Most MCA disputes do not go to trial. They settle. The question is whether you settle from a position of weakness — paying the full claimed balance under threat — or from a position of strength, using legal defenses to negotiate significant reductions and favorable terms.
This article explains the settlement strategies that produce the best outcomes for Texas business owners facing MCA collections.
Why MCA Funders Settle
MCA funders prefer quick, easy collections. When they encounter serious legal resistance, their calculus changes:
- Litigation in Texas is expensive: A New York-based funder must hire Texas counsel, travel for hearings, and fight on unfamiliar ground
- Usury risk is existential: If a court recharacterizes the MCA as a usurious loan, the funder loses everything — and may owe damages
- COJ judgments are fragile: Confessions of judgment obtained without due process are increasingly vulnerable to challenge
- Regulatory exposure: Aggressive MCA practices have drawn enforcement actions from the New York AG ($1 billion+ judgment), the FTC (permanent bans), and state regulators
- Bankruptcy threat: If the merchant files, the funder may collect nothing — or worse, have to return preference payments (as in JPR Mechanical)
Knowing these pressure points — and demonstrating that you will actually use them — is the foundation of effective MCA settlement negotiation.
The Two-Angle Leverage Strategy
Your settlement leverage comes from two independent angles, and they reinforce each other:
Angle 1: New York Contract Language
If the MCA agreement says (as most do): - "Business closure does not constitute a breach" - "Purchaser assumes business-failure risk" - "No fixed repayment term or interest rate" - Payments tied to actual receivables
Then the funder has contractually agreed that if the business stops generating receivables, the funder's right to collect stops too. You are holding the funder to their own contract language.
Angle 2: Texas Enforcement Defenses
If the funder tries to pursue judgment or enforcement in Texas, they face: - Criminal usury if the MCA is treated as a loan - COJ judgment voided under HB 700 and due process - Foreign judgment blocked under UEFJA defenses - ACH debits prohibited without first-priority lien - Regulatory complaints to TX AG and FTC
Either angle alone creates leverage. Together, they create a position where the funder's best option is to negotiate.
The Settlement Conversation
Opening Position
Lead with the contract. Calm, factual, non-adversarial:
"We have reviewed the agreement carefully. Under your own contract, a business shutdown is not a breach. You only have rights to future receivables. There are none. The guaranty does not obligate our client to create revenue after the business closes."
Legal Posture
Follow with the legal consequences of pressing the claim:
"You assumed business-failure risk. If you take the position that this is a loan and demand the full purchased amount, it becomes criminally usurious under New York law — voiding the entire contract. We will litigate aggressively."
Texas Enforcement Warning
Make clear that any judgment will be contested:
"We will challenge any New York judgment in Texas. Usury, jurisdiction, and public policy defenses are all in play. Under HB 700, the COJ clause is void and ACH debits without a first-priority lien are prohibited."
The Offer
After establishing leverage, present a reasonable resolution:
"We are willing to resolve this for [amount] over [timeframe]. This avoids the cost, risk, and delay of litigation for both sides."
Structuring the Settlement
Lump Sum vs. Payment Plan
- Lump sum: Offers the best discount. Funders often accept 30-50% of the claimed balance for immediate payment
- Payment plan: Less discount but more affordable. Typical terms: 12-24 months of fixed payments
- Hybrid: A smaller upfront payment plus monthly installments
Key Settlement Terms
Every MCA settlement should include:
- Mutual release of all claims: Both sides release all claims, known and unknown, arising from the MCA
- Judgment vacated: If a COJ or default judgment exists, it must be vacated as part of the deal
- UCC termination: The funder must file a UCC-3 termination statement releasing any liens
- Personal guaranty release: The guarantor is released from all personal liability
- ACH authorization revoked: All automatic debit authorizations are canceled
- Confidentiality: Terms of the settlement remain confidential
- No admission: Neither party admits liability (FRE 408 protects settlement discussions)
What to Avoid
- Do not agree to a consent judgment: Some funders want a consent judgment that they can enforce if you miss a payment. Resist this — if you miss one payment, you are right back where you started
- Do not sign new documents: The settlement should resolve the existing MCA, not create a new obligation
- Do not waive future claims: Make sure the release is mutual — the funder releases claims against you, too
Settlement by Case Status
Before Any Judgment
- Strongest position: The funder has no judgment and would need to litigate to get one
- Typical settlement: 25-40% of claimed balance, depending on the strength of your defenses
- Strategy: Demonstrate that you will fight (file an answer with usury counterclaims if sued) and negotiate simultaneously
After COJ Judgment but Before Texas Domestication
- Strong position: The COJ judgment is vulnerable to challenge in both the original state and Texas
- Typical settlement: 30-50% of judgment amount
- Strategy: File a motion to vacate the COJ while negotiating. The funder knows the judgment may not survive
After Judgment Domesticated in Texas
- Moderate position: The funder has a judgment but you have UEFJA defenses and can seek a stay
- Typical settlement: 40-60% of judgment amount
- Strategy: File immediately to stay enforcement and challenge the judgment. Negotiate while the stay is in place
Business Already Closed
- Variable: If there are no assets and the guarantor has bankruptcy options, the funder's collection prospects are poor
- Typical settlement: 15-35% of claimed balance
- Strategy: Emphasize that business closure is not a breach under their own contract, and that personal bankruptcy would eliminate the guaranty
When Settlement Fails
If the funder refuses reasonable terms, be prepared to escalate:
- Full litigation: File answer and counterclaims (usury, DTPA, declaratory judgment)
- Discovery: Request the funder's internal documents — how they handle reconciliation, what training materials say about their product, communications about your account
- Expert witness: Engage a forensic accountant to testify about the effective APR
- Regulatory complaints: File complaints with the NY AG, TX AG, and FTC
- Bankruptcy: If litigation is too expensive or the funder is too aggressive, a strategic bankruptcy filing stops everything and forces negotiation under court supervision
The Decision Framework
Use this framework to decide your approach:
Settle if: - The funder is open to reasonable terms - Business rationale favors closure - Your client wants certainty and wants to move on
Litigate if: - The funder demands an unreasonable amount - They mischaracterize the MCA as a loan in their pleadings (giving you usury ammunition) - The contract has multiple vulnerabilities that make a strong case
Block enforcement in Texas if: - A judgment was obtained improperly (COJ, no service, no jurisdiction) - New York law was misapplied - The MCA is recharacterized as a usurious loan
File bankruptcy if: - The business cannot survive the collection pressure - Multiple MCAs are stacked - The guarantor's personal assets are at serious risk - Settlement is not possible at a reasonable amount
This article is part of the MCA Defense Guide. Call (469) 607-8552 for a free consultation.