10 Legal Defenses Against an MCA Lawsuit

Your strongest argument is that the MCA isn't really a purchase of future receivables at all. It's a loan wearing a costume. The tells are fixed daily payments no matter what your revenue does, a reconciliation clause that never actually gets used, a set amount you have to pay back, and personal guarantees. Convince the court it's a loan and state usury laws kick in. Most MCAs run effective APRs of 60-200%, way past the 16-25% usury caps most states have. That can void the whole agreement.

MCA contracts often flunk both unconscionability tests courts use. The procedural side is about how the deal happened: no room to negotiate, take-it-or-leave-it, and dense terms no small business owner could reasonably understand. The substantive side is about the terms themselves being absurdly lopsided, like sky-high factor rates, blanket personal guarantees, confession of judgment clauses, and language where you waive every legal defense. When a contract is unconscionable, a court can void it or rewrite it.

If the funder or broker lied about a material term to get your signature, the whole agreement can be void for fraud. The usual lies are quoting a lower factor rate than the one buried in the contract, promising reconciliation they never honored, fudging the total payback number, or telling you the MCA wouldn't touch your credit. Pull together every text, email, and note from your back-and-forth with the funder or broker so you can prove what they actually said.

Every contract carries an implied promise that both sides will act in good faith. Funders break that promise when they blow off legitimate reconciliation requests, pile more MCAs onto a business they know can't handle them, or accelerate the entire balance over some tiny technical default. The argument is that even if the funder followed the letter of the contract, they trashed its spirit by squeezing you for every dollar with no regard for whether you survived.

Plenty of funders sue in New York no matter where you actually do business, leaning on the forum selection clause buried in the contract. You can fight that clause if you have no real connection to New York. Some courts have refused to enforce these clauses in MCA deals, especially after 2019 when New York banned out-of-state confessions of judgment. If you're based outside New York, raise jurisdiction in your answer.

Funders sometimes cut corners on service so they can grab a quick default judgment. Check that you were served the way your state's rules require. The common screwups are serving the wrong person, serving the wrong address, never filing an affidavit of service with the court, or using a process server who isn't qualified. Bad service is grounds to vacate a default judgment and can stall the case for a while.

If you asked for reconciliation and the funder refused or just ignored you, that's the funder breaching its own contract. A funder that broke the agreement can't turn around and sue you for breaking it. This works as a shield, meaning a defense to the lawsuit, and as a sword, meaning a counterclaim for damages. Keep records of every reconciliation request you sent, how you sent it, and whether they ever wrote back.

In New York and a handful of other states, charging more than 25% interest is a crime, not just a civil problem. That's criminal usury. If an MCA gets reclassified as a loan and the effective APR blows past the criminal usury line, the agreement is void on public policy grounds. No court is going to enforce a contract that requires committing a crime. This is the nuclear option, and it's actually worked in several New York cases.

If the funder used or tried to use a confession of judgment against an out-of-state borrower after New York's August 2019 ban (the CPLR 3218 amendment), that's grounds to vacate the judgment and maybe void the whole agreement. Even on older deals, the fact that the contract contains a COJ clause that's since been banned raises real questions about whether any of it is enforceable. Some courts have applied the COJ ban backward to agreements signed before 2019.

Every defense above only works if you have a lawyer who actually knows MCA law, knows how your specific funder litigates, and knows how the local judge tends to rule. This is a niche. A general business attorney may not even spot the strongest argument for your situation. Delancey Street at (212) 210-1851 keeps relationships with MCA defense attorneys in every state and can put you with someone who has beaten your particular funder before. The consultation and the attorney match are free.