Your roofing company fell behind on a merchant cash advance (MCA) with about $90,000 remaining, and now the funder’s lawsuit demands nearly $120,000. Don’t assume that inflated number is final, because many added charges are open to challenge. Here is where the extra charges come from, which ones New York courts may reject and how to spot a padded balance.
Defaulting on an MCA can trigger extra charges
After a default, your balance can climb quickly because funders often add flat default fees, rejected payment fees and collection costs. In the roofing example, a $2,500 default fee and a 30% attorney fee of roughly $27,000 explain most of the increase. These charges usually appear in the total a funder demands when it files an MCA collection lawsuit.
Your MCA contract determines which fees may apply
A funder can generally collect only the fees your agreement specifically lists, and many contracts bury them in a fee schedule at the back. A charge the contract never mentions generally has no legal basis. Since many MCA agreements select New York law, New York courts frequently decide which listed fees are enforceable.
Excessive default fees may be challenged
New York law permits a preset fee only when it reasonably estimates losses that would be difficult to calculate. A funder’s loss is easy to calculate because it equals your unpaid balance. That is why one judge threw out a $2,500 default fee as an unenforceable penalty and limited the funder to its actual, provable losses. Not every judge agrees, and modest charges like bounced payment fees often survive.
Attorney fees are not automatically owed
A funder generally needs a contract provision or statute allowing it to recover legal fees, and even then, courts may limit the amount to what is reasonable. In the same case, the judge treated a 30% attorney fee as a maximum and denied it because the funder offered no evidence of actual legal work.
Payment records can expose inflated balances
Your own documentation can be a powerful weapon, so compare the original agreement, your bank statements and the funder’s itemized charges side by side. Look for unlisted fees, missing payment credits and percentages calculated on the wrong amount, then raise these problems before a default judgment locks them in.
Every fee on your balance deserves scrutiny
Funders routinely add fees after a default, but flat default fees often fail as penalties and percentage-based attorney fees require evidence of actual work. Before you answer a lawsuit or sign a settlement, compare every charge against your contract. An MCA attorney can identify which fees are worth fighting.