When MCA Funders Sue: Defending Collection Actions

Why Funders File Lawsuits

Some MCA funders file collection lawsuits rather than relying on confessions of judgment, either because the agreement did not include a COJ, because the COJ was vacated, or because the 2019 reform made COJ filing impractical for their situation. A lawsuit follows normal litigation procedures, which means the business has the right to answer, raise affirmative defenses, and assert counterclaims.

Responding to the Lawsuit

The single most important thing is responding on time. In New York, you typically have 20 to 30 days to respond to a complaint depending on how you were served. Failure to respond results in a default judgment, which gives the funder everything they asked for without any opposition. If you have been served, contact an attorney immediately.

Common Defenses

MCA collection lawsuits can be defended on multiple grounds. Usury and recharacterization challenge the legality of the transaction itself. Fraud and misrepresentation address deceptive practices by the funder or broker. Breach of contract by the funder, such as unauthorized withdrawals or failure to honor reconciliation provisions, can defeat the funder’s claims and support counterclaims. Unconscionability challenges terms that are so one-sided as to be unenforceable.

Counterclaims

In many MCA cases, the business has viable counterclaims against the funder. These can include fraud, breach of the duty of good faith, tortious interference with business relationships, and violations of applicable consumer protection statutes. Counterclaims can shift the economic dynamics of the litigation and create leverage for settlement.