The attorney general does not file a lawsuit because one business owner complained. The attorney general files because the pattern was too large, too consistent, and too harmful to ignore.
State attorneys general have the authority to investigate and prosecute businesses that engage in deceptive, fraudulent, or illegal practices within their jurisdictions. The authority derives from state consumer protection statutes, unfair business practice laws, and the AG’s parens patriae power to protect the citizens of the state. Over the past several years, multiple state AGs have turned their attention to the merchant cash advance industry. The investigations and enforcement actions that have followed represent a shift in how regulators view the MCA market — not as a niche financial product operating outside the regulatory framework, but as an industry whose practices are subject to the same scrutiny as any other.
What Triggers an AG Investigation
Volume of complaints. Every state AG maintains a consumer protection division that receives and catalogs complaints from individuals and businesses. When the division receives a critical mass of complaints about a specific funder, a specific practice, or a specific pattern of conduct — deceptive terms, unauthorized debits, harassment, misrepresentation of costs, failure to honor reconciliation rights — the complaints may be referred for investigation. One complaint is a data point. A hundred complaints from different business owners describing the same conduct is a pattern. Patterns trigger investigations.
Referrals from courts and legal aid organizations. Judges who see the same MCA funder in their courtroom week after week, filing confessions of judgment with boilerplate affidavits, may refer the pattern to the AG. Legal aid organizations representing small business owners who cannot afford private counsel may aggregate their clients’ experiences and present them to the AG as evidence of systematic misconduct. The referral carries weight because it comes from actors within the legal system who have firsthand exposure to the conduct at issue.
Industry-wide concerns. Some AG actions target not a single company but a category of conduct. The use of confessions of judgment as a routine collection tool. The mischaracterization of loans as purchases to evade usury statutes. The failure to provide adequate disclosures about the cost of the advance. These industry-wide actions seek to change the behavior of the entire market, not just one participant.
What AG Actions Look Like
Enforcement actions take several forms, and the form determines the scope and impact of the action.
Cease-and-desist orders direct the funder to stop specific practices immediately. The order identifies the conduct, cites the legal authority, and imposes consequences for noncompliance. A cease-and-desist does not compensate affected borrowers, but it stops the conduct from continuing.