Debt Validation Letters for MCA Debt: What a Records Request Can Accomplish

Business Debts

In most cases, a standard debt validation letter will not work for a merchant cash advance. The first thing to understand is that the Fair Debt Collection Practices Act (FDCPA) applies only to debts incurred mainly for personal, family or household purposes. Thus, the FDCPA does not protect business debts. Nevertheless, a simple records request letter may yield information you can use.

What matters is the purpose of the debt when you took it on. If you took the advance to invest in your business, it’s not consumer debt. That includes everything from a business loan to a merchant cash advance, and even loans for equipment. Home based businesses are still businesses, and if the debt is for your business, it is typically not consumer debt.

This is tricky because mixed use of funds can be a gray area. Did you take the loan out primarily to invest in your business, and just happen to use some of it for personal expenses like groceries? Or did you borrow to pay your bills, and just put some of that on a credit card to use for work expenses? The courts look at which was the dominant purpose. Your loan agreement and application paperwork may show which of these makes more sense in your case.

If you sign a personal guarantee, it’s easy to imagine that the debt becomes a personal one. But the law usually cares more about the reason the debt existed. If you took the loan to start a business, it was a commercial debt then and it still is now. In fact, it may mean that commercial collection rules, rather than the FDCPA, apply. Commercial collectors don’t have the same restrictions on collection calls that consumer collectors do, and those rules can vary from state to state.

Where the FDCPA does apply, a debt collector can’t assume that you owe the money. That’s why it has to send you written validation within five days of first contacting you. That gives you 30 days to write back and dispute the debt. They have to stop until they mail you official proof the debt is yours, or send you a copy of the judgment you’re fighting.

A Signed, Written Request for an Accounting

But there is one simple device in the Uniform Commercial Code that may work for an MCA. Under section 9-210, a debtor can make a signed, written request for an accounting or statement of what it owes, and the secured party has 14 days to answer. The first one is free every six months, but any more than that can cost up to $25.

You don’t need to know anything about the UCC to write your request. Just keep it short. Ask for an accounting or statement of how much you owe. Make sure it’s dated and signed, and be sure you send it in a way that lets you prove it got there. That gives them 14 days from when they receive it to answer.

The catch here is that some companies may not have to answer at all. If your merchant cash advance contract says they’re buying your future receivables, a buyer of accounts receivable may not have to answer if a debtor tries to invoke that law.

The funders tell you more than you might think, when they answer your question with “no,” because the courts in New York usually weigh these questions to decide whether the merchant cash advance is really a loan: Does it have a reconciliation clause? Does the deal have an end date? Can the funder keep collecting from you if you file bankruptcy? What the funder believes about these answers matters. It tells you how the funder thinks the courts would see it. In January, 2025, New York’s attorney general won a $1.065 billion judgment against MCA funder Yellowstone Capital based on claims that its contracts were really a loan in disguise.

If you check and find that nothing is owed, or if you never authorized the UCC filing at all, send a signed demand. That puts the funder on a short deadline: they have to send or file the Termination Statement within 20 days.

Your State’s Laws

The Fair Debt Collection Practices Act is a federal law, but many states have versions of their own, and they differ from state to state. One issue where the states step in is out of state confessions of judgment. In New York, since 2019, courts have been told not to enter a confession of judgment against a person or business unless the defendant resides or has offices or a place of business there. In New York, since August 2023, the funder’s disclosures may also be useful, if you’re looking at an MCA of $2.5 million or less. They have to list the financing charge and the estimated APR, and you can use that to see whether what they’re saying matches your records.

Your state’s laws may not guarantee you the same rights as the Fair Debt Collection Practices Act. But you can still use the protections in the Uniform Commercial Code and the fine print of your merchant cash advance contract. Send written requests to avoid confusion, keep copies so you don’t need to rely on the funder’s record of things, and see what they answer. Then you’ll know what you have to work with.