Refusing to reconcile is not a minor administrative lapse. When a merchant cash advance funder continues collecting fixed daily amounts after receiving a written reconciliation demand, it has potentially converted a purchase-of-receivables agreement into something courts increasingly treat as an unlawful loan.
That conversion has consequences. And you can use them.
Why Refusal to Reconcile Matters Legally
Courts in New York, California, and elsewhere have held that a funder’s post-contractual conduct, including refusal to adjust remittances when receivables decline, is relevant to whether the agreement was ever a true sale of receivables or merely a loan dressed in different language. A 2023 ruling in the Southern District of New York confirmed that a funder’s systematic denial of reconciliation requests was admissible evidence in support of a recharacterization argument.
Recharacterization, if successful, means the agreement becomes a loan. A loan with an effective rate exceeding state usury limits is void or voidable. The difference between a reconciliation dispute and a usury claim is a matter of record-keeping and legal framing.
Action 1: File a Breach of Contract Claim
The reconciliation clause is a term of the contract. Ignoring it is a breach. A breach of contract action seeking damages equal to the excess amounts collected above the contractually specified percentage is a straightforward claim, particularly when you have documented the demand in writing and the funder’s response, or absence of response, is on record.
Breach claims can be filed in state court. They do not require federal jurisdiction. And they can be filed before the MCA term expires, not only after payoff.
Action 2: Seek a Temporary Restraining Order on Further Debits
Emergency injunctive relief is available when ongoing harm cannot be remedied by money alone, and when the plaintiff can demonstrate a likelihood of success on the merits. A business whose operating capital is being exhausted by excess deductions during a documented revenue decline can often satisfy both elements.
Courts have granted TROs against MCA funders within twenty-four to forty-eight hours of filing when the record showed imminent irreparable harm to the business’s ability to meet payroll or operating obligations.
The standard is not certainty. It is likelihood.
Action 3: File an ACH Dispute Through Your Bank
The ACH network provides a separate dispute mechanism that does not require litigation. If a debit entry was unauthorized, or if it exceeded the authorized amount under the underlying agreement, Regulation E and NACHA rules may support a reversal. Banks are often reluctant to reverse business account ACH entries on the grounds that the authorization was in place when the agreement was signed.
The counterargument, which has traction when presented through legal counsel, is that authorization for a specific percentage does not authorize a fixed amount that exceeds that percentage given actual revenue. That is a different transaction than the one authorized.
Action 4: Assert a Usury Defense or Counterclaim
If the funder’s refusal to reconcile establishes that the agreement functions as a loan, the effective rate of that loan becomes subject to scrutiny. Some agreements, when modeled as fixed-term loans rather than revenue-contingent purchases, carry effective annual rates that exceed the criminal usury threshold under applicable state law. In New York, that threshold sits at twenty-five percent for civil claims. Agreements that clear it may be void in their entirety.
This defense is most powerful as a counterclaim in a collection action the funder has already filed against you. It converts their offense into your leverage.
Action 5: File a Complaint With State Regulators
Several states now require commercial financing providers to register, disclose, and comply with consumer protection frameworks. The California Department of Financial Protection and Innovation, the New York Department of Financial Services, and the Connecticut Department of Banking all receive complaints related to MCA practices. A filed complaint does not guarantee relief, but it creates a regulatory record that affects the funder’s exposure in any subsequent private litigation.
Funders who have accumulated regulatory complaints are not in a strong negotiating position when the subject of those complaints is exactly the conduct alleged in your dispute.
If your MCA funder has ignored a reconciliation request, the appropriate response is not a second request. It is a consultation. The conduct you have already documented may be more valuable than you realize, and the time to act is before additional funds are swept from your account.
