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At the Law Offices of Anthony Rumore, P.A. We are client and solution oriented, not problem oriented. We focus on resolving the legal matters and problems of every one of our clients. For us, sharing the precise nature of the legal issues with the client is just the beginning of the problem resolution process. We are determined to present our clients concrete and realistic solutions for their problems.

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  • 1318 Southeast 1st Avenue, Fort Lauderdale 33316
  • 954-942-2414

In the News

MCA COLLECTION PRESSURE - THE UCC 9-406 LIEN DEMAND


How merchant cash advance creditors weaponize UCC 9-406 lien demand notices and how to fight back.

One of the most effective tools an MCA lender uses to pressure a borrower is the UCC lien demand notice. These are private collection letters written by the creditor's attorneys or collection agencies and citing Uniform Commercial Code Section 9-406 sent to a borrower's vendors, customers, and card processors. They may go to just one or two, or to many, depending on how much the creditor knows about the borrower's customer and vendor relationships.

Card Processors, Electronic Payments, and Insurance
If a business depends on card processing as retail and hospitality businesses do an MCA default will almost certainly prompt the lender to send a lien demand letter to every card processor it knows about. The letter states that the MCA creditor purchased the business's future receivables, that the processor may be holding receivables that would normally be remitted to the business, and that under Section 9-406 and the creditor's recorded UCC-1 assignment, the processor must pay the creditor directly warning that paying the business instead violates the law and exposes the processor to liability.

At a minimum, a card processor or electronic-payment service such as PayPal, CashApp, or Venmo will freeze the account on receipt, no questions asked. The only way to unfreeze it is to reach a written settlement with the creditor, who then sends a retraction notice to the affected processor. When an insurance company such as Aetna, Cigna, BlueCross/BlueShield, or UnitedHealth receives a notice, it is not only likely to freeze the account but may pay the money directly to the creditor rather than to the business that performed the services an outcome that can be devastating for medical, dental, and therapy practices that depend on insurance payments.

Customers of the Business
Ordinary customers those who are not third party payors like insurers or clearinghouses like card processors tend to be more skeptical of a lien demand notice and more cautious about how they respond. But if a business relies on one or two very large customers for most of its revenue, a notice to them poses serious risk. Consider a general contractor who does all of his work for a single real estate developer. That developer may not pay the creditor directly, as an insurer might, but may do something almost as damaging: stop doing business with the contractor and hold the disputed funds indefinitely until both the creditor and the business owner sign a mutual release. That means a settlement must be reached often with roughly fifty percent (50%) of the restrained funds released to the creditor.

We contend with this by holding the creditor to its burden. Under the Uniform Commercial Code, a creditor must show that it sent a valid lien demand notice which requires the legal right and lawful authority to enforce its lien, meaning a properly secured, priority lien position. Suppose the business owner has an SBA loan recorded two years before the MCA, or a bank line of credit recorded a year before the MCA recorded its lien. In that case we can argue the MCA's lien demand is invalid, because the MCA does not hold a first-position, secured priority lien. These letters are powerful, and only an experienced firm with the right tools can communicate effectively with a customer about them. Where a prior UCC-1 already exists which is not uncommon there are effective ways to navigate around the notice, along with other possible remedies for a business owner under UCC 9-406 attack.

MCA Creditor Lawsuits
Whether or not UCC lien disruption succeeds, lenders often file a breach of contract lawsuit and these can be defended aggressively. A few jurisdictions still permit Confessions of Judgment, which let a creditor obtain a judgment with no notice to the defendant and no hearing, but they have grown rare as more jurisdictions ban or sharply restrict them. The standard breach of contract suit accounts for about ninety-five percent (95%) of the MCA actions we see. Most are filed in New York, Utah, Florida, Texas, and California, but through our network of attorneys, we can defend suits filed anywhere in the country we have done so as far away as Alaska.

Once defense pleadings are filed, these cases can run from six to nine months on the short end to three years or more, and throughout that time the borrower makes no payments to the creditor. A business owner who chooses to settle at some point during the litigation will almost always do so on far better terms than the pre-default repayment schedule.

Partial Payments in Hopes of Avoiding a Lawsuit
We never advise making partial payments without a fully executed written settlement agreement. Without one, the owner may not receive full dollar for dollar credit; the creditor can add new fees weekly or monthly and treat each partial payment as a continuing default because it is less than the full scheduled amount. The result is that partial payments may reduce the total debt little, if at all. A business owner is almost always better off being willing to litigate and ultimately reach a negotiated, written settlement.

The Worst Thing Is to Ignore It
The worst thing a business owner can do is ignore the problem and fail to seek professional legal advice. MCA creditors often assign a "good guy" collection agent; while the owner talks with him daily and makes occasional partial payments, the balance may quietly grow and behind the scenes the creditor's attorney may be pursuing a Confession of Judgment in a jurisdiction like Iowa, or another no-notice action such as a Connecticut pre-judgment remedy to freeze bank accounts. Even without a Confession of Judgment, the creditor may file suit while the "good guy" assures the owner there is nothing to worry about; thirty days later, a default judgment can be entered against the business and the guarantor, exposing bank accounts to levy. And because some jurisdictions allow service by regular mail, an owner may never receive the suit at all, only to find a judgment entered because it was never answered.

Our attorneys have more than fifty years of combined experience in creditor debtor and commercial-business law, and for the past decade have concentrated heavily on protecting business owners against hyper-aggressive merchant cash advance creditors. Our attorneys offer free consultations to discuss how we can best help shield you from MCA collection pressure. If you believe you may default, or you have already defaulted or are making only partial payments, consult a qualified professional to protect your business from potentially catastrophic disruption.

Anthony Rumore, Esq.
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