What are typical MCA charge-off rules and timing in 2026?

MCA Funder Charge-Off Rules Typical Detailed 2026

MCA charge-off rules in 2026 typically trigger at 120-180 days delinquent (DPD) for most funders, with some triggering at 150 DPD. Funders write off the full remaining balance against CECL allowance, transfer to collections/recovery, and continue pursuing recovery. Top-tier funder charge-off rates 12-18% of vintage; sub-tier 18-25%. Charge-offs do not extinguish merchant obligation.

Quick answer

Full answer

Charge-off overview 2026. Charge-off is an accounting event recognizing that a receivable balance is unlikely to be recovered. The receivable is written off the balance sheet against the CECL allowance, but legal obligation typically continues. Funders pursue collection post-charge-off through internal recovery, third-party agencies, or portfolio sales to distressed-debt buyers.

Timing trigger thresholds 2026. (a) Most funders — charge off at 120-180 DPD. (b) Top-tier funders typically — 150 DPD trigger. (c) Aggressive funders — 90-120 DPD trigger. (d) Conservative funders — 180-210 DPD trigger. (e) Bankruptcy-related — immediate charge-off upon bankruptcy filing in some cases. (f) Confession of judgment paper — charge-off may be delayed pending judgment outcome.

Pre-charge-off treatment 2026. (a) 30 DPD — typically remain in performing buckets with elevated reserve. (b) 60 DPD — transition to special mention or watch list. (c) 90 DPD — typically non-accrual status (revenue recognition suspended). (d) 120 DPD — workout team intervention, restructure attempts. (e) 150-180 DPD — charge-off decision typically made.

Charge-off accounting mechanics 2026. (a) Remove gross receivable from balance sheet. (b) Reduce CECL allowance by charged-off amount. (c) Net income impact already recognized via prior allowance build. (d) Continue tracking off-balance-sheet for recovery purposes. (e) Recoveries credited back when received. (f) Disclosure in financial statements as charge-off activity.

Industry-typical charge-off rates 2026. (a) Top-tier funders (Credibly, OnDeck, Kapitus, BlueVine) — 12-18% of vintage typically charged off. (b) Mid-tier funders — 15-22% of vintage charged off. (c) Sub-tier funders — 22-30% of vintage charged off. (d) Specialty distressed funders — 28-40% of vintage charged off. (e) Industry concentration impact — restaurant-heavy portfolios trend higher; trucking lower.

Charge-off rates by vintage 2026. (a) 2022 vintage (Q1-Q2 funding) — 18-25% charge-off rates (peak rate environment). (b) 2023 vintage — 16-22% charge-off rates. (c) 2024 vintage — 14-20% charge-off rates. (d) 2025 vintage (mid-life) — projected 12-18%. (e) 2026 vintage (early-life) — projected 10-16%. (f) Improvement trend driven by tighter underwriting and economic stabilization.

Recovery tracking post-charge-off 2026. (a) Recoveries tracked separately from charged-off balances. (b) Industry-typical recovery rates — 25-35% of charged-off amounts. (c) Recovery sources — settlements (40-55%), payment plans (20-30%), litigation/judgments (15-25%), portfolio sales (5-15%), self-cure (5-10%). (d) Recovery timeline — 60-70% within first 12 months, balance over 12-36 months. (e) Some recoveries net of legal and collection costs (20-40% costs).

Recovery accounting treatment 2026. (a) Recoveries on charged-off amounts credited to recovery income (P&L). (b) Some funders show as 'provision for losses' offset. (c) Disclosure of recovery activity required for material amounts. (d) Recovery economics improve funder reported earnings. (e) Recovery often capitalized via third-party collection agencies (75-90% of gross to funder, 10-25% to collector).

Merchant impact from charge-off 2026. (a) Legal obligation continues — charge-off is accounting event, not debt extinguishment. (b) Funder may continue collection efforts or sell to distressed-debt buyer. (c) Credit reporting impact — some funders report charge-offs to personal credit (with personal guarantee); some don't. (d) State law impact — statute of limitations begins running (typically 4-6 years for written contracts). (e) Tax impact — debt forgiveness income if formally discharged; not triggered by charge-off alone.

Distressed portfolio sale post-charge-off 2026. (a) Funders sell charged-off paper typically 30-180 days post-charge-off. (b) Sale prices 3-12 cents on dollar for charged-off paper. (c) Buyers continue collection efforts under their own protocols. (d) Original funder typically retains no servicing rights. (e) Merchants may be contacted by multiple parties as paper trades.

State-specific charge-off considerations 2026. (a) NY, NJ post-reform — restricted confession of judgment may delay charge-off if litigation pending. (b) CA — strong commercial financing disclosure laws affect charge-off documentation. (c) FL, TX, GA — typical charge-off practices. (d) State debt collection laws (FDCPA-equivalent) — apply to third-party collectors post-charge-off. (e) State statute of limitations varies.

Bottom line. MCA charge-off rules in 2026 typically trigger at 120-180 DPD (most funders 150 DPD), with full remaining balance written off the balance sheet against CECL allowance. Top-tier funders see 12-18% vintage charge-off rates; sub-tier 22-30%; 2022-2023 vintages elevated 18-25%. Pre-charge-off escalation: 30 DPD watch list, 90 DPD non-accrual, 120 DPD workout, 150-180 DPD charge-off. Industry-typical recovery rates 25-35% of charged-off amounts via settlements (40-55%), payment plans (20-30%), litigation (15-25%). Charge-off is accounting event not debt extinguishment — legal obligation continues, statute of limitations begins running, credit reporting impact varies by funder. Many funders sell charged-off paper to distressed-debt buyers at 3-12 cents on dollar. Merchants should distinguish charge-off (accounting) from settlement (legal release).

What are typical MCA charge-off rules and timing in 2026?

Full answer

Related questions