Do Debt Collection Laws Protect Business Owners From MCA Funders?

Owners who have dealt with consumer collectors know the rules: limits on calls, required notices, a right to dispute. When an MCA funder starts collecting, many are surprised to learn that most of those rules do not apply to their business. That does not make MCA collection lawless. This guide explains which protections are missing, which remain, the conduct federal and state regulators have actually taken funders to court over, and what to do if you believe a line has been crossed. It is education, not legal advice, and a specific situation belongs with a licensed attorney in your state.

Why does the FDCPA usually not apply to MCA debt?

Because of how the law defines a debt. The Fair Debt Collection Practices Act covers obligations of a consumer arising from a transaction whose subject is primarily for personal, family, or household purposes, according to its definitions at 15 U.S.C. Section 1692a. A merchant cash advance is a commercial transaction entered into by a business for business purposes, so it generally sits outside that definition. The same logic usually applies to state consumer collection statutes built on the same model. Because the test looks at the purpose of the underlying transaction, a personal guarantee of a business advance is generally not treated as consumer debt either, though a licensed attorney should confirm how courts in your state have handled it.

Then what does limit how an MCA funder collects?

Four things, and each has teeth:

• The FTC Act. Section 5 prohibits unfair or deceptive acts or practices in or affecting commerce, and it is not limited to consumers. The Federal Trade Commission has used it against MCA companies on behalf of small businesses.
• State law. State attorneys general enforce their own unfair practices laws, and some states have gone further. California’s Department of Financial Protection and Innovation adopted rules, effective October 1, 2023, that apply prohibitions on unfair, deceptive, or abusive practices to commercial financing provided to small businesses, nonprofits, and family farms based in California.
• Court rules. Freezing a bank account or seizing money generally requires a judgment or a court order and the procedures that go with it, which our frozen account guide explains.
• Your contract. The agreement defines what may be debited and when. Debits beyond what it authorizes, or after the purchased amount has been collected, are the kind of conduct regulators have pursued.

General criminal law applies too. Threats of violence are crimes in every state, whatever the debt.

What conduct have regulators taken MCA funders to court over?

The public record is specific. In April 2021, Yellowstone Capital and related defendants agreed to pay more than $9.8 million to settle Federal Trade Commission charges that they took money from businesses’ bank accounts without permission, including continuing to withdraw for days after balances were repaid, and misrepresented how much financing owners would receive. The order also barred withdrawals without express informed consent.

The FTC’s complaint in that case alleged deceptive terms, unauthorized withdrawals, confessions of judgment used to seize personal and business assets in ways owners did not expect, and threats of physical violence. Separately, in January 2025 the New York Attorney General secured a judgment of $1.065 billion against Yellowstone Capital and related entities, including cancellation of about $534.6 million owed by small businesses and vacatur of unsatisfied judgments. The lesson for an owner is not that every aggressive funder is breaking the law. It is that some conduct has already been tested in court, and documentation is what makes a complaint useful.

What is legal even when it feels like harassment?

A lot. Under a typical agreement and state law, a funder may generally call and email about a default, send demand letters, enforce the contract’s fee and acceleration terms, file or keep a UCC-1 financing statement, send UCC 9-406 notices to your customers, pursue the personal guarantee, sue, and, after a judgment, use court procedures such as restraining notices and levies. Distressing is not the same as unlawful, and treating every aggressive step as illegal can lead an owner to ignore a deadline that matters. If you have been sued, the response deadline comes first.

What should you do if you think a funder crossed the line?

1. Write it down the day it happens. Date, time, the caller’s name and number, and what was said, as close to word for word as you can.
2. Keep the paper trail. Voicemails, texts, emails, letters, and bank statements showing every debit, with the amounts your contract authorizes next to them.
3. Compare debits with the contract. Note any debit above the authorized amount, any debit after your records show the purchased amount was collected, and any debit from an account the contract does not cover.
4. Report it. The Federal Trade Commission takes reports at ReportFraud.ftc.gov, your state attorney general’s office takes consumer and business complaints, and California businesses can also complain to the DFPI.
5. Get advice before acting on a contract. Do not stop or block debits on your own. Under most agreements that is a default in itself. A licensed attorney in your state can assess a potential claim or defense, and threats of violence belong with law enforcement.

Where does negotiated debt relief fit?

Knowing the law helps you recognize conduct worth reporting. It does not, by itself, change the balance or the drafts. Negotiation is the path that addresses those directly: Anchor Resolve reviews every position in a free consultation, and the program documents set out all terms and fees before anything is signed. We then negotiate with each funder, and nothing changes until the owner signs each new agreement. Enrolling does not stop a funder from collecting or suing while balances are being renegotiated, and results vary. We are not a law firm and do not pursue claims against funders; where conduct needs a licensed attorney, we say so. How the process works sets out each step, and our disclosures list the risks.

Common questions