An Intelligent, Assertive Lawyer In Brooklyn Serving Businesses Throughout The Nation
  1. Home
  2.  | 
  3. Merchant Cash Advances
  4.  | How to demand transparency from MCA providers during debt collection

How to demand transparency from MCA providers during debt collection

On Behalf of | Mar 13, 2024 | Merchant Cash Advances

In New York, small businesses account for more than 99% of businesses throughout the state. To remain afloat, small businesses turn to alternative lenders like Merchant Cash Advance (MCA) providers for quick financing.

However, the Fair Debt Collections Practices Act doesn’t cover MCA providers. This has allowed some providers to collect debts aggressively by charging add-on costs, doing unauthorized deductions and making threats.

Going after unfair collection practices

In 2022, the Federal Trade Commission (FTC) banned an MCA provider from the industry for violating the FTC Act and Gramm-Leach-Bliley Act. The FTC also ordered the provider to settle charges due to their deceptive seizures of debtors’ assets.

Among their violations were charging additional fees and deducting larger amounts from the bank accounts of debtors. They also allegedly threatened physical violence during debt collection.

The need for full disclosure of amounts and terms

Small businesses might think that it’s a stretch to file a federal complaint against MCA providers. They can also turn to a New York law that mandates transparency in an offer. The law requires providers to inform applicants about the following:

  • Information on the financing amount: It must be clear, specific and final.
  • Finance charges: There should be corresponding amounts of finance charges per day, week or month. And there should be conditions on when they will impose finance charges.
  • Annual percentage rate: If it’s variable, there must be a timetable of the rate’s increase. If it’s fixed, the provider needs to declare it.
  • Terms of repayment: The offer should specify the total repayment amount and payment schedule. It should also indicate the installment amounts based on a business’ monthly revenue.

If applicable, an MCA offer must detail prepayment expenses and other possible fees. The provider should also give detailed descriptions of collateral requirements.

Protect your rights against predatory providers

Business owners that secured an MCA with an incomplete offer can bring up the law on transparency to their providers. Calling them out with the help of an attorney can help protect your business and reduce aggressive debt collections.