses That Require Legal Defense

MCA companies exploit loose government regulations to trap business owners in punitive contracts without adequate protections. Some of their most egregious practices include:

1. Deceptively High Interest Rates

Merchant cash advance companies avoid usury laws that cap interest rates by structuring their products as cash flow purchases instead of loans. This technicality allows them to charge equivalents of 50-90%+ APR without disclosing the true cost.

2. Misrepresenting Terms

Brokers routinely mislead applicants about expected repayment amounts, withdrawal frequency, and contract duration. Important stipulations around acceleration, default, and other fees are buried in fine print.

3. Abusive Collection Tactics

When accounts fall behind, MCA funders have free reign to freeze assets, increase payments without warning, or send intimidating legal notices. Some even file trumped-up criminal complaints accusing business owners of theft and fraud.

4. Confessions of Judgement

Many MCA agreements contain confessions of judgement that allow funders to obtain a judgement against borrowers without any notice or hearing. This gives them broad authority to seize assets or pursue other legal actions.Defending against predatory MCA companies requires taking quick legal action. At Delancey Street, our team of seasoned lawyers has extensive experience fighting back against abusive funders and negotiating better outcomes for struggling business owners.

How an MCA Defense Lawyer Can Help

Delancey Street‘s MCA defense team takes an aggressive yet strategic approach to protecting our clients’ rights and limiting further damage from predatory contracts. Our layered defense strategy typically includes:

1. Demanding Validation of Debt & Freezing Collections

We start by forcing MCA companies to legally validate debts and immediately cease all collection activities. This stops the bleeding and buys critical time.

2. Identifying Contract Violations

Next, our team conducts an in-depth analysis of the MCA agreement searching for inconsistencies, disclosure failures, or other technical violations. Any violations provide leverage to invalidate the contract and discharge the associated debt obligations.

3. Negotiating Settlements & Debt Relief

Based on our findings, we directly engage MCA companies to negotiate reasonable settlements or debt relief arrangements. Tactics may involve:

• Settlement discounts – We compromise on a lower fixed payoff amount to fully settle debt obligations. Discounts of 40-60%+ off the claimed balance are common.

• Term modifications – We can sometimes negotiate extended repayment terms or alternate structures that reduce cash flow impact. Options include lower fixed payments, lower rates, forbearance periods, or partial debt forgiveness.

• Contract rescission – Finding material violations related to deceptive marketing, lack of transparency, or failure to fulfill contractual duties can justify invalidating the entire MCA agreement. This legally discharges all associated repayment obligations.

While outcomes vary case-by-case, our firm has successfully reduced or eliminated millions in disputed MCA debts through settlements or contract rescissions. The sooner you take action, the more leverage we have to fight back against predatory funders and resolve balances on favorable terms.

Why Small Business Owners Get Trapped in Predatory MCA Agreements

Merchant cash advances target vulnerable small business owners struggling with cash flow gaps. Their aggressive marketing and flexible approval processes provide quick relief but gloss over the punitive long-term consequences. Reasons owners fall into these debt traps include:

• Emergency financing – Most seek MCA financing to cover short-term cash crunches from slow accounts receivable, seasonal dips, supply chain disruptions, or emergency expenses. Quick access to capital is appealing.
• Limited financing options – Conventional lenders shy away from riskier businesses. MCA products help fill gaps by focusing on cash flow rather than credit scores or business viability.
• Deceptive broker practices – Independent brokers overpromise to secure sales. Tactics include downplaying costs, obscuring contract details, making unrealistic revenue projections, or outright lying.
• Contract loopholes – Fine print contains hidden fees, rates exceeding 100% APR, and other traps that dramatically inflate balances. Vague language also allows funders to increase payments without warning.

These factors converge to put business owners in difficult positions. MCA companies leverage desperation and confusion to structure agreements that extract maximum value while exposing signers to significant financial risk.

Top Defenses Against Abusive MCA Companies

When MCA contracts spiral out of control, our first priority is stopping collections activities so we can build legal arguments that permanently relieve debts. Top defenses against predatory funders include:

Unconscionability

If agreements are unjustly one-sided or contain provisions that “shock the conscience”, courts may deem them unconscionable and unenforceable. This can discharge associated debts.

Usury Violations

Usury laws regulate maximum allowable interest rates lenders can charge. MCA companies skirt these restrictions by classifying advances as purchases instead of loans. However, we can often successfully argue effective rates violate state laws.

Breach of Covenant of Good Faith

All contracts require parties to deal fairly and ethically with each other. Hidden fees, misrepresented terms, or abusive collection practices violate good faith covenants. This can invalidate contracts and associated debt obligations.

Fraudulent Inducement

Intentionally misleading applicants about costs or other material terms during marketing or negotiations can constitute fraudulent inducement. This provides grounds to nullify contracts and repayment responsibilities.The complexity of MCA agreements requires guidance from experts well-versed in contract law, consumer protections, and financial regulations. Our team identifies the strongest custom arguments for each unique situation to put borrowers in the best position during settlement talks or litigation.