Can an MCA Funder Have You Arrested? Six Distinctions About Collection Threats

Can the funder actually have you arrested? No. But they can have you served, and as an MCA funder can’t have you arrested for non-payment, these funders might try to use the veiled threat of arrest to coerce a struggling borrower into paying the full, contractual balance owed. Some funders don’t threaten to have you arrested but instead insinuate that the local police might become involved, scaring you into capitulating and paying whatever has been demanded. There’s a lot of confusion on this subject, and it’s important to know where the lines are. Here are six distinctions you should know about funders and threats to arrest when you are behind on payments and the funder is looking to collect.

The answer depends on whether fraud has been committed, which we’ll discuss momentarily. Generally, though, no. The default on a contract, whether it be commercial or otherwise, is not a criminal matter. Payment delinquency is not a crime. With no instance of criminal conduct or fraud, it is not considered theft to have an unpaid debt.

Funders will pose the word “arrest” in a vague and ambiguous way but then not outright say that you will be arrested for nonpayment. You might not be savvy enough to understand the distinction, and you might even take this coercive language as a form of genuine legal threat, so the collector may get their way. If you have a consumer debt, such as a credit card or personal loan, the Fair Debt Collection Practices Act provides pretty strong protections against these types of threats. While the FDCPA generally prohibits collectors from implying arrest unless it is both lawful and intended, the FDCPA is applicable only to consumer debts. Most merchant cash advances fall under the category of business debt, meaning that they are not covered by the FDCPA, so the limitations don’t apply to them.

If you do not fully understand these collections tactics, an unethical funder may take advantage of your lack of knowledge. They can get pretty harsh with their words and scare you into making rash decisions, sometimes, even with unscrupulous, unlawful threats. In 2021, the FTC filed a complaint against MCA firm RCG Advances (Richmond Capital), whose debt collectors allegedly threatened borrowers who were behind on their payments. Richmond Capital would threaten people with bodily harm, according to the FTC, even going as far as to threaten to break people’s jaws.

As for the FDCPA gap, as of January 2025, a new bill extended California’s Rosenthal Fair Debt Collection Practices Act to also apply to commercial or business debts under $500,000, MCAs included. The Rosenthal Act has most of the same protections of the FDCPA, so this is important to know if you have a California business address.

An Unpaid Advance Can Become Fraud

The legal line is drawn at the word, fraud. An unpaid advance can become fraud if the borrower purposefully deceived the funder into funding them. An example of this could be the deliberate provision of inaccurate financial or banking records to the funder. In these situations, the collection activity could move into the criminal arena.

It’s up to the Court, Not the Lender

The court might issue an order for your arrest and take you into custody if you disregard the court’s order. It’s important to not confuse the order of a court of law with the threats of a merchant funder. The court is the entity authorized to issue arrest warrants and orders, not the funder or their hired collections company. The Consumer Financial Protection Bureau says that after a lawsuit, you could be arrested if a judge issues a warrant for your arrest. This can happen if you ignore an order to appear in court or hand over information, or if you skip a court-ordered installment plan to pay the debt. But this is different from the idea that a lender can have you arrested for just not paying a debt.

If you’re stuck with a judgment you can’t pay, ignoring it won’t make the problem go away. New York Civil Practice Law & Rules section 5251 states that willful disobedience of a subpoena, restraining notice or court order can result in a person being held in contempt.

If you are behind on your payments, have defaulted or even have a judgment against you, make sure you do not ignore anything you receive. In some situations, borrowers aren’t aware of how serious a court case is and choose to ignore the paperwork, sometimes even purposely throwing it away or discarding it somewhere. The court’s judgment will typically end in a default judgement, meaning that the funder will get everything they’re asking for. In New York, if you’re served with a lawsuit in person, you have 20 days to respond, or 30 if you’re served by mail.

A judgment does not put you in jail. Many merchant funding contracts have a clause called a “confession of judgment,” which allows the funder to automatically get a judgment against you without having to file a lawsuit. They simply file your signed affidavit, and that’s it - you owe them money. With a restraining notice, the bank freezes your account right away, putting you at risk of bouncing checks or automatic payments. Even if your advance is for the business, if you signed a personal guarantee your own finances are in jeopardy. Your home or savings could be lost. It’s not just your business that’s on the line.

Just because you lose in court does not mean there is nothing left you can do. There are even cases when the law allows a judgment to be set aside. Since August 30, 2019, most confession of judgment filings in New York must be filed in the county where the signer lives, or for businesses, where they have a place of business. If you signed one out of state, it might not be enforceable in New York. Effective September 1, 2025, Texas passed HB 700, making it so that a sales-based financing contract, including many MCAs, cannot include a confession of judgment, and if it does, the contract is void. In January 2025, the New York Attorney General announced a $1.065 billion settlement with Yellowstone Capital, which the office said had used the term “merchant cash advance” to pitch predatory loans with effective annual interest rates of up to 820 percent.

Analyze Your Situation

The first thing you need to do is analyze your situation. How far behind are you? Do you have a judgment? Are they within their rights to be asking for the money? Before making any payments or answering any requests, you need to know what your rights and options are. If you have received a notice or have been served with a lawsuit regarding an MCA, please consult with an attorney as soon as possible. Lawsuits can advance quickly, and time is critical.

You’re going to want to have every call and promise in writing, and take notes of everything the funder says to you. Many of these funders would rather settle than take the chance of going to court. Get them to provide you a reconciliation based on your actual sales.

Most importantly, don’t panic and stay calm. Don’t let the funders push you around. Take your time to evaluate your options and get proper advice, so you don’t rush into a decision that could backfire in the end.