Scammed by an MCA Broker? 6 Steps to Protect the Business Record

You Need to Protect the Documentation

You may be justifiably angry and frustrated. Until you get to a lawyer’s office, you need to protect the documentation. Document everything that’s happened so that, if it becomes necessary, you or your lawyers can reconstruct the true timeline of events.

Pull together everything you have - the first agreement, every new one, every bank statement or check register showing money debited from your account. Save every text or email you got from the broker and the funders. Don’t sign new papers offered by the broker, the funders or a lawyer they recommend. Check every document for a so-called confession of judgment or arbitration clause. Note every debit to your bank account. Check for UCC lien filings in the state where you do business. Then take everything to a good lawyer in time to beat all deadlines.

Your records can help prove that the broker made material misrepresentations to get you to sign papers, so that in some cases the broker may be liable. Your records may support defenses or claims you have under state unfair practices laws. You have to be able to show what the broker told you and when.

When you get the documents together, be thorough. Find every MCA agreement and every amendment to it. Get all the documents relating to ACH authorizations. Collect the last 90 days of bank statements, or more if you have them. Keep everything the funders sent you. Don’t throw away any letters from the broker or the funders or their attorneys.

Until you have a lawyer’s help, the rules change: Be wary. Be cautious. Be clear that you do not agree to anything. Record everything you can. You do not need to respond to every communication, but you need to preserve every one. Keep every email, text, voicemail, and phone message you get. Write down who you talked to, what that person said, and what you said.

Don’t sign new advances or amendments to the existing agreements. Even settlement offers can come with unexpected dangers. Some funders press you to accept a new payment schedule that may be just as impossible for you to meet as the old one, but with new penalties. They might try to get you to guaranty the debt personally. The proof that a broker steered you into taking several advances at the same time, or that the latest funders knew you were already drowning in debt, can support a defense.

Confession of Judgment

A clause called a “confession of judgment” lets the funder get a judgment against you without any lawsuit or advance notice. Where such clauses are enforceable, a judgment can come within days, then bank levies and restraints. Since a change in the law on August 30, 2019, New York creditors cannot file a confession of judgment against a debtor with no residence or place of business in the state of New York. In Texas, confessions of judgment are void in “covered sales-based financing.”

A confession of judgment isn’t the only boobytrap. Many of these contracts have arbitration clauses. Just such a clause may mean that the funder can get an arbitration award, and later ask a court to confirm the award. If your case goes to arbitration, in New York you generally have 90 days to challenge the award in court.

Check the bank statements you pulled earlier, and keep checking, for unusual debits or holds. Write down any changes. Watch your account for multiple daily withdrawal attempts. Record the dates and the amounts. Some funders deduct repeatedly even though there isn’t money to cover the withdrawal; each time they try a debit, the bank may charge a fee. Don’t tell the bank that any prior debits were unauthorized. An ACH payment that you authorized in a signed agreement is not unauthorized, even if it wipes you out. Be careful of any tactic that can lead you to later be found to have given a false denial, because that can lead to liability and hurt your credibility. Don’t close the account on your own; if you do, the funder may treat the closure as a breach that triggers the personal guaranty.

UCC Filing

Check to see if the funder has made a UCC filing in the state where you have your business. A lot of these agreements let the funder claim your receivables and other assets, even while your assets remain in your possession. The filing can appear on your business credit reports. It can stop your business from getting a new loan or line of credit. Go to your state government website to find out how to check what UCC-1s, if any, are on record. If you owe nothing more, or never authorized the filing, send a demand letter that tells the funder to file or send a termination of the UCC within 20 days of getting the letter. If the funder fails to do so, it may owe you $500 per instance, plus damages. The New York Attorney General’s office’s website notes that UCC liens generally lapse after five years. New York businesses can check the Department of State’s UCC filing system to see the status of a lien.

Registration rules matter too: in some states, brokers need to be registered. Texas law requires sales-based financing companies and their brokers to register by December 31, 2026. The FTC has sued MCA operators for misrepresenting how much funding a business would get. The FTC has charged companies with using confessions of judgment to seize assets. In one FTC case, the judge put a $20.3 million judgment on the defendants for using these kinds of tactics.

Don’t ignore papers from a court or arbitrator that you get in the mail. A default judgment may be far harder to undo than an actual dispute. If you’ve been sued by any party, it is vital that you consult a lawyer as soon as possible. Don’t close your eyes and hope for the best.