7 Predatory MCA Tactics That Might Be Illegal in Your State

The Tactics They Rely on You Not Recognizing

The MCA industry occupies a regulatory space between lending and commerce, and that space has been, for most of its existence, largely unregulated. This is changing. State legislatures, attorneys general, and federal agencies have begun to address the practices that flourish in that gap. What follows are seven tactics commonly employed by MCA funders that may violate the law in your state. The word may is deliberate. Enforceability depends on jurisdiction, contract language, and the specific facts. But the awareness that these practices are not merely aggressive but potentially illegal changes the dynamic of every conversation you have with a funder.

Misrepresenting the Cost of the Advance

The first tactic is the most widespread. MCA funders describe the cost of their product using factor rates (1.2, 1.4, 1.5) rather than annual percentage rates. A factor rate of 1.4 on a six‑month advance translates to an effective APR that can exceed one hundred percent. California’s SB 1235, effective since 2022, and New York’s Commercial Finance Disclosure Law both require MCA providers to disclose the estimated APR, total cost of financing, and other terms in a standardized format. Funders that fail to provide these disclosures may be in violation. If your advance was made without an APR disclosure in a state that requires one, the contract’s enforceability is in question.

Filing Confessions of Judgment Against Out‑of‑State Borrowers

The second tactic was, until recently, standard practice. MCA funders routinely filed confessions of judgment in New York against borrowers who had never set foot in the state. New York’s 2019 amendment to CPLR Section 3218 banned this practice for out‑of‑state defendants. If a confession of judgment was filed against you in New York and you did not reside in New York at the time you signed the affidavit, the judgment may be void. Several states have followed New York’s lead, restricting or banning confessions of judgment in commercial financing contexts. Pending legislation in New York (Senate Bills S2305 and S3695, introduced in the 2025‑2026 session) would further restrict COJs by banning them for debts under five million dollars and prohibiting their inclusion in any financial product or service contract.

Debiting More Than the Agreed Amount

The third tactic is simple and documented. Some funders debit more from the business’s bank account than the MCA agreement authorizes. The FTC’s case against RCG Advances (which resulted in a twenty million dollar judgment and a permanent industry ban for the operator) established that unauthorized debits violate the FTC Act and the Gramm‑Leach‑Bliley Act. If your bank statements show withdrawals exceeding the daily amount specified in your agreement, the funder has breached the contract, and you may have a claim against them. Review the statements. The discrepancy is often small on any given day and large over the life of the advance.

Threatening Physical Violence or Criminal Prosecution

The fourth tactic should not require enumeration, and yet it persists. The RCG Advances case documented threats of physical violence directed at business owners who fell behind on payments. The court described the operator’s conduct as exhibiting utter disregard and contempt for consumers. Threatening a debtor with violence or with criminal prosecution for a civil debt is illegal in every state. It is a violation of the Fair Debt Collection Practices Act (if the funder qualifies as a debt collector under that statute) and of state consumer protection laws. If a funder has threatened you with harm, or stated that you will be arrested for failing to pay, document the threat and report it.

Refusing to Reconcile When Revenue Declines

The fifth tactic is subtler and more common. Many MCA agreements contain a reconciliation provision that requires the funder to adjust daily payments when the business’s revenue declines. This provision is what distinguishes a true purchase of future receivables from a disguised loan. If the funder refuses to reconcile (continues to demand the same daily payment regardless of your actual revenue), courts have held that the arrangement functions as a loan, subjecting it to usury laws. In New York, a Westchester County court vacated a confession of judgment and voided an MCA agreement on these grounds, examining the funder’s actual servicing practices rather than the contract’s self‑description. The contract said purchase. The practice said loan.

Contacting Customers Without Valid Assignment

The sixth tactic involves your customer relationships. A funder that contacts your customers to redirect payments must have a valid, authenticated assignment of receivables under UCC Section 9‑406. A letter sent on generic letterhead, referencing an agreement the customer has never seen, without proper authentication, may not create an enforceable obligation. If the funder has contacted your customers without meeting these requirements, the notice may be challengeable, and the funder may have committed an unfair business practice under your state’s consumer protection statute.

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Requiring Personal Guarantees While Advertising No Collateral

The seventh tactic is a contradiction that lives inside the funder’s own marketing. Many MCA companies advertise no collateral required and no personal guarantee on their websites and in their marketing materials, then require both in the actual agreement. The FTC found this practice deceptive in the RCG Advances case, where the funder’s website stated no personal guaranty or collateral while the contracts required both. If the representations that induced you to apply differ from the terms you were asked to sign, the agreement may be subject to challenge on deception grounds.

These seven tactics are not exhaustive. The MCA industry invents new ones with regularity. But the pattern is consistent: the funder relies on the borrower’s ignorance of the law, the borrower’s inability to afford legal counsel, and the speed with which enforcement mechanisms can be deployed. Each of these assumptions can be disrupted. The first disruption is knowing that the tactic may be illegal. The second is consulting someone who can determine whether it is.