The Map Is Changing
For most of the MCA industry’s existence, the legal framework governing these transactions was, in practical terms, whatever the contract said it was. Funders drafted agreements that designated New York law, required disputes to be resolved in New York courts, and included enforcement mechanisms that presumed the borrower would never challenge the terms. That framework is eroding. Four states have enacted legislation that directly addresses MCA industry practices, and the laws they have passed alter the calculus for every funder operating within their borders and, in some cases, every borrower doing business there.
New York: Confession of Judgment Reform and Disclosure Requirements
New York is where most MCA disputes are litigated, and its legislative response has been the most consequential. In 2019, the state amended CPLR Section 3218 to prohibit confessions of judgment against out‑of‑state defendants, closing a pipeline that had funneled thousands of default judgments through New York courts against borrowers who had never entered the state. The state’s Commercial Finance Disclosure Law, which requires MCA providers to disclose estimated APR, total repayment amount, and other standardized terms, has brought transparency to a product that was designed to resist it.
Pending legislation in the 2025‑2026 session would go further. Senate Bill S2305 would ban confessions of judgment on debts under five million dollars. Senate Bill S3695 would prohibit the inclusion of confession of judgment clauses in any contract for a financial product or service. Neither has been enacted as of this writing. Both reflect the direction of the legislature’s intent.
California: SB 1235 and the Disclosure Framework
California’s SB 1235, signed in 2018 and implemented through regulations that took effect in subsequent years, requires commercial financing providers (including MCA companies) to disclose the total dollar cost of the financing, the total amount of funds provided, the term or estimated term, the method of payment, and the estimated APR. The law applies to transactions under five hundred thousand dollars and encompasses most MCA advances issued to California businesses.
The effect of this law is not merely informational. A funder that fails to provide the required disclosures may face enforcement action by the California Department of Financial Protection and Innovation. In April 2025, the DFPI issued an advisory asking small businesses to report if they had experienced unfair, deceptive, or abusive practices in connection with merchant cash advances. The advisory was not a regulation. It was an invitation, and invitations from regulators tend to precede action.