Arbitration Clause
Arbitration clauses require disputes to be resolved through private arbitration rather than court litigation — included in many MCA contracts to provide faster resolution, lower legal cost, and reduced exposure to jury awards or class action liability.
Why This Matters
MCA arbitration clause typical structure: mandatory binding arbitration for disputes, designated arbitration provider (AAA, JAMS), arbitrator selection process, arbitration location specification (often in funder's home jurisdiction), and class action waiver. Arbitration benefits funders: faster resolution (months vs years), lower legal costs, no jury exposure, no class action exposure, and confidentiality of awards. Drawbacks for merchants: limited discovery, no jury trial, restricted appeal rights, and arbitration filing fees. Federal Arbitration Act preempts state laws restricting arbitration — clauses generally enforceable nationwide.
Frequently Asked Questions
Frequently Asked Questions
Are MCA arbitration clauses always enforceable?
Generally yes under FAA, though courts may invalidate clauses found unconscionable, lacking mutuality, or imposing prohibitive costs on merchants. Most properly drafted clauses survive challenge.
Why do funders prefer arbitration over litigation?
Speed (resolution in 6-12 months vs years), cost (lower legal fees, no jury preparation), predictability (experienced arbitrators, no jury awards), and class action protection (waiver eliminates aggregated litigation risk).