Quick Tip #6- Know How MCA Brokers Get Paid

Sean Hawley

How to Leverage the Good Credit of a Friend or Relative to Help Build Your Own.

Ah yes…the typical MCA broker. My favorite lending industry ‘professional’ (that was sarcasm if you couldn’t tell). Let’s have a gander shall we?

Author’s note- this article is not written theoretically, and is based upon my own actual experience. My best friend added me as an authorized user on one of her accounts. She had outstanding credit for her entire life. Within 3 months my score was up 80 points, and it stayed there for years. (Shout out to CJ- thanks for all your help!)

No Barrier to Entry

Lawyers, mortgage brokers, insurance reps, and accountants all have required schooling, training, and qualification/licensing exams before they can legally operate in business. This is to ensure that they represent clients with a level of professionalism, expertise, and most importantly-accountability. Heck, in most states, even a barber has to get a license.

Not so for the MCA broker. Unlike many other financial sales industries, both personal and business, a dude could literally get fired from delivering pizzas on Monday and have a brand new job as an MCA broker on Tuesday. There are no prerequisites- education, legal, licensing, or otherwise that must be met before one can become an MCA broker. Great.

This also refers to MCA broker companies. Aside from registering with local state an tax agencies, opening an MCA broker shop is as simple as renting an office and filing it with desks and chairs. Remember that scene in the Wolf of Wall Street, where the first office was a converted auto shop? Yeah, hopefully you’re getting the picture.

I want to be clear and state that not all MCA brokers or companies are bottom feeding scoundrels who will always put their own greed ahead of the needs of their client. I’ve been in business lending 20 years and have met plenty of good actors in the industry. Actually I’m lying. I’ve met about five. Well…three. Okay, there was that one guy.

Lenders vs. Brokers

In the MCA space there is a distinction between lenders and brokers. Although a common practice of some unscrupulous brokers is to represent themselves as lenders when in fact they are not. Why they do this remains a mystery to me- perhaps as an effort to raises their “street cred”, which still doesn’t really make sense anyway.

Direct Lenders

Some lenders have a retail (client facing) presence, meaning one can go directly to them to apply for and receive an MCA. Big lenders like On Deck & Credibly and have a very visible presence. These lenders also accept clients from brokers. This is kind of like getting insurance from Progressive yourself or having your insurance broker place you there.

Direct Interaction: Direct lenders deal directly with borrowers. This direct interaction demands a high level of compliance with lending laws and regulations, as there’s no intermediary.

Regulatory Scrutiny: They may be subject to more direct scrutiny from regulatory bodies since they are the principal in the lending transaction.

Disclosure and Transparency: Direct lenders are responsible for all disclosures and must ensure that all aspects of the lending process are transparent and comply with applicable laws, which can include state usury laws, truth in lending acts, and other financial regulations.

Lenders via Broker Referral Networks

These lenders receive all of their business from their broker referral network. They don’t spend any money on advertising or websites and instead rely solely on the volume of clients they get from broker submissions.

Broker’s Role: In this model, the broker acts as an intermediary between the borrower and the lender. While this can offload some of the customer-facing responsibilities, the lender still needs to diligently oversee the brokers to ensure compliance with laws and ethical lending practices.

Indirect Interaction: The indirect nature of the client interaction might lead to less control over the customer experience and potential misrepresentations or omissions by brokers.

Dependence on Broker Practices: Lenders might face legal exposure if the brokers engage in predatory lending practices, misrepresent terms, or fail to adequately disclose terms. Even though the direct relationship is between the broker and the borrower, the lender can still be held accountable for the actions of the brokers they choose to work with.

Lenders via Broker Referral Networks

Broker’s Role: In this model, the broker acts as an intermediary between the borrower and the lender. While this can offload some of the customer-facing responsibilities, the lender still needs to diligently oversee the brokers to ensure compliance with laws and ethical lending practices.

Indirect Interaction: The indirect nature of the client interaction might lead to less control over the customer experience and potential misrepresentations or omissions by brokers.

Dependence on Broker Practices: Lenders might face legal exposure if the brokers engage in predatory lending practices, misrepresent terms, or fail to adequately disclose terms. Even though the direct relationship is between the broker and the borrower, the lender can still be held accountable for the actions of the brokers they choose to work with.

Being one or the other doesn’t make either inherently bad or good. It’s just how each respective lender chooses to operate. In both scenarios, it’s crucial for the entities involved to prioritize compliance with all applicable lending laws, practice transparency, and ensure that their products are structured and marketed in a fair and responsible manner.

Different Levels of Depravity

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The Art of the Deal Upsell

Not all credit accounts are equal when it comes to being an authorized user. To maximize the benefits, ensure the primary account holder exhibits these characteristics:

Pristine Payment History: The account should have a record of on-time payments. Late payments can negatively impact your credit score.

Long Credit History: The older the account, the better. An aged account adds depth to your credit history.

Low Credit Utilization: Look for an account with a utilization ratio below 30%. This indicates responsible credit management.

Stacking the Deck: The Dangerous Game of MCA Positioning

Becoming an authorized user is straightforward. The primary account holder needs to contact their credit card issuer and request to add you to the account. Some key points to remember are:

Verification: You’ll need to provide personal information such as your full name, address, date of birth and social security number.

Long Credit History: The older the account, the better. An aged account adds depth to your credit history.

Set Ground Rules: Have an open discussion about card usage, if any, and repayment expectations to avoid future misunderstandings. If you are even remotely irresponsible with credit card usage, don’t even let them give you the card. Note- It does not matter whether you use the card or not- your credit will get the same boost either way.

Caveats and Considerations

While being an authorized user can be beneficial, it’s not without its risks:

Shared Responsibility: If the primary account holder mismanages the account (e.g., maxes out the card or misses payments), it could negatively affect your credit score.

Relationship Dynamics: Money matters can strain relationships. Ensure both parties are clear about expectations and responsibilities.

In my case, my friend added me to her an account so that I could have a card in emergencies only. I didn’t even keep in my wallet. I think in over 5 years I only used it once, for an emergency vet bill, (and I asked her beforehand). She and I both knew that I’m not the greatest at remembering my bills, so she really did me a solid by trusting I wouldn’t abuse the privilege. I also knew she would kill me if I screwed up her credit, so this was an extra incentive to be responsible.

Temporary Solution: While being an authorized user can help build your credit, you should also work on establishing your credit independently.

This is a proven method that actually works. The amount of bump to your score will depend almost entirely upon the other person’s credit habits. But you also need to make sure you keep your own accounts in as good a standing as possible. Even if you have older accounts that are on your credit report, do your best to get and keep current what you can. And one more thing- when you see that nice shiny new score on your credit report, do you something nice for them to show your appreciation.

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