7 Rights You Have When an MCA Company Sues You (That They Do Not Want You to Know)

The lawsuit is designed to make you feel like the outcome has already been decided. It has not.

MCA funders sue merchants with regularity and with speed. The complaint is typically a breach of contract claim, filed in a jurisdiction specified by the agreement (most often New York), styled in language that implies the funder's entitlement to the full accelerated balance is beyond dispute. The serving of process is itself a pressure tactic: the clock begins running the moment you receive the summons, and in New York, you have thirty days to respond (twenty if served by hand). The funder knows that many business owners, overwhelmed and unrepresented, will not respond in time.

That failure to respond produces a default judgment, which is a judgment entered without any consideration of your defenses, your rights, or the enforceability of the agreement. The funder wins by absence, not by argument.

You have rights. They are specific, they are substantial, and they exist whether or not the funder acknowledges them.

The Right to Challenge the Agreement as a Disguised Loan

New York courts apply a three-factor test to determine whether an MCA is a true purchase of future receivables or a loan subject to usury limits. The court examines whether the agreement contains a genuine reconciliation provision, whether the funder lacks recourse if the merchant declares bankruptcy, and whether the funder bears meaningful risk tied to the merchant's revenue.

If the agreement fails this test, it is a loan. And a loan with an effective APR of one hundred, two hundred, or eight hundred percent violates New York's civil usury cap of sixteen percent and its criminal usury cap of twenty-five percent. The remedy is not a reduction in the amount owed. It is the potential voiding of the agreement entirely.

The January 2025 Yellowstone Capital settlement, which resulted in a billion-dollar judgment and the cancellation of over five hundred million in merchant debt, was built on this precise argument. The advances were loans. The rates were usurious. The contracts were unenforceable.

You have the right to make the same argument about your contract.

The Right to Demand Reconciliation

If your MCA agreement contains a reconciliation clause, and virtually all of them do, you have the contractual right to request an adjustment to your daily payment when your revenue declines. This right is not contingent on the funder's goodwill. It is a term of the contract they drafted.

If the funder refused to reconcile, or ignored your request, or imposed documentation requirements designed to prevent reconciliation from occurring, their conduct supports the argument that the clause was illusory. An illusory reconciliation clause is evidence that the agreement is a loan, not a purchase of receivables.

The clause was written to defeat a legal challenge. It was not written to be used.

Your right to reconciliation exists independently of the lawsuit. But it is most powerful when asserted as a defense within it. The funder sues for breach of contract. You respond that the funder breached first, by refusing to honor the reconciliation provision their own agreement required.

The Right to Challenge a Confession of Judgment

If the funder obtained a judgment against you through a confession of judgment, you have the right to move to vacate that judgment. The grounds include improper jurisdiction (the 2019 New York amendments prohibit COJ filings against out-of-state businesses), fraud or misrepresentation in the affidavit of default, procedural deficiencies in the filing, and the invalidity of the underlying agreement.

Confessions of judgment are vacated with regularity. The funder prefers that you do not know this. The entire utility of a COJ depends on the merchant's belief that the judgment is final and unassailable. It is neither.

The Right to Dispute the Amount Claimed