Merchant Cash Advance Settlement Companies: 7 Contract Terms to Compare

Choosing a merchant cash advance settlement company is not a matter of picking the lowest price. What you are really comparing are terms. Who is the provider? Which MCAs are covered? What work will they do for you? What happens if you’re sued? What do you pay and when? Where does your money go? What are the settlement terms and how will you know what’s happening?

Debt relief companies, broker companies, and law firms alike will tell you “we handle MCA debt.” Some work out settlements with funders, others arrange new advances with other funders, some collect money to hold toward possible settlements, and others defend lawsuits. “Handling” can be anything. You really can’t know what you are paying for unless you understand the salespeople’s terminology and review the paperwork before signing.

Who You Are Contracting With

Stop - read who you are contracting with. Not just the company that contacted you, but the contract that governs who you are paying and for what services. Before signing anything, you should get the name of the legal entity that will be providing the services you are paying for, the name of the lawyer responsible for your case if they provide legal services, and a direct phone number. You should also get a list of every funder or advance covered by your agreement. Ask who their client is--your business or you as the owner, or both--so you know how they will resolve any conflict of interest.

When you see marketing terms like “we handle MCA debt,” ask for a full list of what services you are getting for that fee. Is document review included? Negotiations? Reconciliation requests? Court appearances? Formal discovery? Written motions? Appeals? Enforcement work? Only the paper matters.

If you are sued, ask about a separate contract or engagement agreement to provide legal services for the case. Who is entering their appearance and reviewing documents to make sure nothing is missed? Are they agreeing to handle deadlines, review service, do discovery? Just enrolling in an MCA settlement program does not extend the deadline to respond to a lawsuit. If the provider is going to negotiate with funders, that service is not automatically an attorney-client relationship. If they tell you someone else is going to be doing the work, check that attorney with the state bar.

Fee Structure

The Federal Trade Commission telemarketing sales rule prohibits businesses that sell debt relief from charging fees for consumer debt settlement services until a debt is settled and at least one payment has been made under the settlement. This rule doesn’t fully apply to business debt, though, because most business debt relief telemarketing isn’t subject to the rule. Without that legal protection, you can’t be sure when your fees are payable and how much will be taken out of your company.

Always ask the company to provide fee structure, payment dates, expenses, cancellation terms, and extra charges in writing. If a company only quotes a percentage of savings, ask for the estimated dollar amount as well. A higher fee doesn’t guarantee a better result. Limited fee programs may be fine if the limits are clear. If you are signing a contract to review a complaint, for example, it may exclude any later court hearings and formal discovery demands. But if the fee is described as providing months of safety, be cautious.

When you get one bill that covers several funders, the only way to know where your money is going is to ask the company to provide a written breakdown of the fees due to the company, the amount that’s being held for settlement, and the amount reaching the funder. Ask who is holding the account, in whose name it is held, who withdraws from it, and when any unused funds will be returned.

You have to watch the money. When you deposit into a settlement program, you are not necessarily paying the creditor. Settlement negotiations may not persuade the funders to stop their collections. And because most MCA sales aren’t covered by the telemarketing law, you can’t be sure whether you can quit the program and get your money back.

Paying for a negotiation service that’s not covered by the telemarketing rule lets you use the Rule’s protections as a yardstick. You should ask to get an agreement that requires monthly installments be held in an insured bank, that you can quit at any time without penalty, and that any money not used can be returned to you within seven business days, minus the earned fees. You should also get an estimate of the months it will take before there is an offer for each funder before you enter the contract.

The Consumer Financial Protection Bureau warns that your gains from settled accounts can be wiped out if other accounts are left to pile up penalties and fees. Look to see that your agreement provides written settlement terms for every enrolled account.

The Written Terms of the Agreement

Avoid relying on an oral deal until you can get the written terms of the agreement. Then make sure they name the creditor, your payment schedule, any guarantees and liens, the release, and what’s done if you miss a payment. Get proof that the funder has received the settlement money and credited it properly. Ask how often you’ll get a written update on any changes to the deal or filings by the funder. Can you get copies of filings and proposals from them?

Keep in mind that cancelling a debt of $600 or more may generate a Form 1099-C. That generally means you’ll be liable for income taxes on the canceled amount, unless an exception such as insolvency applies. You’ll claim the exception on a Form 982.

If you are told the debt is settled for a specific percentage of the value without the provider seeing a copy of the original document, that’s a red flag. If you are told you can stop all payments without knowing the risks of being out of compliance with your contract, you could find yourself in a lawsuit before you know what happened. Be wary, too, of a company that will tell you that enrollment will stop lawsuits or bank restraints, or refuse to give the name of their company’s attorney. Be especially wary if they offer a new advance as debt reduction.

Hiring the first company that shows up can sometimes work out, but there’s no reason to feel pressured to make a decision on the spot. You can tell them that you’d like to see their information and a copy of the proposed agreement before you sign. Review the terms next to the written answers they gave you. If they promised something important, make sure you see it in the written contract before you sign.