5 Defenses Your Attorney Can Use to Fight an MCA Lawsuit

The funder filed the complaint expecting a default judgment. An answer changes everything.

MCA lawsuits are built for speed, not scrutiny. The complaint alleges breach of contract. The relief demanded is the full accelerated balance plus fees and attorneys' costs. The summons imposes a response deadline that, for most unrepresented business owners, functions as a countdown to a judgment entered without opposition. The funder's legal strategy depends on the merchant not responding. When the merchant responds, and responds with competent representation, the case becomes a different proceeding entirely.

An attorney examining your MCA agreement has access to defenses that the agreement itself was designed to prevent you from discovering.

Usury: The Agreement Is a Loan

The most powerful defense available in MCA litigation is the argument that the agreement is not what it claims to be. If the contract functions as a loan (fixed daily payments, illusory reconciliation, full recourse through personal guarantees), New York's usury statutes apply. The civil cap is sixteen percent. The criminal cap is twenty-five percent.

An MCA with an effective APR of one hundred fifty percent, two hundred, or higher violates both. The remedy is not merely a reduction in the amount owed. Under New York's criminal usury doctrine, the entire agreement may be declared void and the obligation extinguished. The Yellowstone Capital settlement, which resulted in the cancellation of over five hundred million in merchant debt, confirmed the power of this defense at scale.

Your attorney will examine the reconciliation clause, the risk allocation, and the repayment mechanism. If the agreement fails the three-factor test, the usury defense transforms the litigation.

Failure to Reconcile: The Funder Breached First

If your agreement contains a reconciliation clause and the funder refused to honor it, ignored your request, or imposed requirements designed to prevent reconciliation from occurring, the funder may have breached the agreement before you did.

A breach-of-contract claim requires both a contract and a breach. If the funder's refusal to reconcile constitutes a material breach, your subsequent failure to make payments may be excused. The funder cannot enforce an agreement it violated.

The funder sues for breach. Your attorney responds: you breached first.

This defense is most effective when the merchant can demonstrate a documented reconciliation request that was denied or ignored. The paper trail is the defense. Send requests in writing. Retain copies. Document the funder's response. An attorney can use this record to reframe the litigation from the merchant's default to the funder's misconduct.

Improper Service and Jurisdictional Defects

MCA lawsuits are frequently filed in New York, regardless of where the merchant is located, because the contract specifies New York as the venue. The summons and complaint must be served in accordance with the rules of civil procedure applicable in the filing jurisdiction.

Service that is defective (mailed to the wrong address, served on a person not authorized to accept service, or accomplished through a method not permitted by the rules) can be challenged. If service was improper, the deadline to respond may not have begun running when the funder claims it did. A default judgment entered on the basis of defective service can be vacated.

Jurisdictional challenges are also available when the merchant has no connection to New York. If the contract's forum selection clause is unconscionable or if the merchant did not knowingly consent to New York jurisdiction, an attorney can move to dismiss for lack of personal jurisdiction.

In our experience, service irregularities appear in approximately one in four MCA lawsuits filed in New York. Funders rely on the merchant's failure to check. An attorney checks.

Fraud in the Inducement

If the terms of the MCA agreement were misrepresented at the time of signing (if the broker or funder representative described the advance in terms materially different from the written contract, if the factor rate or total repayment was understated, if the confession of judgment was not explained), the merchant may have a defense of fraud in the inducement.

This defense requires evidence: emails, text messages, recorded calls, or testimony about the representations made at signing. It is strongest when the oral representations directly contradict the written terms, which occurs more frequently than one might expect in an industry where deals are closed quickly and under pressure.

Fraud in the inducement does not merely reduce the amount owed. It can void the agreement entirely. And when asserted as a counterclaim, it creates liability for the funder.

Unconscionability

An MCA agreement may be unenforceable if its terms are so one-sided that no reasonable person, fully informed, would have agreed to them. This is the doctrine of unconscionability, and it operates on two dimensions: procedural (the circumstances of the signing, including whether the merchant had meaningful bargaining power or the opportunity to review the agreement) and substantive (the fairness of the terms themselves).

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An agreement with a factor rate that translates to an effective APR of three hundred percent, combined with a confession of judgment, a blanket UCC lien, a personal guarantee, and a waiver of defenses, presents a strong case for substantive unconscionability. When that agreement was signed under time pressure, without legal review, by a business owner who was told the product was "not a loan" and therefore less risky, the procedural element is established as well.

Courts apply unconscionability sparingly. But the MCA agreements that produce the most severe consequences for merchants are precisely the agreements most likely to meet the threshold. The defense exists for contracts like these.

The Defense You Choose Is the Future You Construct

Every defense described above shifts the trajectory of the case. The funder expected a default judgment. Instead, it faces a usury challenge, a reconciliation defense, a jurisdictional motion, a fraud counterclaim, or an unconscionability argument. Each one costs the funder time, money, and the risk that the court will examine the agreement it drafted and find it wanting.

Funders settle cases when the cost of litigation exceeds the expected recovery. Every meritorious defense increases that cost. An attorney who asserts multiple defenses simultaneously does not merely fight the lawsuit. The attorney creates the conditions under which the funder prefers resolution to continued exposure.

The first step is the response. The response must be filed within the jurisdictional deadline. If you have been served with an MCA lawsuit, contact an attorney today.