7 Types of MCA Funder Fraud That Can Void Your Contract

This is the big one. And it's the one that scares MCA funders the most.

An MCA is supposed to be a purchase of your future receivables. That's the entire legal basis for why it's not regulated like a loan. But if your agreement has fixed daily payments that don't fluctuate with your revenue, a fixed repayment term, and a guaranteed total payback amount — that's a loan. It doesn't matter what the contract says at the top. Courts look at the economic reality of the deal, not the label.

Why this matters: if your MCA is reclassified as a loan, every state usury law suddenly applies. And most MCAs, when you run the math, carry effective APRs of 80% to 350%. That's not just usurious. That's void-the-contract usurious in most states.

If your daily payment never changes regardless of whether your revenue goes up or down, you probably don't have an MCA. You have an illegal loan with a costume on.

This one is directly tied to the first point, and funders hate when you bring it up.

Most MCA agreements have a reconciliation clause. It says that if your revenue drops, you can request an adjustment to your daily payment amount. The payment is supposed to be a fixed percentage of your receivables — not a fixed dollar amount. When your revenue goes down 40%, your payment should go down 40%.

But here's what actually happens: you call the funder, you tell them revenue is down, and they either ignore you, stall you, or flat out refuse. Some funders don't even have a reconciliation process. They just collect the same amount every single day regardless of what your business is actually doing.

This is a problem for the funder, not for you. A refusal to reconcile is evidence that the deal was never a true receivables purchase. It's evidence that the funder always intended to collect a fixed amount. And that turns their MCA into an unlicensed, unregulated loan — which means usury laws, lending regulations, and licensing requirements all come into play.

If you requested reconciliation and got ignored, document everything. Emails, call logs, dates. That paper trail is ammunition.

This happens constantly. And most business owners don't catch it because they're not auditing their bank statements against the MCA agreement line by line.

Here's what to look for:

The funder is pulling double debits — two ACH withdrawals in a single day when the agreement specifies one

The daily debit amount is higher than what's stated in the contract

The funder is debiting on weekends or holidays when your business isn't generating revenue

After a returned payment (NSF), the funder re-debits the original amount plus fees that aren't specified anywhere in the agreement

The funder continues debiting after the purchased amount has been fully repaid

That last one is more common than you think. MCA funders are not always meticulous about stopping collections at the right time. Some of them deliberately over-collect and hope you won't notice. If you've been over-debited by even a few hundred dollars, that's a breach of the agreement — by them, not by you.

Pull your bank statements. Do the math. Compare every single debit against your contract terms. If the numbers don't match, that's fraud.

If you signed an MCA, there's a good chance you also signed a confession of judgment (COJ). This is a document that lets the funder obtain a judgment against you without going to court. No hearing, no notice, no opportunity to defend yourself. They just file it and your bank account gets frozen.

Here's the thing. New York banned the enforcement of out-of-state confessions of judgment in 2019. If your business is not located in New York and the funder filed a COJ in a New York court, that judgment may be void. Period.

But it goes further than New York. Many states have restrictions on COJs, require specific disclosures, or ban them outright for certain transaction types. If your funder obtained a COJ without following the legal requirements of your state — or filed in a jurisdiction that had no business hearing the case — you have grounds to vacate that judgment and potentially void the underlying agreement.

Funders rely on the COJ because it's fast and it's terrifying. They freeze your accounts before you even know what happened. But speed doesn't equal legality. If the COJ was improperly obtained, everything that followed from it (the freeze, the collections, the garnishment) may be illegitimate.

This is the "they told me one thing and the contract said another" scenario. And it happens all the time in the MCA industry.

Common misrepresentations include:

The broker or funder quoted you a factor rate of 1.25 but the contract says 1.45

You were told there were no additional fees but the agreement includes origination fees, processing fees, administrative fees, and default fees that were never disclosed

The funder told you the daily payment would be $200 but the contract specifies $350

You were told you could pay off early with a discount, but the agreement has a prepayment penalty or requires full purchased amount regardless of early payoff

The broker stacked a second position on your deal without telling you, triggering the default clause on your first MCA

Some of this is the broker's fault. Some of it is the funder's. Either way, misrepresentation of material terms is fraud, and it can render the agreement voidable. This is especially true if you can prove the misrepresentation was intentional — emails, text messages, recorded calls, anything where someone told you something that directly contradicts the written agreement.

If your deal didn't look like what you were promised, that's not just bad luck. That's potentially actionable.

When you took the MCA, the funder filed a UCC-1 financing statement against your business. This is standard. It gives the funder a security interest in your receivables and lets them notify your customers and payment processors to redirect funds.

But some funders abuse the UCC process. Here's how:

Filing a UCC lien that's broader than the agreement — claiming a security interest in all assets when the MCA only covers receivables

Filing multiple UCC liens for the same transaction to create the appearance of multiple debts

Refusing to terminate the UCC filing after the MCA has been fully repaid — this damages your ability to get future financing and is a violation of UCC Article 9

Using the UCC lien to contact your customers and vendors with threatening or misleading notices designed to destroy your business relationships, not to legitimately collect receivables

That last point is critical. Some funders will send notices to your customers saying things like "all payments must be redirected to us immediately" when they have no legal right to do so, or when the default hasn't actually occurred yet. They're weaponizing the UCC process to pressure you into paying, not because they're legally entitled to the intercept.

If a funder filed a lien that goes beyond the scope of your agreement, or if they're using UCC notices as a scare tactic, that's an abuse of process and it can undermine their position in court.

Stacking is when you take multiple MCAs from different funders. And yes, you probably know it's risky. But here's what most business owners don't know: some funders and brokers engineer the stack on purpose.

Here's how the scheme works. A broker places you with Funder A. Two weeks later, the same broker (or a connected one) places you with Funder B, knowing full well that the second MCA will trigger a default clause on the first. Now both funders accelerate the full balance. You owe twice the money, both funders are pulling from the same bank account, and your business is being drained from both sides simultaneously.

The broker collected two commissions. Both funders filed UCC liens. And you're the one drowning.

This is predatory stacking, and it's a form of fraud when the broker or funder knew (or should have known) that the second advance would make the first one unserviceable. In some cases, the funder and broker are the same entity, or they have revenue-sharing arrangements that incentivize this exact behavior.

If you were stacked by the same broker network, or if a funder approved a second position knowing you were already overextended, that's not just bad underwriting. That's a deliberate setup.

Don't panic. And don't ignore it.

If you recognize any of these 7 patterns in your own MCA deal, you have options. The contract that feels unbreakable might actually be the weakest part of the funder's case. But you need to move strategically, not emotionally. Calling the funder and accusing them of fraud is not the play. Getting your documents together, pulling your bank statements, and talking to an attorney who actually understands MCA law — that's the play.

Every day you wait is a day the funder is collecting, filing, and building their position. The leverage you have today gets smaller tomorrow.