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Using the Court System to Invalidate Your Abusive MCA Agreement

Merchant cash advance (MCA) agreements can sometimes contain abusive or unfair terms that business owners did not fully understand when signing. If you signed an MCA agreement with unreasonable repayment terms or interest rates, going to court may be an option to get the agreement invalidated.Our law firm, located at Delancey Street in New York City, has experience helping business owners fight back against predatory MCA lenders. We can review your agreement, assess any unlawful provisions, and discuss legal strategies including filing lawsuits to protect your rights. Call us at 212-210-1851 for a free consultation if you believe you were misled into an unjust MCA contract.

Grounds for Invalidating MCA Agreements

There are several potential legal arguments for invalidating or voiding all or part of an abusive MCA contract in court:

• Unconscionability – If the terms are so unreasonably unfair that you would not have agreed absent deception or coercion, a court may refuse to enforce the agreement. Factors considered include:
  • Interest rates over 60%
  • Very short repayment periods
  • Misrepresentations about key terms

• Usury violations – If the effective interest rate is above state maximums, the interest provisions and possibly the entire agreement could be voided.

• Deceptive practices – Proof the lender misled you regarding costs or other key factors may invalidate the agreement.
• Breach of good faith – Courts require all contracts meet “good faith and fair dealing” standards, which abusive MCA agreements likely violate.
• Unregistered lending – Failure to comply with state lending and finance laws can make agreements unenforceable.

If any unlawful provisions are deemed severable from other sections, a court may strike only those portions but uphold the remainder of the contract.

Lawsuits Seeking to Void Abusive MCA Agreements

Many small business owners have filed lawsuits against predatory merchant cash advance companies successfully, using arguments like those above. Below are some examples:

• Castleberry Events LLC v. Merchant Cash Advance – A Texas court ruled the MCA agreement violated state lending laws and was void. It cited obscured terms, misrepresentations, and failure to register as a credit access business.

• Platinum Rapid Funding Group Ltd. v. VIP Limousine Services – In this case from Pennsylvania, the court found the interest rate of 116% was usurious and unconscionable. The MCA contract was ruled unenforceable.

• White Oak Business Capital v. Bluetrain LLC – Here the court voided provisions charging compound interest after default, finding them to be written in bad faith given the “already astonishing effective annual interest rate of 130%”.

The outcomes above show courts taking the business owners’ side and refusing to enforce clearly abusive MCA agreements. Business debt relief services like Delancey Street can help review your contract and bring similar lawsuits if grounds exist.

What to Expect When Suing to Invalidate an MCA Contract

Here is an overview of what to expect if you sue an MCA lender seeking to void your agreement:

File a Complaint Document – This summarizes unlawful provisions and requests a declaratory judgment that the agreement is invalid and unenforceable. We draft this document for you.

MCA Lender Files Response – They will argue the agreement is lawful and binding. Expect them to fight your assertions vigorously.

Discovery Phase – This involves gathering evidence through documents, interviews, affidavits, depositions, etc.

Court Filings – As the case proceeds, legal arguments are presented to the court in motions and briefs seeking favorable rulings.

Settlement Negotiations – Many cases end early through a settlement, though abusive MCA lenders often won’t settle quickly.

Trial – If no settlement is reached, the court will hold a trial and issue final binding judgement either upholding or voiding the agreement.While the process can be lengthy, the potential reward of invalidating an abusive MCA contract makes going to court worth considering. An experienced business debt relief law firm like Delancey Street can handle the lawsuit while you focus on your business.

Defenses MCA Lenders May Attempt

Predatory merchant cash advance companies will fight hard in court to defend the enforceability of their contracts. They may argue:

• You understood the terms – They will claim key provisions were clear and you entered the agreement fully informed. Countering this requires proving misrepresentations or obscured terms.
• Interest rates weren’t disclosed – Some lenders assert they need not comply with lending laws covering maximum interest and APR disclosures. Refuting this technicality depends on the state.
• Forum selection clauses – Your contract may specify lawsuits must be filed in a certain state favorable to the lender. Seeking dismissal based on jurisdiction issues is common.
• Arbitration clauses – Similarly, lenders often include arbitration agreement terms to keep disputes out of court entirely. However, arbitration can still end with the contract being invalidated.

While defenses like those above present challenges, they are not impossible to overcome with an experienced legal team. We can respond to each argument asserted and build your case effectively.

Using FDCPA Against Abusive Collections Practices

If the merchant cash advance company or a debt collector they hire engages in unlawful collection tactics after you default, you can sue under federal law – the Fair Debt Collection Practices Act (FDCPA).

• Threatening you with arrest or imprisonment
• Falsely implying they will seize assets or garnish wages
• Harassing you with relentless calls to your workplace
• Failing to verify the debt if requested
• Continuing to contact you after receiving written notice to stop
• Making unauthorized withdrawals from bank accounts

If proven, each FDCPA violation can lead to $1,000 or more in statutory damages. This is useful leverage to force a favorable settlement if lenders won’t negotiate reasonably on voiding the MCA agreement itself.

Getting Started Challenging Your Abusive MCA Contract

The first step is requesting a free case review from our experienced team. We will evaluate your merchant cash advance agreement to spot potential violations and discuss a legal strategy tailored to your situation.To set up a review, call our office today at 212-210-1851 or contact us online. We understand the stress facing small business owners in unfair MCA contracts and are here to help fight back using the court system.