Legitimate MCA debt relief company
Welcome to Delancey Street. This article is about knowing who is and who is not a legitimate MCA debt relief company. When you’re speaking to MCA debt relief companies, there’s a lot of things that are green flags and red flags. In this article, we’re going to talk about six requests a legitimate MCA debt relief company will never make.
At Delancey Street, we do business debt relief work all day, and most of the bad stories we hear start the same way. A business owner is struggling with two or three merchant cash advances. The phone is constantly ringing. Someone on the other end takes your confidence and says they can handle your business debt for you. Tone can be faked, websites can be faked, but the specific thing a company wants from you in the first hour says a lot about how it makes money and whether it’s ethical and can actually do the work for you. So below, in no particular order, here are six requests that should stop any conversation with a prospective MCA debt relief company.
Six requests that stop conversation
Stop payments before contracts are read
The first thing is if they say, stop all your payments today before anyone actually has read your contracts. Cutting off MCA payments can be part of a real strategy. Cutting off the daily and weekly and blocking it, but doing it before anyone has read your agreements is not a strategy. It’s a sales tactic. It creates urgency and makes you feel like something happened.
MCA agreements are not standardized. Default and acceleration language varies. So do the remedies available to the lender once you do that. Some contracts carry a confession of judgment. In New York, that tool has been narrowed after 2019, where only New York residents can be impacted by it. This ended the practice of filing thousands of them in a few New York counties against businesses all over the country. That helps, but it does not erase every version of the problem, and it does nothing to address UCC liens, which are notices sent to your processor, your customers, or a personal guarantee, which lets the funder chase you individually. There’s a real problem here, and an honest firm will describe it and discuss it.
Many funders will not discuss a reduced payoff while you are still paying in full and on time. So default risk and negotiating leverage are intricately linked. It’s important to read the contract, check whether it has a reconciliation clause that lets you request an adjustment to your daily or weekly payments, and more importantly, it’s important to put requests in writing. Then decide what to pay knowing what it is you’re actually about to do.
Wire full fee upfront
The second thing most trustworthy MCA debt settlement companies will not ask you to do is wire the full fee upfront. For consumer debt relief, which is sold by phone, the FTC’s sales marketing rule has banned advance fees since 2010. A debt relief company cannot collect until it has actually renegotiated or settled the debt and the customer has made a payment under the deal.
Here’s the part that gets misquoted often. That rule was built around consumers. The TSR historically exempted B2B phone calls with very narrow exceptions. In April 2024, the FTC amended the rule to extend its ban on material misrepresentations to B2B telemarketing effective May 2024. But the commission did not fold other B2B calls into the rest of the rule. So if you are a business owner with MCA debt, don’t assume the advance fee ban is your shield. Assume the opposite until someone is showing you specifically that it applies to your situation. This is a documented rule, which does give you some sort of an edge.
So you should treat the fee structure as a business decision rather than legal protection. A defined retainer for contract review and file setup is potentially reasonable. Full payment, though, before any defined work is where everything breaks down, because the company already got paid regardless of whether they settle anything or not. You should ask what the fee buys, when it is earned, and what happens if no funder agrees to anything.
Online banking login and settlement funds
Another red flag is if the company is asking for your online banking login information or telling you to move money into an account they control. This usually gets framed as a convenience to you. They say they need access to block debits and to hold settlement funds. Having said that, you can block debits yourself. Your bank can help, and you can open up a new operating account at a different institution, which is in your account, in your name, with your login.
The consumer side of the TSR does offer some insight, even though it does not bind you. If funds are set aside, the account should be at an independent insured institution. You should own the funds, and you should be able to withdraw and quit without penalty. Those conditions exist because pooled money under someone else’s control is the easiest money that can be lost. Handing over credentials is worse than handing over money. It gives the other debt settlement company the ability to move funds without an audit trail, and your bank agreement may leave the loss with you.
Talk to funder and lawsuit papers
Another red flag will be if they tell you not to talk to your funder, and if you get sued, to send the papers to the debt relief company instead of a lawyer. A communication blackout like this only protects the debt relief company’s control of the relationship, but it kills your ability to make a reconciliation request, which in most agreements you have to make directly to the lender and in writing.
The lawsuit issue is a bit more serious. Deadlines to answer a complaint are set by court rules, and usually they are very short. If you miss it, you will get stuck with a default judgment, which will then result in bank restraints and levies. A non-lawyer cannot file and answer for your company. They cannot appear at a hearing, and they cannot move to vacate a judgment. In most states, that is considered unauthorized practice of law. A business debt settlement company also cannot tell you whether your agreement is enforceable because that is a legal opinion.
Legitimate business debt relief companies will do the opposite. It will either tell you to get counsel or it will get you counsel, and it will then send the file over, and they will keep negotiating while the lawyer handles the docket.
New advance and reverse consolidation
Another red flag is if they tell you to get a new advance from them and use it to fund the settlements. In the MCA world, this is usually called a reverse consolidation. A new funder gives you money which covers your existing MCA payments. Your old contracts, though, are not closed. Your old payments keep running. You now owe the old balances and a new one on top.
Having said this, sometimes bridge money is a rational choice for a business with a real seasonal turn coming. But let’s call it what it is. It is borrowing from Peter to pay Paul. It’s a cash flow decision. It’s not debt reduction, and it will always raise your total cost because you are paying a second time for money that has already been borrowed and spent. That is the issue here. A company that earns a commission for placing funding has a reason to recommend that funding. Ask directly who pays who, and ask for the answer in writing.
Sign today and guarantee settlement
The next red flag that we often see is when an MCA debt relief company says, Sign today and we guarantee we can settle at X cents on the dollar. It’s really important to know that no one can control the other side’s decision. The settlement company simply does not know what the funder will say without establishing contact.
What a funder will accept will depend on facts that have nothing to do with the debt relief company. For example,
- whether the balance was syndicated to other people,
- how old is the balance,
- and whether it has been sold or placed with a collection company,
- whether a judgment already exists,
- and whether you are still processing revenue in the business.
A guaranteed percentage quote before anyone has read your contract is simply a number being pulled from a script and made up. The same pitch that says your advance is really a usurious loan and can be voided should be not trusted. While courts have looked at whether an MCA is a purchase of receivables or a disguised loan, and this analysis has resulted in a nuanced interpretation based on reconciliation rights, whether there was a fixed term, and whether repayment was truly contingent on your revenue, the outcomes do vary. That argument belongs to a lawyer who has actually read your documents, not a sales rep.
Written scope before you pay
So what do these six all have in common? Every one of them is asking you to transfer control before anyone has made a diagnosis or looked at the facts. They’re asking you for your payments, your fee, your bank account, your communications with the lender, your balance sheet, your signature, before any work has been done or any analysis has been done.
So what should you do? You should invert it.
Before you pay anyone, ask for a written scope that says:
- what is going to get reviewed,
- who is going to do the negotiating,
- when are the fees earned,
- what happens if an MCA lender sues you,
- and who else is getting paid in the deal.
A firm that is willing to answer in plain language and put the downside in writing, including a risk that a funder refuses to move at all, is someone you can probably trust. A firm that makes its money on the intake call will get annoyed at these questions or they’ll just lie to you. That reaction is the most useful piece of information you will get when contemplating which MCA debt relief company to work with.
