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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 of MCA agreements are often predatory, with exorbitant interest rates and aggressive collection tactics. If your business is struggling with MCA debt, specialized legal defense may be needed.

How MCAs Work and Why They Can Be Problematic

A merchant cash advance provides a business with a lump sum of capital in exchange for a percentage of future credit card sales. It is not technically a loan, so MCA companies can bypass state laws capping interest rates. However, the equivalent annualized interest rate often exceeds 100%.While MCAs provide fast money with minimal eligibility requirements, the payback can quickly become unmanageable. Many companies soon find themselves owing two to three times the original advance amount. The MCA company may then resort to daily debits from the merchant’s bank account or litigation to recoup the debt.

Common Abusive MCA Company Tactics

MCA companies often engage in unethical tactics to pressure merchants into signing unfavorable contracts and to maximize collections. Some common issues include:

• Misrepresenting or obscuring key terms of the agreement
• Charging exorbitant interest rates equivalent to over 100% APR
• Requiring personal guarantees making business owners personally liable
• Aggressive, harassing collections activity
• Attempting to garnish accounts or assets without proper legal basis

Merchants may feel intimidated and unsure of their rights when an MCA company plays hardball. The right legal advice can help business owners stand up to bullying.

How an MCA Defense Attorney Can Help

Defending against MCA debt recovery involves scrutinizing the original agreement for deficiencies and predatory terms. An attorney can also halt collections activity that violates state and federal law. An MCA defense lawyer may be able to:

• Negotiate a settlement for a fraction of the claimed amount
• Invalidate all or part of the agreement due to unlawful terms
• Block access to merchant accounts and levies against personal assets
• Counter sue for violations of lending laws or harassment
• Seek damages for the MCA company’s wrongful conduct

With an attorney’s assistance, it is possible to resolve MCA debt on much more favorable and affordable terms.

Key Defenses Against MCA Companies

MCA companies often overreach in their collection attempts, providing useful angles for legal counter attacks. An attorney can review the agreement to spot contractual deficiencies. Some potential defenses include:

• Usury violations – Interest rates over state limits may invalidate the contract
• Deceptive practices – Misrepresentations could void all or part of the debt
• Breach of contract – Collecting more than the terms allow is actionable
• Improper debt collection tactics – Harassment violates federal and state law
• No personal guarantee – Owners cannot be held personally liable absent a valid PG
• Arbitration clause – Seeking assets without arbitrating first may be unlawful

The MCA agreement may have other weaknesses providing leverage to invalidate the debt or stop collections activity.

Steps to Address an MCA Company Lawsuit

If an MCA company has already commenced litigation, prompt legal action is advised. An attorney can remove the case to federal court if the MCA company’s state court choice seems unfavorable.The attorney can also petition the court to halt any interim collections activity pending resolution. This can stop account levies or attempts to freeze assets.Initial legal priorities typically include:

• Remove to federal court (if complaint filed in state court)
• File an answer denying allegations
• Send cease and desist letter regarding collections
• Petition for injunctive relief to stop collections activity
• Assert counterclaims for usury, fraud, harassment, etc.
• Launch discovery process to obtain company documents

An aggressive posture combining defense and offense is generally advisable when sued by a predatory MCA company.

The Benefit of Experienced Legal Representation

Navigating a business debt dispute without an attorney is extremely difficult, especially when the opposing party utilizes unethical tactics. MCA companies exploit lack of legal knowledge and intimidate business owners into accepting unreasonable repayment terms.The benefits of working with an MCA defense lawyer include:

• Recognizing improper conduct that violates law
• Leveling the playing field against seasoned collections attorneys
• Forcing the MCA company to prove and justify their claims
• Understanding complex contractual terms
• Presenting air tight arguments and evidence to the court
• Negotiating the most favorable possible resolution

Do not wait to engage specialized legal counsel if your business is struggling with potentially predatory MCA debt. The sooner you initiate a defense, the more leverage can be obtained. A skilled attorney can likely negotiate a fair settlement or defeat the MCA company’s claims altogether. Fight back and stand up for your business interests.

About Delancey Street’s MCA Defense Practice

Delancey Street maintains a dedicated MCA Defense Practice assisting small business clients. Our seasoned attorneys have extensive experience fighting back against predatory merchant cash advance companies.We regularly help business owners reduce or entirely eliminate abusive MCA debt. Our track record of favorable settlements and litigation wins deters MCA companies from pursuing unfair collections. Some examples of our successful outcomes include:

• Negotiated 90% reduction from $142k claimed MCA debt
• Won motion invalidating $104k MCA contract due to usury violation
• Secured voluntary dismissal of $83k lawsuit after filing counterclaims
• Halted all collections activity against client accused of owing $210k

Our MCA defense representation includes:

• Thorough review of MCA agreement terms and collections activity
• Demand letters asserting defenses and client’s rights
• Settlement negotiations leveraging identified weaknesses
• Court filings obtaining injunctive relief halting collections
• Aggressive defense posture against MCA company lawsuits
• Counter claims against MCA companies for harassment, fraud, etc.

Contact our office for a free consultation if you are facing MCA debt collection pressure. We will discuss your situation, provide an honest assessment, and outline your defense options. Our MCA defense attorneys are always prepared to go to court when necessary to protect client interests.

Common Situations Leading to MCA Debt Problems

While the predatory practices of MCA companies are largely to blame for small business debt disputes, there are some inherent vulnerabilities that attract merchants to these products in the first place. Understanding the root causes can help in avoiding or addressing similar problems down the road.

Unexpected Slowdown in Business Activity

Many companies turn to MCAs after experiencing an unexpected disruption in business activity and revenue flows. Seasonal slowdowns, losing a major client, marketplace changes, or events like COVID-19 can suddenly leave companies strapped for cash. Business budgeting rarely accounts for drastic worst-case scenarios.Without adequate savings or access to traditional financing, MCAs may feel like the only option to stay afloat. But a temporary lull often turns into a long-term debt spiral.Better contingency planning is needed, such as:

• Maintaining a 12+ month operating reserve
• Seeking an affordable bank line of credit
• Identifying alternative revenue streams
• Having a disaster recovery plan ready to implement
• Avoiding large capital expenditures without guaranteed ROI

No business is immune to periodic turbulence. Savvy owners take proactive steps to manage cash flow fluctuations without resorting to predatory MCA products.

Overexpansion and Excess Spending

Another scenario that leads companies down the MCA path is overexpansion. This may involve:

• Moving into larger office space
• Hiring too aggressively
• Opening secondary locations
• Launching expensive marketing campaigns
• Investing in unproven technologies
• Splurging on luxury purchases

When fixed overhead swells without a corresponding revenue lift, MCAs offer an easy way to fund unchecked ambitions.Excess spending often reflects unrealistic optimism or ego on the business owner’s part. Seeking validation by projecting false success via growth and flashy accessories can get companies into financial trouble.Tempering grandiose visions with fiscal prudence is the smarter approach for sustainable expansion. Owners should focus more on fortifying the core business than chasing flashy excess.

Lack of Financial Controls and Visibility

In some situations, an apparent need for quick financing reflects deficiencies in financial practices versus circumstances alone. Companies lacking real-time visibility into cash flows or without firm spending controls are more prone to seek outside capital injections like MCAs.Warning signs may include:

• No updated budget tracking actual revenue and costs
• Expenses inaccurately or infrequently recorded
• Paying bills based on bank balance rather than projections
• No approval process for large outlays
• Invoices frequently paid late
• Financial reports more than 30 days old

Strong financial controls and predictable forecasts are essential for any growing company. Relying on intuition instead of real-time numbers puts leadership in the dark.Investments in accounting staff and reporting tools are necessary to inform smart decisions. Financial weaknesses will eventually catch up to any organization.

Key Takeaways

While abusive MCA company tactics account for many small business debt disputes, underlying financial issues often play a role as well. Steps to reinforce fiscal foundations will help avoid reliance on predatory financial products in the future, such as:

• Build a 12+ month operating reserve
• Seek affordable and transparent financing
• Maintain realistic growth projections
• Closely monitor revenue and costs
• Institute strict financial controls
• Require ROI analysis for capital outlays

Strengthening core operations, planning for contingencies, and instilling financial discipline reduces vulnerability. Companies can then grow steadily without risking a liquidity crisis requiring MCA intervention.Partnering with a qualified accountant or CFO advisor can provide an independent assessment of business finances. Identifying and addressing weaknesses and gaps proactively is the wisest course of action.

Defense Strategies When Facing MCA Harassment

Unscrupulous MCA companies frequently resort to harassment and unethical tactics to coerce borrowers into accepting unreasonable repayment terms. Facing aggressive collections calls, lawsuits, and account levies, many merchants feel powerless.However, federal and state laws provide consumer protections against many debt collector abusive practices. And the MCA contract itself may contain weaknesses providing leverage.Below are key strategies to defend your rights when confronted by an intimidating MCA company:

Issue a Cease and Desist Letter

Immediately issue a formal letter demanding the MCA company stop all direct collections contact with your business. Under the Fair Debt Collection Practices Act, they must route all further communication through your attorney rather than continue harassing you directly.Any attempt to collect the debt by contacting you after receiving the C&D letter constitutes unlawful harassment. Keep a record of every instance to support FDCPA counter claims.

Record Collection Calls

Instruct staff to keep detailed notes of any MCA debt collection calls, including the date, time, phone number, agent name, content, tone, threats made, etc. In many states, you can even record these conversations (with notice) as evidence of harassment, profanity, shouting, racial comments, or other abuse.

Alert the Authorities

File complaints reporting unscrupulous collections practices with regulators like the Consumer Financial Protection Bureau, Federal Trade Commission, and state attorney general. These agencies can choose to investigate and sanction unlawful MCA company conduct.

Seek Injunctive Relief

Petition the court to issue a restraining order if the MCA company attempts aggressive interim collections activity like freezing accounts or garnishing wages. An injunction forces them to halt collections until the dispute is resolved on the merits.

File FDCPA Counter Claims

If there is clear evidence the MCA company has violated federal or state fair debt collection laws, serve them with a counter claim seeking civil damages. Merely threatening FDCPA claims often convinces them to moderate their behavior.

Negotiate Strict Settlement Terms

Make any settlement offer contingent on: a full release of liability, removing credit bureau reporting, return of levies, and assigning the contract to your company to prevent resale. Any resolution should permanently end the MCA relationship.While their intimidation tactics are scary, MCA companies ultimately have more exposure under the law. Don’t let fear or lack of knowledge lead to acquiescence. Enlist an attorney to proactively defend your rights.

Using Bankruptcy As An MCA Defense Tactic

As a last resort, business bankruptcy filings may be an option worth exploring to resolve MCA debt obligations. While certainly a more drastic measure, seeking Chapter 7 or Chapter 11 bankruptcy protection can provide immediate relief and a path to discharge debts.

How Business Bankruptcy Proceedings Work

There are a few types of business bankruptcy options, each with pros and cons to weigh:Chapter 7 Bankruptcy

• Stops collections activity through automatic stay
• Trustees liquidates non-exempt assets to pay creditors
• Remaining qualifying business debts are discharged
• Company ceases operations and closes

**Chapter 11 Bankruptcy **

• Provides continued business operation
• Company assets not liquidated right away
• Debtor proposes structured repayment plan
• Certain debts can be discharged entirely

Chapter 13 Bankruptcy

• Intended for sole proprietor “DBA” businesses
• Similar to individual bankruptcy
• Repayment plan to creditors over 3-5 years
• Only sole proprietorship debts discharged

Consulting a qualified bankruptcy attorney is highly recommended before pursuing either restructuring or closure through bankruptcy court.

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IF YOU’RE LOOKING FOR A BUSINESS DEBT SETTLEMENT COMPANY, VISIT DELANCEY STREET. CLICK HERE NOW.

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