MCA Reduction Program: 6 Terms to Read Before Enrolling

The enrollment agreement for an MCA reduction program decides more about the outcome than the negotiator does. Funders will respond to the offers they receive, but the fee you owe, the account your money sits in, the instruction you give your bank, and the help you get if a funder sues were all fixed on the day you signed, usually on pages the sales call did not reach.

Six terms carry most of that weight. Read them in the order a dispute would expose them.

1. The Fee Base: Enrolled Debt or Money Actually Saved

Every relief program prices itself against some number, and the choice of number is the whole contract in miniature. The federal Telemarketing Sales Rule, in 16 CFR 310.4(a)(5), names the two structures regulators regard as honest when debts are settled one at a time. Under the first, the fee for each settled debt "bears the same proportional relationship to the total fee" as that debt bears to the entire enrolled balance, both measured at enrollment. Under the second, the fee "is a percentage of the amount saved," the percentage cannot change from one debt to another, and the amount saved is the difference between what was owed at enrollment and what was actually paid.

A hypothetical shows why the distinction matters. Suppose a business enrolls two advances, one with a claimed balance of $120,000 and one of $80,000, in a program whose total fee is stated as $30,000. Under the proportional method, settling the smaller advance earns the program $12,000, which is two fifths of the fee, whether the funder accepted $50,000 or $78,000. Under a savings method set at one quarter of the savings, the same $80,000 advance settled for $50,000 earns $7,500, and settled for $78,000 earns $500.

The first structure pays for enrollment. The second pays for results, and it depends entirely on the starting number, because a savings fee measured against an inflated balance (one that includes default fees the funder would have waived on request, or a figure the owner never checked against the debit history) produces savings that exist mostly on paper while the fee on them is paid in cash.

Ask the program to run both of your largest advances through its own formula, in writing, at two different settlement amounts. If it declines, you have learned the formula.

And ask what the fee is measured against when the funder's balance is disputed. The contract should say whose number controls, and most do not.

2. The Moment the Fee Is Earned

The same rule forbids a covered seller to collect any fee until it has settled or otherwise altered at least one debt under an agreement the customer signed, and the customer has made at least one payment under it. The FTC's staff guidance adds that hiring attorneys does not exempt a seller from that ban and that calling the fee a "retainer" does not permit collecting it early.

Here the rule runs out for many business owners. Section 310.6(b)(7) exempts telephone calls between a telemarketer and a business made to induce a purchase by that business, keeping only the Rule's misrepresentation provisions in force; those were extended to business calls effective May 16, 2024, and they reach claims about how much a customer may save. A program sold by phone to your company for your company's debts therefore appears to fall outside the advance fee ban, though counsel should make that call on the actual facts, and state law may impose its own limits. The consequence is plain enough. Whatever protection the federal timing rule would have given a consumer, a business receives only if the contract writes it in.

So read for the trigger. Enrollment, first offer, signed settlement, first payment under the settlement: the contract should name one of these, and the later one is the one you want.

3. The Account Where the Money Waits

Most programs ask the business to set money aside each week for settlements and fees. The Rule's conditions for that arrangement, written for consumers, make a sound checklist for anyone: the funds sit at an insured financial institution, the customer owns them and receives any interest, the administrator is not owned by or affiliated with the relief company, the administrator pays and takes no referral money, and the customer can withdraw at any time without penalty and receive everything not yet earned within seven business days.

Compare your draft against those five conditions one at a time. An account in the relief company's own name fails the third before anyone reads further.

4. The Stop-Payment Instruction and What Follows It

Some programs tell the owner to stop the daily debits. The instruction deserves its own reading, because stopping a debit and ending an obligation are separate events, and the contract with the funder usually treats the first as the start of a default. In the agreement quoted by the appellate court in the LG Funding case, decided by New York's Second Department in 2020 (181 A.D.3d 664), default made "the full uncollected purchased amount plus all fees due under the agreement, including reasonable attorneys' fees," immediately due and payable.

The bank side has its own rules, and consumer rules do not carry over: Nacha's guidance distinguishes the consumer unauthorized return code, available for 60 days, from the nonconsumer code, which runs two banking days. A business that tells its bank an authorized debit was unauthorized has created a second problem to sit beside the first. The program agreement should say who advised the stop, what the owner was told about acceleration and suit, and what the program does on the day a summons arrives, which is a question the next term answers or leaves open.

5. Cancellation Terms

Find the clause that says what you receive if you leave. It should address money in the settlement account, fees already earned under settlements completed, and any settlement still being paid, since walking away mid-schedule may revive the funder's full claim. A cancellation clause that refers you to another document has not answered the question.

6. Litigation Support, Defined by Who Signs the Answer

"Litigation support" appears in many enrollment agreements and is defined in few. The phrase can mean a referral list, a coordinated attorney who represents you, or a promise to keep negotiating while you find your own lawyer. These differ in cost and in consequence, since a company cannot answer a lawsuit by itself: in a 1993 decision, the Supreme Court in Rowland described the rule that a corporation appears in federal court through licensed counsel as settled for nearly two centuries.

Ask the program to name the lawyer who would file the answer, the client that lawyer would represent (the company, the guarantor, or both, whose interests may diverge), who pays the fee, and whether a new engagement letter is required. Canceled debt may also produce taxable income, subject to exclusions such as insolvency under 26 U.S.C. 108, so the program should say whether anyone will tell you that before the settlement is signed, or whether that conversation belongs to your accountant, which is fine as long as it happens.

What an Honest Program Puts in Writing

Delancey Street, a negotiator of business debt that describes itself as not a law firm, is one place to test all of this. Its first conversation with an owner is a confidential review of the MCA file at no charge, legal matters go to independently licensed counsel it coordinates with, and that review is a sensible place to ask for every term above in writing before anything is signed, including how its own fees are calculated. The address is delanceystreet.com.

The negotiator's skill is real, and it operates inside the contract you signed, which is the argument for reading that contract first.