Can an MCA Funder Contact Your Customers?
This is one of the most distressing tactics MCA funders use. In many cases, the MCA contract gives the funder the right to contact your customers because the MCA is structured as a purchase of your future receivables. When you default, the funder may argue those receivables belong to them, and they have the right to collect directly from your customers.
Some contracts include an explicit clause authorizing the funder to send a notice of assignment to your customers, instructing them to send payments directly to the funder instead of to you. This is called a notice of diversion. It is devastating because it reroutes your revenue and destroys customer relationships.
Can They Contact Your Family?
MCA funders sometimes contact personal guarantors’ family members, spouses, or business partners. If your spouse is a co-guarantor, the funder has a direct contractual relationship and can contact them. If they are not a party to the contract, contacting them is generally a pressure tactic. While the Fair Debt Collection Practices Act limits third-party contact for consumer debts, MCAs are commercial transactions and may not be covered. However, state laws may provide protections against harassing collection practices regardless of the debt type.
When Contact Crosses the Line
Even when a funder has some contractual right to contact customers, there are limits. Contact that is threatening, misleading, or designed to damage your business reputation may violate state unfair business practices statutes, the covenant of good faith implied in every contract, and potentially federal laws involving false representations. If a funder tells your customers your business is closing or makes other false statements, you may have claims for tortious interference with business relationships or defamation.
How to Protect Yourself
- Review your MCA contract for assignment of receivables clauses and any provisions authorizing customer contact.
- Notify your attorney immediately if the funder contacts customers or family. Document every contact.
- Send a cease and desist through your attorney demanding the funder stop contacting third parties.
- Consider the leverage. Funders that engage in aggressive customer contact may be exposing themselves to counterclaims useful in settlement negotiations.
Proactive Steps Before Default
If you anticipate defaulting, notify key customers that they may receive third-party communications and should continue paying you. Work with your attorney to challenge any notice of assignment before it is sent. Consider whether bankruptcy protection and its automatic stay can prevent customer contact entirely.