Who Regulates Merchant Cash Advances?

Merchant cash advances occupy a regulatory gray area that leaves many business owners vulnerable. Unlike traditional bank loans, which are subject to interest rate caps, disclosure requirements, and federal oversight, MCAs operate under a much lighter set of rules. Understanding what regulations do exist — and where the gaps are — is critical for any business owner considering an MCA or already struggling with one.

Why Are Merchant Cash Advances Less Regulated Than Loans?

The core reason is classification. A merchant cash advance is structured as a purchase of future receivables, not a loan. The MCA provider buys a portion of your future sales at a discount and collects repayment through daily or weekly withdrawals. Because this is classified as a commercial transaction, MCA providers are not considered lenders under most state and federal laws.

This distinction matters because it means MCAs are generally not subject to state usury laws (which cap how much interest a lender can charge), Truth in Lending Act (TILA) disclosure requirements, or the same licensing requirements that apply to banks and other lenders. The result is that MCA providers can charge effective APRs of 100% to 350% or more without violating any lending laws.

However, this classification isn’t absolute. Courts in New York and other states have increasingly reclassified certain MCAs as loans when the contracts lack genuine reconciliation provisions or when the MCA provider bears no real risk. When an MCA is reclassified as a loan, it becomes subject to state usury caps — and if the effective interest rate exceeds those caps, the entire contract can be voided.

What Federal Regulations Apply to Merchant Cash Advances?

While there is no federal law specifically designed to regulate MCAs, several federal agencies and frameworks can apply in certain situations.

Federal Trade Commission (FTC)

The FTC enforces federal consumer protection laws that prohibit fraud, deception, and unfair business practices. If an MCA company engages in deceptive practices — such as misrepresenting the cost of an advance or withdrawing funds without authorization — the FTC can take enforcement action. In 2022, the FTC secured a settlement against Yellowstone Capital for unauthorized withdrawals from merchants’ bank accounts, years before the larger New York AG action.

Uniform Commercial Code (UCC)

The UCC is a set of standardized laws governing commercial transactions that has been adopted across all 50 states. It applies to MCAs primarily through UCC-1 lien filings. When you take out an MCA, the provider typically files a UCC-1 lien against your business assets, giving them a secured interest in your receivables and other property. If you default on the MCA, the provider can use this lien to seize assets, intercept receivables, or even contact your customers and demand payment directly.

Consumer Financial Protection Bureau (CFPB)

The CFPB has classified merchant cash advances as “credit” under the Equal Credit Opportunity Act, which has implications for fair lending compliance. While the agency later proposed excluding MCAs from certain data collection rules, this classification strengthens the legal argument that MCAs function as loans, not simply as receivable purchases.

What State Laws Regulate Merchant Cash Advances?

State-level regulation of MCAs has accelerated significantly in recent years. While there is still no comprehensive nationwide framework, several states have passed laws that directly affect how MCA providers operate.

New York

New York is at the center of MCA regulation, both because many MCA providers are headquartered there and because the state’s courts have been the primary venue for MCA-related litigation. Key regulatory developments include:

Confession of Judgment Ban (2019): New York prohibited MCA providers from filing confessions of judgment against out-of-state borrowers. Previously, it was common for MCA companies to file COJs in New York courts against businesses located anywhere in the country, obtaining judgments quickly and with little scrutiny. Businesses located in New York can still be subject to COJ provisions in their contracts.

Commercial Financing Disclosure Law (CFDL), effective August 2023: This law requires MCA providers doing business with New York-based borrowers to provide standardized disclosures similar to Truth in Lending requirements for consumer loans. Disclosures must include the total amount financed, the total repayment amount, the estimated APR, the payment amounts and frequency, and any prepayment policies. This is one of the most significant MCA-specific regulations in the country.

Proposed “End Loan Sharking Act” (Senate Bill S1726): Introduced during the 2025–2026 legislative session, this bill would give the NY Attorney General expanded authority to regulate MCA contracts and crack down on predatory practices. As of early 2026, the bill is pending in the Senate Rules Committee and has not yet been signed into law.

California

California has taken two significant steps to regulate MCA activity. The California Financing Law (CFL) requires MCA providers to hold a license and meet certain disclosure requirements, including detailing the amount financed, total dollar cost, term length, and payment schedule. Additionally, as of January 1, 2025, the state’s Rosenthal Fair Debt Collection Practices Act (RFDCPA) extends consumer-style protections to small business debts, including merchant cash advances. MCA borrowers in California can now demand debt verification, challenge harassment, and report violations to state regulators.

New Jersey

New Jersey prohibits the use of confessions of judgment in business financing contracts with New Jersey debtors, effective as of 2020. This prevents MCA providers from obtaining judgments against New Jersey business owners without notice or an opportunity to defend themselves in court.

How Has Recent Enforcement Changed the MCA Landscape?

The most significant enforcement action in MCA history came in January 2025, when New York Attorney General Letitia James announced a $1.065 billion judgment and settlement against Yellowstone Capital and two dozen affiliated entities. The AG’s office proved that Yellowstone’s MCAs were actually disguised loans with interest rates reaching as high as 820%. The settlement cancelled over $534 million in outstanding debt owed by more than 18,000 small businesses, vacated over 1,100 court judgments, required Yellowstone to release all UCC liens against affected businesses, and permanently banned Yellowstone and its officers from the MCA industry.

This was not an isolated action. In 2024, the NY AG secured a $77 million judgment against Richmond Capital Group for similar predatory practices. These cases established an important precedent: when MCA contracts function as loans in practice — collecting fixed daily payments with no genuine revenue reconciliation — courts and regulators will treat them as illegal lending subject to New York’s usury caps of 16% (civil) and 25% (criminal).

How Does MCA Regulation Compare to Traditional Loan Regulation?

Regulatory Area	Traditional Business Loan	Merchant Cash Advance
Interest rate caps	Subject to state usury laws	Not subject to usury laws (unless reclassified as a loan)
Disclosure requirements	Required under TILA and state laws	Required only in states with MCA-specific laws (NY, CA)
Licensing	Lenders must be licensed in most states	Licensing requirements vary; many states have none for MCA providers
Federal oversight	Regulated by FDIC, OCC, CFPB, and other agencies	No dedicated federal regulator; FTC can act on deceptive practices
Collection practices	Governed by FDCPA and state laws	FDCPA generally does not apply to commercial debt (exception: CA as of 2025)
Confession of judgment	Rare; prohibited in many lending contexts	Common; banned for out-of-state borrowers in NY, banned in NJ

What Can You Do If an MCA Provider Violates the Law?

Even though MCA regulation is limited, MCA providers can still cross legal lines. If your MCA provider is engaging in deceptive practices — misrepresenting costs, withdrawing unauthorized amounts, refusing to honor reconciliation clauses, or enforcing a potentially unenforceable confession of judgment — you may have legal recourse.

An experienced MCA attorney can review your contract to determine whether the MCA may actually be a disguised loan subject to usury laws, whether any contract provisions are unenforceable under your state’s laws, and whether the MCA provider has violated federal or state consumer protection rules. The Yellowstone and Richmond Capital cases demonstrated that even in a lightly regulated industry, there are real legal consequences for providers who cross the line.

Talk to an MCA Attorney About Your Options

The MCA regulatory landscape is evolving quickly, and the rights available to borrowers today are significantly stronger than they were just a few years ago. Whether you’re trying to understand your MCA contract terms, dealing with aggressive collection tactics, or wondering whether your MCA may qualify as a disguised loan, Tayne Law Group can help.

With more than 20 years of experience resolving MCA and business debt matters, we understand how these contracts work and what legal tools are available to protect your business. Contact us today for a free, no-obligation phone consultation at 866-890-7337 or fill out our short contact form. You’ll speak with a dedicated attorney, and your matter is never outsourced to third-party call centers. All conversations are confidential.

Frequently Asked Questions

Who regulates merchant cash advances?

There is no single federal regulator dedicated to overseeing merchant cash advances. The FTC can take action against MCA companies for deceptive practices, and the CFPB has classified MCAs as “credit” under certain statutes. At the state level, New York and California have enacted MCA-specific disclosure laws, and several states have banned confessions of judgment. However, oversight is still far more limited than for traditional lenders.

Why aren’t merchant cash advances subject to usury laws?

MCAs are structured as purchases of future receivables rather than loans, which means they fall outside the definition of “lending” under most state usury statutes. However, courts have reclassified MCAs as loans when the contract lacks a genuine reconciliation provision or when the provider bears no real risk. When this happens, the MCA becomes subject to state interest rate caps, and contracts exceeding those caps can be voided entirely.

What is the New York Commercial Financing Disclosure Law?

The CFDL, effective since August 2023, requires MCA providers and brokers doing business with New York-based borrowers to provide standardized cost disclosures. These include the total repayment amount, estimated APR, payment frequency and amounts, and prepayment policies. It’s modeled on consumer lending disclosure requirements and is one of the strongest MCA-specific regulations in the country.

What happened in the Yellowstone Capital case?

In January 2025, the New York Attorney General secured a $1.065 billion judgment against Yellowstone Capital for operating predatory loans disguised as merchant cash advances, with interest rates reaching 820%. The settlement cancelled $534 million in debt for over 18,000 small businesses, vacated over 1,100 court judgments, and permanently banned Yellowstone from the industry. It was the largest consumer settlement ever obtained by the NY AG’s office.

Can an MCA be reclassified as a loan?

Yes. New York courts apply a multi-factor test that examines whether the MCA contract contains a genuine reconciliation provision, whether the provider has recourse against the borrower in the event of business failure, and whether the provider bears any meaningful financial risk. If the court determines the MCA functions as a loan in practice, it becomes subject to the state’s usury laws. An MCA attorney can evaluate whether your contract may be vulnerable to reclassification.