My Funder Says I Breached by Changing Bank Accounts. Is That Real?

Is it a default if I switch bank accounts? It is often a breach of a covenant in the Merchant Cash Advance (MCA) contract, but it may not be a default. Whether the funding company can accelerate repayment, charge default fees and pursue you on the guaranty depends on whether you gave notice and whether you are preventing it from being paid its share.

That turns on two sections of the contract, and I will show what they say in a contract that is publicly available.

Is changing bank accounts a breach of your MCA contract?

If you don’t get the funding company’s written consent to change bank accounts, in many contracts it is a breach of a covenant (a promise). For example, in a 2023 MCA contract between Cedar Advance and INVO Bioscience, which is publicly available at the SEC website, Cedar bought $746,750 of INVO’s future receipts for $515,000 and was entitled to debit 20% of receipts, expected to be around $16,594 per week. The contract required INVO to have “only one depositing account acceptable to CEDAR,” and the ACH authorization was irrevocable without Cedar’s written consent. Section 23 said INVO “will not, without CEDAR’s prior written consent, change its Processor, add terminals, change its financial institution or bank account.” So, in this case, Cedar didn’t make this up.

When does changing bank accounts become an MCA default?

It is a default only if it is listed in the Events of Default section of the contract. The Cedar contract lists only four, and “changed banks” is not one of them:

1. You made a representation that was “intentionally false or misleading in any material respect when made.”
2. You cause “any ACH debit to the Account by CEDAR to be blocked or stopped without providing any advance written notice to CEDAR with an alternative method for CEDAR to collect the blocked or stopped payment.”
3. You intentionally prevent Cedar “from collecting any part of the Receivables Purchased Amount.”
4. You stop a debit that comes back with an R08, R10 or R29 code and don’t explain in writing within two business days.

So if INVO had changed where it deposited receipts, given Cedar written notice of the new account and kept Cedar paid, it would not have been a default. If INVO had switched accounts and started bouncing Cedar’s debits, it would have been a default under #2 and #3. Cedar could then charge $2,500 for a “Blocked Account/Default,” accelerate the entire uncollected amount, and elect liquidated damages equal to 25% of the unpaid amount. Contracts differ, so read yours carefully. If it is a default, see what an MCA company can actually do if you default.

How is switching bank accounts different from diverting receivables?

Switching bank accounts is different from diverting receivables. An MCA is a sale of receivables, which Article 9 of the Uniform Commercial Code (UCC) covers in section 9-109(a)(3). Under Section 9-315, the funding company’s interest attaches to the “identifiable proceeds” of the receivables it bought, so its interest follows the proceeds into a new account. And under Section 9-406, the funding company can give notice to your card processor and your customers and have them pay it directly, regardless of what bank you use.

Funders sometimes call a quiet account switch theft. Many contracts, including Cedar’s, call the merchant a “fiduciary” holding the receivables “in trust.” But that language is a contract term; no statute makes breach of contract theft. You can read more in our article about threats MCA collectors make that they can’t back up.

How do courts view account-switch defaults compared with revenue defaults?

Generally, New York courts enforce the agreement when the merchant defaults by its own doing, but a default caused by falling revenue makes the deal look like a loan. In LG Funding v United Senior Properties (2d Dept 2020), the Second Department listed three factors: whether there is a reconciliation provision, whether the term is finite, and whether there is recourse if the merchant declares bankruptcy. In Davis v Richmond Capital (1st Dept 2021), the First Department counted a provision making two or three rejected debits without notice an event of default among the allegations supporting a loan.

In People v Richmond Capital Group, the court affirmed in February 2026 that the agreements were loans. That case involved over 3,000 transactions, and the court noted that “no reconciliation was performed in practice.” However, in Apollo Funding v Dave Reilly Construction (2025), the court said the merchant could not argue that the reconciliation process was illusory because the merchant had never used it. So if sales are slow, put the funder on notice in writing that you want a reconciliation. Cedar’s contract let merchants request one by email, and Cedar had to pause debits and finish within two business days.

LG Funding and Apollo Funding describe the owner’s signature as a “personal guaranty of performance” of the covenants of the contract. So if the merchant switches banks without consent, the owner could be held personally liable. However, if revenue drops because sales are down, Cedar’s contract says that “will not on its own” put the merchant in breach. For pressure short of a lawsuit, see whether an MCA funder can shut down your business.

Frequently Asked Questions

If I switched banks but kept paying, am I still in breach?

Probably. Even though the funder is getting its remittances, you probably breached the consent covenant. But most default lists are written for merchants who block the funder’s debits. The best way to avoid the problem is to get the new account approved in writing.

Is changing bank accounts on an MCA a crime?

No. The “fiduciary” and “in trust” wording is a contract term, and no criminal statute makes breach of contract a crime. Most fraud cases in this area involve merchants who lie on their application or hide receipts from the funder.

What if I switched because the funder refused to reconcile?

Put the funder on notice in writing that you want a reconciliation. Some cases say a funder’s failure to reconcile is an indication that the deal is a loan. However, in Apollo Funding, the merchant could not argue that the reconciliation process was illusory because it had never used it.

Does Texas law change anything for account switching?

Since September 1, 2025, Section 398.056 of the Texas Finance Code prohibits a provider from setting up automatic debits from a deposit account unless it has a first priority, perfected security interest in that account. Section 398.055 voids confession of judgment clauses. Only the state can enforce these provisions. The civil penalty is $10,000 per violation, and there is no private right of action.