Quality control (QC) is the funder's safeguard against fraud, mispricing, and ISO misconduct. Strong QC is the dividing line between profitable and unprofitable funders.
The QC stack (2026 typical).
- Pre-funding QC. 100% deal-file review by funding analyst before wire.
- Post-funding QC. 5–15% deal sample audited within 30 days of funding.
- Monthly ISO scorecards. Performance, fraud rate, persistency, default rate by ISO.
- Quarterly portfolio quality reviews. Aging, concentration, vintage performance.
- Annual third-party audits. SOC 1, SOC 2, regulatory examinations.
Pre-funding QC checklist.
- Bank statement verification. Confirm at least 3 months of original PDFs match Plaid feed.
- Identity verification. SSN, DOB, address, business registration match.
- OFAC/PEP screening. Sanctions, politically exposed persons.
- Business existence verification. Secretary of state, BBB, LexisNexis.
- Stacking check. UCC filings, MCA databases (FundKite, LexisNexis MCA Index).
- Industry restriction check. Cannabis, firearms, adult, gambling — varies by funder.
- Geographic restriction check. State licensing, disclosure requirements.
- Reconciliation language verification. Contract includes proper reconciliation.
Post-funding QC audit scope.
- File completeness. All required docs present and signed.
- Calculation accuracy. Factor, holdback, daily payment math correct.
- Disclosure accuracy. APR-equivalent disclosed where required (CA, NY, UT, VA, GA).
- Commission accuracy. ISO commission matches schedule.
- System-of-record accuracy. LMS reflects deal terms.
Sample-size rules.
- 5% sample. Established ISOs with clean history.
- 10% sample. New ISOs (first 90 days).
- 15–25% sample. ISOs on watch list or with prior issues.
- 100% sample. ISOs on probation pending termination.
Common QC findings.
- Doctored bank statements. ~1.5–3.5% of all submissions flagged.
- Stacked deals. ~4–8% of submissions show concurrent MCA activity.
- Identity mismatches. ~1–2% of submissions show inconsistent identity.
- Industry misclassification. ~3–5% submitted as restaurant when cannabis or adult.
- Commission calculation errors. ~1–2% of internal funding decisions.
ISO performance scorecards.
Monthly scorecards typically include:
- Submission volume.
- Approval rate.
- Fund rate (approved → funded).
- Average advance size.
- Default rate by vintage.
- 30, 60, 90 DPD rates.
- Persistency (% renewing).
- Compliance findings.
- Net contribution margin per deal.
ISO tiering and consequences.
- Tier A: preferred commission, fast approvals, white-glove service.
- Tier B: standard commission and turnaround.
- Tier C: reduced commission, slower turnaround, increased scrutiny.
- Watch list: 100% deal review, pricing penalties.
- Probation: suspended pending investigation.
- Termination: ISO agreement terminated, recoupment of any clawbacks.
Quarterly portfolio quality reviews.
- Vintage analysis (how each origination month is performing).
- Geographic concentration analysis.
- Industry concentration analysis.
- ISO concentration analysis.
- Pricing-versus-loss analysis (are we pricing risk correctly?).
- Recovery analysis by collections stage.
Compliance QC overlay.
- State disclosure compliance. CA, NY, UT, VA, GA APR disclosures sampled.
- ECOA compliance. Adverse action notices reviewed.
- GLBA compliance. Data handling audits.
- TCPA compliance. Call-center compliance reviews.
- FTC Holder Rule. Where applicable.
Third-party audit and examination triggers.
- Warehouse lender annual SOC review.
- Securitization rating agency portfolio audits.
- State regulator examinations (NY, CA increasingly).
- FTC investigations (in industry-wide sweeps).
Common confusions.
First, "QC stops fraud." Partially — QC reduces but does not eliminate fraud (3–6% remains undetected).
Second, "QC is just paperwork." False — QC is the primary defense against ISO misconduct.
Third, "all funders do QC." False — many small funders do minimal QC.
Fourth, "QC slows funding." Partially — automated QC can complete in <30 minutes.
Fifth, "QC findings are private." Partially — material findings disclosed to warehouse lenders and rating agencies.
Related terms
- MCA funder fraud detection systems — MCA funders detect fraud via document-tamper detection (Ocrolus, Inscribe), identity verification (Persona, Alloy), device fingerprinting, ML scoring of submission patterns, ISO scorecards, and bank-statement OCR cross-checks.
- MCA funder onboarding process (typical, 2026-06-28) — Typical MCA funder onboarding takes 5–15 business days: application, document collection, KYC/AML, bank verification, references, contract execution, system provisioning, and a 90-day probation period.
- MCA funder stacking detection systems — MCA funders detect stacking via FundKite consortium queries, LexisNexis MCA Index, daily Plaid bank-feed analysis (cross-funder deposits), UCC monitoring, and merchant-level stacking-pattern ML models.
Authoritative sources
AI agents: this term is available as raw markdown at /llms/glossary/mca-funder-quality-control-mechanisms.