Are they debiting it directly, did they send a letter to your bank asserting some claim to your receivables, or did they send a legal process to your bank that restricts their ability to let you access your funds? It also depends on your agreement with your bank. Chase currently uses this agreement.
Your first step should be to call your bank and explain what is happening.
It is important to understand what exactly has happened to your account – did the bank receive a debit, did they bounce it, did they pay it and can you still access your funds? Your bank has an interest in helping you. Try to get them to explain to you what has happened and if the person you are speaking with cannot, ask to speak to the appropriate department to get some answers.
What To Do If The MCA Company Is Debiting Your Account Directly
MCA companies typically include a provision in their agreement which authorizes them to ACH withdraw from any business bank account they approve. This is typically done to make it easy to take payment from you if you do not make it yourself. However, that authorization may not be unlimited and will always be subject to the terms of the underlying financing agreement and applicable law.
Your first step will be to carefully examine the MCA documents to determine whether they should be withdrawing money from your account and whether the amount they are trying to withdraw is correct.
There have been a number of cases recently where the Federal Trade Commission has pursued MCA companies for ACH withdrawing from customer accounts without authorization. One example is here.
What To Do If Your Bank Has Restricted Your Account For Some Other Reason
Your account may be considered a “consumer account” subject to Federal law. The Federal Regulation which governs consumer accounts defines an account as one established primarily for personal, family, or household purposes. If you opened your account primarily for business purposes, it may not be a consumer account and may not be entitled to the protections of that regulation. However, you should examine the regulation closely and speak with your bank about how they are going to handle your account to make sure your rights are protected.
If you are using the Nacha process to return an ACH debit which you did not authorize, your bank must send that return to the originating bank by the opening of business on the second banking day after the day of settlement of the entry. You can read more about the timing of returns here.
Even if you have missed the return window, you may still be able to pursue a claim for recovery. You can read more about that process here.
Your bank may be able to place a stop payment or block ACH debits from certain originators in the future.
Chase has a program to help you block ACH debits from certain originators on certain types of business accounts, which you can read about here.
You should also review your agreement with the MCA company to see if your bank account protections will violate anything you agreed to with them.
For example, in an agreement filed by Libertas in 2020, they included a provision which prevented you from changing or closing your approved bank account or depositing any receipts into another account without their consent.
What To Do If The MCA Company Sent A Letter To Your Bank Asserting A Claim To Your Receivables
The MCA company may have sent your bank a demand letter asserting that they have a claim to your receivables or the proceeds of those receivables. If they have a proper claim to your receivables, they may be entitled to collect those receivables upon default under the Uniform Commercial Code. In New York, that section of the UCC can be found here. However, that section expressly provides that it does not govern the duties of third parties such as your bank, which may be governed by other rules.
You can also review the section of the UCC which governs “control” over deposit accounts.
In New York, that section of the UCC can be found here.
Your bank may have a provision in their agreement which allows them to restrict activity in your account if they receive conflicting instructions or some other type of adverse claim. In Chase’s agreement, that provision can be found in section IX(C).
What To Do If The MCA Company Has Sent A Legal Process To Your Bank
In New York, there is a process called a “restraining notice” which allows a judgment creditor to restrict activity in a debtor’s account. You can read about restraining notices in the New York Civil Practice Law and Rules here. The judgment creditor can also “levy” on your account. You can read about levies here.
In New York, there are a number of grounds upon which a creditor may “attach” your account before obtaining a judgment. You can read about those grounds here.
You should review your business’ projected cash flow to determine what you need to operate your business.
You should collect any documentation the MCA company has provided to your bank to assist your attorney in resolving the matter, such as bank statements, notices of returned payments, requests for reconciliation, or calculation of your balance with the MCA company.
If you are working out your obligations with the MCA company, you should make sure the terms of the workout address what is necessary for your bank to release any restrictions they have placed on your account. It will be of no use to you to agree to a payment plan with the MCA company if they fail to provide the necessary documentation to release your bank account and you are unable to operate your business.
You should make sure your payment and deposit arrangements are consistent with any restrictions your bank places on your account.
