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.
