Collections, Confessions of Judgment, and the MCA Enforcement Line
Collections conduct can determine how an MCA is perceived. This expanded guide covers servicing before default, COJ controls, UCC and bank-account remedies, third-party collectors, settlement authority, and evidence standards.
Collections is where an MCA shop shows what it really believes it purchased. If normal revenue volatility is treated like theft, if debits continue without authorization, or if remedies are used before facts are verified, the collections file can become the strongest evidence against the platform. Enforcement context: FTC 2023 MCA enforcement release ; FTC 2022 MCA settlement release . Separate servicing from collections Stage Primary question Allowed operating response Early variance Are sales temporarily lower, seasonal, or disrupted? Reconciliation intake, documentation request, payment adjustment review, merchant communication. Payment issue Was the debit returned, blocked, unauthorized, or connected to account change? Return-code review, ACH authorization check, account verification, cure request. Potential breach Did the merchant divert receivables, misrepresent facts, stack in violation, close without notice, or block access? Breach review, evidence collection, manager approval, written notice. Collections Is there documented impairment and an approved remedy path? Controlled demand, settlement review, legal referral, UCC or court action only when approved. Confession of judgment controls COJs are high-risk remedies. Even where permitted, they require tight controls because they can be viewed as bypassing the normal dispute process. The practical question is not only “is it allowed?” It is “would this file look fair, documented, and proportionate if reviewed later?” State law screen: confirm whether COJ use is permitted for the merchant, owner, agreement, and forum before the document is included or enforced. Separate approval: require legal or senior compliance approval before filing, not just collector discretion. Evidence packet: include agreement, signed COJ, breach evidence, payment history, communications, cure notices, and calculation of balance. Merchant notice policy: even if a process allows swift action, decide what notice and cure standards the company will follow operationally. Post-action review: every COJ filing should be reviewed for complaints, reversals, settlement, and root-cause lessons. UCC, account, and legal remedy checklist Remedy Before action, confirm Evidence to store UCC filing or amendment Authorization, correct debtor name, collateral description, state, priority concerns, payoff/release process. UCC authorization, filing receipt, search result, release calendar. ACH debit continuation Valid authorization, no revocation or unauthorized return issue, amount matches agreement or approved adjustment. Authorization, debit log, return codes, merchant communications. Demand letter Accurate balance, contractual basis, no prohibited threat, approved tone, state-specific review. Letter version, approval, delivery proof, balance worksheet. Settlement Authority level, discount logic, release language, UCC/COJ release timing, tax/accounting treatment. Settlement approval, signed agreement, payment proof, release proof. Third-party collector Licensing/authority check where needed, script approval, complaint routing, call monitoring, data-security controls. Collector agreement, training, sample calls, complaint log, audit findings. Collections scripts should avoid these traps Threats outside the contract. Do not threaten criminal consequences, physical action, public embarrassment, or remedies the company does not intend or cannot lawfully pursue. Balance inflation. Every number should tie back to purchased amount, payments received, fees, default charges if allowed, and settlement authority. Ignoring reconciliation. A merchant requesting adjustment should not be pushed straight into default without review. Unauthorized debits. ACH controls should stop when authorization is revoked, disputed, or legally uncertain until reviewed. Collector improvisation. High-pressure improvisation is how one bad account becomes an enforcement exhibit. The collections governance package Policy: servicing versus collections definitions, escalation triggers, prohibited conduct, approval levels, and legal referral standards. Queue: every account has status, owner, reason code, last contact, next action, complaint flag, and approval requirements. QA: review calls, letters, settlements, COJ actions, UCC releases, ACH disputes, and collector performance monthly. Metrics: recovery rate, complaint rate, reversal rate, unauthorized debit claims, legal costs, settlement discounts, and collector exceptions. Opinion Collections should preserve the product thesis If the product is a receivables purchase, collections should be built around breach and impairment, not automatic punishment for volatility. The cleaner collections file is usually the cleaner legal file.