How to get out of an MCA
If you’re stuck in a Merchant Cash Advance (MCA), you probably’ feel like you’re drowning in debt. But there’s hope, and yes, attorneys’ can win these cases—sometimes, even a partial win. First thing you need to know is that MCA’s are NOT traditional loans. MCA’s are agreements where a lender buys a percentage of your future credit card sales. No’ typical loan rules apply. Many MCAs operate in legal gray areas. That’s where lawyers step in to argue that certain agreements are unfair or even illegal.
Usury Law
One law that could save you is usury law. These laws cap interest rates on loans. If your MCA is structured like a loan, it could be breaking state usury limits. This happens A LOT. Example: New York’s Usury Law caps interest rates at 16%. If your MCA’s fees add up to more, your attorney will argue it violates this law. Attorneys’ will review whether your MCA violates the Truth in Lending Act (TILA). MCAs often dodge disclosure rules, but if they operate like loans, they must follow TILA’s requirements.
Unconscionability and Precedents
Now, there’s a major argument MCA defense lawyers will use—unconscionability. This legal doctrine says contracts that are too unfair won’t be enforced by courts. Courts look at the power imbalance in MCA contracts—did the lender have more power and exploit it? This doctrine can turn a case in your favor, even if it’s a partial win. Precedent time: In New York, the case Fleetwood Services v. Ram Capital Funding challenged an MCA’s enforceability due to unfair terms. Your attorney will cite cases like this to bolster your defense.
Confessions of Judgment (COJ)
MCA attorneys’ will also target confessions of judgment (COJ). Some states have banned COJs entirely, and lawyers will argue they violate your rights. For example, New York banned COJs for small businesses in 2019. So, if your MCA includes a COJ, your lawyer can argue it’s illegal in states like NY. Fraud could be another angle. If the MCA company misrepresented key facts—like how high the fees would be or how quickly they’d withdraw payments—this opens up more defenses.
Real Life Cases and UCC Filings
A real-life case? Yellowstone Capital LLC v. Centurion. The court found that the MCA company failed to disclose material terms, ruling in favor of the borrower. MCA attorneys also challenge the Uniform Commercial Code (UCC) filings. MCA companies often file a UCC-1 lien, which locks up all your business assets. Your lawyer will check if the UCC lien was properly filed. If it wasn’t, the lien may be invalid, giving you back some control over your assets.
State-Specific Laws
California law provides a key protection: If the MCA is operating like a loan, attorneys’ will argue that it needs to follow California’s Finance Lenders Law. This could dismantle the MCA. Other states have similar protections. In Texas, for example, loan sharks can face penalties under Texas Finance Code if their MCA crosses into loan territory. Attorneys will investigate unlicensed lending. Many MCA providers aren’t licensed, which makes them operating illegally in some states. Example: In Illinois, lenders must have a license under the Illinois Small Loan Act. If the MCA doesn’t have one, it could be thrown out.
Recharacterization and Partial Victories
Now, the legal concept of recharacterization is HUGE. This is when a court treats the MCA as a loan, forcing the company to comply with lending laws it was trying to avoid. To win recharacterization, lawyers’ will dive into how your MCA was structured. Was it really a loan in disguise? If yes, the court could void parts of the MCA. The argument your attorney will make here is simple: If the MCA looks, feels, and acts like a loan, it needs to follow loan laws, such as interest rate caps. Partial victories are common in MCA defenses. Your attorney might not completely void the contract, but they could reduce the debt, slash fees, or extend payment terms.
Arbitration and Breach of Contract
Let’s say your MCA charged you illegal interest—your attorney could argue that those fees get wiped out. Even a partial win can lighten the load. Some MCAs include arbitration clauses, which force disputes out of court. Your lawyer will check if these clauses were enforced fairly—many times, they weren’t. If arbitration is stacked against you, attorneys can challenge it based on Federal Arbitration Act violations, getting your case back in court. A lawyer might also look for breach of contract claims. Did the MCA company change payment terms mid-agreement? That’s a breach that could invalidate parts of the contract.
More Case Studies and Consumer Protection
A case in Florida found an MCA contract breached due to sudden fee increases, reducing the debtor’s liability. Your attorney could cite cases like this for leverage. Another important law is consumer protection statutes. Some states, like California, have strict rules that can be applied to businesses in predatory MCA situations.
Federal Law and Extortionate Credit Transactions
Finally, attorneys’ can argue extortionate credit transactions under federal law. If your MCA is found to be wildly unfair or exploitative, it could face scrutiny from federal authorities. Example: Under the Racketeer Influenced and Corrupt Organizations Act (RICO), MCA companies can face penalties if they engage in criminal activity like extortion.