# MCA funder quality control mechanisms

> MCA funder QC includes pre-funding 100% file review, post-funding sample audits (5–15%), monthly ISO scorecards, fraud-deal post-mortems, and quarterly portfolio-quality scorecard for warehouse lenders.

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](https://fundnode.co/llms/glossary/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)](https://fundnode.co/llms/glossary/mca-funder-onboarding-process-typical) — 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](https://fundnode.co/llms/glossary/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

- [SFNet — Quality Control Best Practices 2025](https://www.sfnet.com/)
- [deBanked — MCA Underwriting Standards](https://debanked.com/)

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Document: MCA funder quality control mechanisms — Fundnode MCA Glossary
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