ACH Revocation Letter for an MCA Funder: Template and Contract Risks

ACH revocation does not cancel your MCA, and it does not terminate your repayment duties. What a revocation does is simply give you the power to stop automatic payments (or drafts). By stopping the payments you may well trigger default, even though the outstanding balance remains unpaid.

To revoke ACH authorization, send a letter to the funder, not your own bank; that’s what Nacha (the national ACH body) advises. Read the contract first. It all depends on what the contract says. But do not use the letter in a vacuum.

A stop payment, by contrast, is often used to stop one particular payment from going through. Usually you send stop payment to your own bank. An ACH revocation effectively cancels all future payments.

For business accounts, Nacha rule 3.7.2 says your bank must honor a valid stop order. Since September 17, 2021, the business stop period is a minimum banks can extend, and any renewal does not need to be written.

ACH Revocation Letter

The letter should ask that the funder or loan company stop making future cash advance ACH withdrawals, and should list your loan or advance account number. You also want the letter to be clearly dated, and signed, and should include your business address and phone number.

A simple version looks like this: [Your Name Here] [Your company name, if any, here] [Address] [date] To: [funder's name and address] RE: Revocation of ACH Authorization This is a letter to revoke ACH authorization for any debits to my account [account number]. Do not honor any future drafts against my bank account. Effective Date: [date] Merchant’s Signature: [Your Signature]

Be sure to keep a copy of the letter for your records. Before it goes out, by all means read your loan contract; it may have directions about how to revoke authorization.

Ready for the Consequences

Sending this letter is like kicking a rock over the top of a cliff and watching it fall. You will want to be ready for the consequences. For example, if you successfully revoked your authorization of ACH debits, and the funder’s automatic debits are not honored, that by itself may be a default under the terms of the MCA, or loan contract. Under some contracts, there may even be an acceleration clause, meaning the full unpaid balance comes due.

A personal guarantee can become enforceable after there is an alleged default. The recourse which the MCA lender can take may include informing you that you are in default, such as by sending a demand letter (or many), or suing on the personal guarantee. Your personal guarantee may remain in effect; and receivables may still be pledged as collateral.

In some contracts, there may also be a forum selection clause. Watch out if you operate in Miami and there’s a venue clause putting the lawsuit in New York (of all places). If you ignore a court lawsuit in the lender’s home state, a default judgment could be entered against you even if you have a defense. You never want to ignore a summons and complaint; but you need to answer it properly, which means seeking legal help.

You can cancel your ACH authorization, but you should not try to rescind it by accusing the creditor of fraud in making the charge. You do not want to call authorized debits “fraud” without a really good reason. More importantly, if your complaint to the bank says “fraud” - but the payment was not fraudulent - there can be serious consequences.

A real unauthorized withdrawal from a business account is a different issue. The key is being quick. The bank must return it (if it does), no later than two banking days after the settlement date. Importantly, Reg E does not cover business accounts, at all. Consumer finance advice published online usually does not fit.

Reconciliation clauses in MCA contracts offer another route. When receipts go down, you can ask for ACH debits to be proportionately reduced. You should request it in writing. This keeps things peaceful and provides solid evidence for dispute resolution or for a dispute lawyer.

New York judges have ruled that to determine if an MCA is a loan, you have to see if it has (1) no reconciliation, (2) a finite term, and (3) recourse if the merchant goes bankrupt. Now a court wants to see real evidence of an actual attempt to reconcile, not just an appearance, in Apollo Funding.

Sometimes a merchant hopes to revoke the authorization, close the account, and reopen a new account to fool the MCA into not debiting any more money. Again, your MCA may take this as a breach. You should consult with an attorney before deciding to close an account.

Perhaps you have more than one, or maybe even three or four stacked MCAs. Simply stopping one of them may still leave the others to run as scheduled. ACH revocation of only one agreement may not solve cash flow problems, and you should look at each and every contract together.

Take a Moment to Read Your Contract

A lot of merchants would like to simply send out the ACH revocation letter without taking any additional steps. However, you should take a moment to read your contract before you do. You want to see if there is anything which could possibly go wrong. Collect your bank statements. If the ACHs were being taken when revenues were going down, check the reconciliation clause. If you have a personal guarantee, start to get familiar with it, as you will want to study it closely and perhaps pass it on to your lawyer. Be ready for a default letter, a demand letter, and a lawsuit.

If the company is not willing to work something out, then revoking ACH can be something to consider - but first you should also call an attorney to see if there may be repercussions, and what they are.