You took a merchant cash advance to keep the lights on. Maybe payroll was tight, maybe a big job fell through, maybe you just needed to bridge a gap. The MCA company wired money fast, no questions asked, and the daily debits started hitting your account the next morning.
Then business slowed down. The payments didn’t.
Now you’re behind, and something happened that you never expected: your MCA company started calling your customers. Your vendors. The people who keep your business alive. They’re telling them you owe money. They’re telling them to redirect payments. One of your best clients just asked you if everything’s okay.
If you’re reading this, you’re probably panicking. I get it. Let’s talk about what’s actually going on, whether any of this is legal, and what you can do about it right now.
First, Let’s Be Honest About What an MCA Actually Is
An MCA isn’t technically a loan. That’s the whole trick.
When you signed that agreement, you weren’t borrowing money. You were selling a chunk of your future revenue at a discount. The MCA company “purchased” your future receivables, and the daily or weekly debits were them collecting on what they bought.
This matters because loans have rules. Usury caps. Disclosure requirements. The Fair Debt Collection Practices Act. MCAs dodge all of that by saying “we’re not a lender, we’re a purchaser of receivables.”
In practice? You got $50,000 wired to your account and agreed to pay back $70,000 over six months through daily ACH pulls. If you do the math on that, the effective APR is somewhere north of 80%. Some deals hit 200%, 300%, or worse. The New York Attorney General found MCA contracts with effective rates as high as 820% when they took down Yellowstone Capital in January 2025.
But because it’s “not a loan,” the normal consumer protections don’t apply. The FDCPA, which stops debt collectors from calling you at midnight or threatening your family, only covers consumer debt. Business debt? The MCA industry loves to remind everyone that they’re in a different category entirely.
What Happens When You Default
Here’s how it typically plays out, based on what people in forums and legal threads describe:
Week 1-2: You miss a few ACH pulls. The MCA company calls. Then calls again. Then calls again. Because the FDCPA doesn’t apply to commercial debt, there’s no federal limit on how many times they can call, what hours they can call, or what they can say to you.
Week 2-4: They keep attempting the ACH withdrawals even though your account is short. Your bank starts hitting you with overdraft fees. Some people report getting $30-40 in NSF charges per failed attempt, multiple times a day.
Month 1-2: They file a UCC lien (if they hadn’t already at signing). They start talking about confessions of judgment. If you signed one of those, they can walk into a courthouse, file a piece of paper, and get a judgment against you without a hearing, without notice, without you ever setting foot in a courtroom. New York banned these for out-of-state borrowers in 2019, but if you’re a NY-based business, you’re still exposed.
Month 2-3: They freeze your bank accounts. They contact your payment processor. And then the part that brings people to forums in a cold sweat: they start calling your customers and vendors.
So Can They Actually Call Your Customers?
Here’s where it gets complicated, and honestly kind of infuriating.
There’s a provision in the Uniform Commercial Code, specifically UCC Section 9-406, that deals with the assignment of receivables. If your MCA agreement included a valid assignment of your accounts receivable (and most of them do), the funder can send written notices to your customers telling them to redirect payments.
Under 9-406, once your customer receives proper notice of the assignment and reasonable proof, they’re actually supposed to comply. They’re supposed to start paying the MCA company instead of you.
But there are real limits to this.
The MCA company needs to have a properly perfected security interest. They need to provide actual proof of the assignment if the customer asks for it. And the notice needs to be in writing. A phone call from some random collections person saying “pay us instead” doesn’t meet the legal standard.
Here’s the thing though: a lot of MCA companies don’t follow the rules carefully. They use 9-406 as a bludgeon, not a scalpel. They call your customers on the phone. They imply your business is going under. They create panic. Some merchants have reported that MCA collectors told their customers the business was insolvent or couldn’t fulfill orders, which is a whole different legal problem.
One Reddit commenter in an MCA industry AMA put it bluntly: the MCA reminded them “of that scene when the sports goods store gets into arrears with Tony Soprano and he busts up the suckers entire store.” That comparison comes up a lot.
When It Crosses the Line
Even in the gray area MCAs operate in, there are lines. Here’s what’s potentially illegal:
Tortious interference with business relationships. This is probably your strongest claim. If the MCA company contacts your customers and says things that damage your business relationship, like implying you’re going bankrupt, can’t deliver on contracts, or are financially unreliable, that’s tortious interference. The elements are straightforward: you had a business relationship, the MCA company knew about it, they intentionally interfered, and you lost money because of it.
Defamation. If they tell your customers something false, like that you’re insolvent when you’re not, or that you can’t fulfill your contracts, that’s defamation. The reputational damage from a single phone call to a major client can exceed the entire MCA balance.
State unfair business practices laws. Most states have some version of a UDAP (unfair and deceptive acts and practices) statute. New York’s is particularly strong. California extended its Rosenthal Act in January 2025 to cover small business debts under $500K, which means MCA collectors in California now face real restrictions on how they can contact you and your business contacts.
Misuse of UCC 9-406. If the MCA company doesn’t actually have a valid, perfected security interest, sending 9-406 notices is arguably fraudulent. Some funders are junior or unsecured creditors who blast out these notices anyway, hoping nobody pushes back. Rise Alliance, a merchant advocacy group, has documented cases of MCA providers using 9-406 notices to “hijack receivables” they have no legal right to.
Real People, Real Damage
The stories online paint a pretty grim picture. Not “someone told me about a guy” stories. These are people posting in real time, in the middle of it.
A nail salon owner posted on Reddit in mid-2025 laying out what MCA stacking looks like when it goes fully sideways. She had six MCAs running simultaneously: Elixir at $322/day, CFG at $497/day, Fox Funding at $2,509/week, Gotorro at $2,483/week, Olympus at $1,833/week, and Itria Ventures at $8,333/week. That’s roughly $4,000 per day leaving her account. She wrote that she was “honestly overwhelmed” and “terrified” because she kept hearing they could sue, freeze accounts, and go after her personally. She’d tried traditional loans, nonprofit lenders, consolidation. Everyone said no because of the existing MCAs. The community response was brutal but honest. One commenter: “Your business is lost. Sorry, but it ain’t gonna survive this… They will come for everything.” Another: “nail salon and you have over $80K monthly in loans? no judgement but holy shitballs. There aren’t enough hands and feet available to save you.”
Another small business owner described taking an MCA for $15,000, paying back about $20,000 over 13 months, then defaulting on the last $900 while facing bankruptcy. The MCA company slapped a $2,500 penalty on top of the remaining balance and froze all credit card processing, essentially strangling the business. When the owner saved up enough to offer a lump sum payment on the original $900, the company refused to waive the penalty. As they wrote: “I’m quite literally living in poverty but I’m passionate about my business and it has potential.” A commenter nailed it: “The fact that they’d freeze your processing over such a small remaining balance while refusing a lump sum just shows they care more about the penalties than the debt itself.”
Someone else defaulted on five MCAs simultaneously and shared their experience in a thread, summing it up with: “AMA” and a flat-faced emoji. The replies were a mix of sympathy and dark humor. One person who’d been in the MCA industry for 10 years acknowledged that when merchants default, the UCC lien lets them “contact the credit card processor and redirect funds.”
Then there are the outright scams operating under the MCA umbrella. One owner reported getting burned for $30,000 by a company that promised a line of credit and never delivered. They wrote: “my fault for trusting and stupidity for being that desperate but they got 30k from me.” An MCA insider confirmed this is a known play: “A lot of companies promise you a line of credit, but in order to obtain it, you have to either pay a crazy origination fee, or take a 5-20 days cash advance. Sometimes these people even send out fake contracts.”
An attorney who used to originate MCAs before switching to defending merchants against them now posts about seeing the same pattern daily: business owners “getting threatening calls” and “being sued by a funder.” A business owner responded to him: “Small business owner here, drowning in a MCA loan. A colleague of mine recommended that we stop paying on the loan and let them come to us to renegotiate terms.”
The person who’d filed bankruptcy to escape MCA debt said they were still getting “a ridiculous number of calls from MCA sharks” months later, even after the business was closed. They registered for the Do Not Call list. It made no difference.
And a common reply you’ll see across all these threads: “If you can’t qualify for an SBA loan, you can’t afford the loan.” Hard to argue with that one.
The Numbers Are Ugly
The MCA industry is roughly a $20 billion market, and it’s growing. MCA defaults surged 59% in 2024 to $2.22 billion. Default rates run somewhere between 11-20%, compared to 1-2% for SBA loans. Businesses that stack multiple MCAs, taking out a second advance to pay the first, default at three to five times the rate of single-advance borrowers.
Factor rates typically range from 1.2 to 1.5, which means if you receive $100,000, you owe $120,000 to $150,000. Repayment happens over 3-18 months. The holdback is usually 10-20% of your daily credit card sales. Origination fees of 1-5% get deducted before you even see the money.
Most MCA contracts contain a reconciliation clause that’s supposed to adjust your daily payments if your revenue drops. In theory, if your sales fall 40%, your payments should fall 40%. In practice, MCA companies routinely ignore reconciliation requests. The NY Attorney General charged Richmond Capital Group with systematically refusing to honor reconciliation rights. Attorneys argue that when a funder refuses reconciliation, the MCA effectively becomes a fixed-repayment loan, which means it’s subject to usury laws and the whole contract could be void.
But most small business owners don’t have the resources to litigate that. Which is exactly why funders ignore the clause.
What the Regulators Are Doing
The tide is actually turning, slowly.
The New York AG’s $1.065 billion judgment against Yellowstone Capital in January 2025 was the biggest MCA enforcement action ever. It cancelled $534 million in debt for over 18,000 small businesses, vacated more than 1,100 court judgments, released all UCC liens, and permanently banned the companies from the industry. The AG also secured a $77 million judgment against Richmond Capital Group in 2024.
At least 12 states now require Truth-in-Lending-style disclosures on MCAs: California, New York, Utah, Virginia, Georgia, Florida, Connecticut, Kansas, Missouri, Texas, New Jersey, and others. Texas passed HB 700 in 2025, which mandates standardized disclosures and voids confession-of-judgment clauses. New York’s FAIR Business Practices Act, effective February 2026, expanded the AG’s authority by removing the “consumer-oriented” requirement for enforcement.
The FTC has gotten involved too. They distributed $3.3 million to nearly 5,000 small businesses in March 2026 from their Yellowstone enforcement action. That was the first time the FTC returned money to commercial MCA borrowers.
Even Mike Lindell got in on it, filing multiple lawsuits against MCA funders in late 2024 and early 2025, alleging rates up to 409% and RICO violations. Whatever you think of the guy, the lawsuits highlight how widespread the problem is.
What You Should Do Right Now
If an MCA lender is calling your customers, here’s your move list:
1. Document everything. Every call. Every voicemail. Every email. Ask your customers exactly what was said and write it down. Get it in writing from them if possible. This is your evidence for tortious interference and defamation claims.
2. Tell your customers first. Don’t let the MCA company control the narrative. Call your key clients and vendors. Be honest. Tell them you’re dealing with a business financing dispute and that they may receive calls. Tell them they are not obligated to redirect payments unless they receive proper written documentation and proof of assignment, and even then they can demand verification.
3. Send a cease-and-desist letter. Have an attorney send one immediately. While the FDCPA doesn’t apply, state unfair business practices laws do, and a letter from counsel often slows things down because it signals you’ll fight back.
4. File complaints. Hit all three: FTC (ftc.gov/complaint), CFPB (consumerfinance.gov/complaint), and your state attorney general. The more complaints on file, the more ammunition regulators have.
5. Talk to an MCA defense attorney. This is a real specialty now. These lawyers know how to vacate confessions of judgment, challenge UCC liens, assert usury defenses, and file counterclaims. Many offer free consultations.
6. Open a new bank account. At a different bank. Right now. If the MCA company gets a judgment, they’ll freeze your accounts. Having a separate operating account at a bank they don’t know about gives you breathing room.
7. Look into reconciliation rights. If your revenue dropped and the MCA company didn’t adjust your payments, that’s potentially a contract breach on their end. It might also reclassify the entire agreement as a loan, which opens up usury defenses.
8. Consider Subchapter V bankruptcy. Chapter 11 Subchapter V was designed for small businesses. Filing triggers an automatic stay that stops all MCA collection immediately: ACH pulls stop, lawsuits freeze, account restraints lift, and customer contact stops. It lets you restructure the debt on terms you can actually pay.
The Bottom Line
Is it legal for your MCA lender to call your customers? The honest answer is: it depends, and mostly no, not the way they’re doing it.
They might have a narrow legal right under UCC 9-406 to send formal written notices about an assignment of receivables. But the aggressive phone calls, the implications that your business is failing, the pressure campaigns against your vendors? That’s a different story. That’s tortious interference. That’s potentially defamation. And in a growing number of states, it’s a violation of unfair business practices laws that carry real penalties.
The MCA industry has operated in a regulatory gap for years, calling themselves “not lenders” to avoid the rules that govern everyone else. That gap is closing. The billion-dollar enforcement actions, the new state disclosure laws, the courts reclassifying these deals as usurious loans: the writing is on the wall.
But right now, today, if your phone is blowing up because an MCA company just called your biggest client, you don’t have time to wait for regulators to catch up. Document everything, get a lawyer on the phone, and fight back. These companies are counting on you being too scared and too broke to push back.
Don’t give them that.