Quick Summary
As of January 1, 2025, California’s Rosenthal Fair Debt Collection Practices Act (RFDCPA) extends consumer-style protections to small business debts, including merchant cash advances. MCA borrowers can now demand debt verification, challenge harassment, and report violations to regulators.
Introduction
A key criticism of merchant cash advances (MCAs) is their lack of protection for borrowers. While consumer borrowers are granted robust protections under the federal Fair Debt Collection Practices Act (FDCPA), the same can’t be said about business debts, including MCAs.
However, as of 2025, California’s law now protects small businesses from abusive debt collection practices. The Rosenthal Fair Debt Collection Practices Act (RFDCPA), which was originally passed in 1977 to mirror the federal law, has been expanded to cover some business debts.
If you have small business debt, keep reading to learn more about this new law, your new rights under it, and what to do next.
What Changed Under California’s Rosenthal FDCPA?
California Senate Bill 1286, signed into law in September 2024, expanded the RFDCPA to cover small business debts of no more than $500,000, whereas it previously only applied to consumer debts. MCAs and similar business financing are now covered.
In other words, small business owners and sole proprietors are protected from unfair debt collection practices the same way that individual consumer borrowers are.
What Rights Do California MCA Borrowers Now Have?
As of January 1, 2025, MCA borrowers in California now have the right to demand verification of their debts, dispute them, and be protected from harassing and abusive collection tactics.
Protection From Abusive Collection Tactics
First and foremost, lenders are held to strict standards on how and when they can communicate with MCA borrowers. They can’t place excessive calls or messages, and can’t contact business owners and work at appropriate times. They also can’t contact your customers or vendors in an effort to get a hold of or intimidate you.
The law also prohibits lenders from using harassment or threats to collect debts, nor can they use misleading or deceptive practices. If they don’t comply with these rules, they could face legal consequences.
Right to Dispute and Verify MCA Debts
Small business borrowers now have the right to request a debt validation, and the lender has to provide it. They have to pause their debt collection practices until they’ve provided proper verification.
Not only do you have the right to have your debt verified, but if their information about the debt is inaccurate, you have the right to dispute it. It’s critical to request debt validation as early in the process as possible to ensure your records and your lender’s match.
How This Specifically Affects Merchant Cash Advances
MCAs often aren’t regulated the same way as other consumer and commercial debts. California’s expanded RFDCPA takes a big first step in fixing that. Under California law, MCAs are now treated like consumer debts for collection purposes, limiting tactics MCA companies commonly use to get borrowers to repay their debts.
New restrictions are in place for personal guarantee enforcement, confessions of judgment, and the disclosures about MCA terms and costs. Overall, MCA companies that relied on intimidation or confusion to push fast payments will now face legal consequences for such behavior.
What to Do If an MCA Collector Violates Your Rights
If an MCA collection violates your new rights under the RFDCPA, you should document everything, send a written complaint to the California Department of Financial Protection and Innovation (DFPI), and consult an attorney experienced in MCA disputes.
Immediate Steps
When you’re dealing with a lender or debt collection, it’s important to keep records of all calls, emails, and letters. Even if you haven’t run into legal issues with your lender yet, you may need those records later on. It can be especially helpful to request that all communication be in writing so you have the most detailed records.
While you’re recording all of these communications, make special notes of any specific violations, including harassment, false claims, illegal communication, etc.
Finally, don’t agree to any terms or make payments under pressure. Debt collectors often use scare tactics to pressure borrowers into paying up. Consult an MCA attorney before making any commitments or next steps.
Filing Complaints and Taking Legal Action
If you believe a lender or MCA provider has violated your rights, the first thing to consider is speaking to an experienced MCA business debt attorney. They can advocate for your rights and guide you on the best next steps. And as an added bonus, the communication will stop, as the lender will direct its communications to your attorney instead.
Some of the next steps you should consider include filing a complaint with the California Department of Financial Protection and Innovation (DFPI) and asking your attorney about pursuing legal action for RFDCPA violations. You may have a claim for damages, and your lender could face penalties.
How Tayne Law Group Helps California MCA Borrowers
The attorneys at Tayne Law Group have decades of experience helping business borrowers navigate aggressive MCA collection. And with California’s expanded protections, it becomes even easier to fight back.
First, Tayne Law Group can look at your situation to see if there have been violations. We can also negotiate MCA settlements, defend against lawsuits from MCA lenders, and even pursue damages when collectors have violated your rights.
If you’re dealing with MCA pressure, we offer a free phone consultation to review your situation and explain your options.
Key Takeaways
- California’s RFDCPA now covers small business MCA debts, protecting business owners against harassment and unethical debt collection.
- MCA borrowers have the right to validate and dispute their debts, as well as freedom from harassment and intimidation.
- If you believe a lender has violated your rights, document all communications and report them to the DFPI.
- An MCA attorney can help you leverage your new protections to negotiate better outcomes for your business.
What changes did California make to debt collection protections for business debts?
California extended its Rosenthal Fair Debt Collection Practices Act to cover small business debts, including merchant cash advances, starting January 1, 2025.
Which business debts are covered under California’s new protections?
The expanded RFDCPA covers small business debts of $500,000 or less, including merchant cash advances, business loans, and lines of credit.
What can I do if an MCA collector is harassing me in California?
If your MCA company is harassing you, make sure to document the harassment, consult an attorney to pursue legal action, and file a complaint with the California DFPI.
Do these protections apply to personal guarantees on MCA agreements?
Yes, the protections now granted under the RFDCPA limit how collections can enforce personal guarantees. While they don’t eliminate the guarantee itself, they offer more protection than business owners had before.
Can I dispute an MCA debt amount under the new California law?
Yes, the expanded RFDCPA now allows small business owners to request debt validation before a collector can continue collection efforts, and to dispute inaccurate debts.
Conclusion
California MCA borrowers now have significantly more legal protections under the state’s newly expanded RFDCPA. You no longer have to tolerate harassment, intimidation, and false claims from your lenders. It’s important to learn your rights and use them.If an MCA provider is violating your rights under California law, contact Tayne Law Group today by calling (866) 890-7337 or filling out our short contact form to set up a consultation. We never share or sell your information, and all conversations are confidential.
