MCA regulation refers to the patchwork of state and federal rules governing merchant cash advance transactions. Because MCAs are structured as purchases of future receivables rather than loans, they fall outside the scope of most lending laws — creating a regulatory gap that consumer advocates and some legislators have been working to close.
Key Takeaways
- No federal agency directly regulates MCA transactions
- MCAs avoid usury laws by claiming they are not loans
- California, New York, Virginia, and Utah have enacted MCA disclosure requirements
- Courts are increasingly willing to recharacterize MCAs as loans when funder behavior looks like lending
The Federal Regulatory Gap
The federal government does not regulate MCAs directly. The Truth in Lending Act (TILA), which requires lenders to disclose APR and total cost, does not apply because MCAs are commercial products — not consumer credit. The Consumer Financial Protection Bureau (CFPB) has limited jurisdiction over commercial transactions.
The Federal Trade Commission (FTC) has authority over deceptive business practices, but it has not taken significant enforcement action against MCA funders.
State-Level MCA Laws
Several states have stepped into the federal vacuum:
- California (SB 1235, 2018): Requires commercial lenders and MCA funders to disclose total cost, APR equivalent, and payment amounts. Enforced by the DFPI.
- New York (2019): Banned out-of-state confessions of judgment (CPLR § 3218). Required disclosure of financing terms for small businesses.
- Virginia (2020): Enacted commercial financing disclosure requirements similar to California.
- Utah (2022): Created a registration requirement for commercial financing companies.
The Recharacterization Argument
The most important legal development in MCA regulation is not a statute — it is the judicial doctrine of recharacterization. When a court finds that an MCA functions like a loan — particularly when the funder takes fixed daily payments regardless of revenue — it can reclassify the transaction as a loan and apply usury laws.
The landmark case is Yellowstone Capital LLC (2025), where New York courts established that fixed-payment MCAs with no genuine reconciliation mechanism may be usurious loans subject to state interest rate caps.
Questions About MCA Legality?
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Frequently Asked Questions
Under current law in most states, yes — because MCAs are not classified as loans, usury caps do not apply. However, if a court recharacterizes the MCA as a loan, then state usury limits would apply retroactively, potentially making the agreement unenforceable.
The CFPB has expressed interest in commercial lending practices but has not issued MCA-specific rules. Any federal regulation would likely focus on disclosure requirements rather than rate caps.
