4 States That Have New Laws Protecting Business Owners From MCA Abuse

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.

Virginia and Utah: Registration Requirements

Virginia and Utah became the first states to require MCA providers to register with state regulators. These registration requirements, while procedurally simpler than the New York and California disclosure frameworks, represent a significant shift: they bring MCA providers within the regulatory perimeter, subject to oversight, examination, and enforcement by state financial regulators. A funder that operates in Virginia or Utah without registration is operating unlawfully, and an agreement executed by an unregistered provider may be subject to challenge on that basis.

The registration requirement is, in one sense, minimal. It does not cap rates, mandate disclosures, or restrict contract terms. But it establishes a principle: MCA providers are participants in the financial services industry and are subject to the regulatory infrastructure that governs it. The principle, once established, tends to expand.

The Direction of Travel

DEFENSE TEAM SPOTLIGHT

Todd Spodek

Lead Attorney & Founder

Featured on Netflix's "Inventing Anna," Todd Spodek brings decades of high-stakes criminal defense experience. His aggressive approach has secured dismissals and acquittals in cases others deemed unwinnable.

NY Bar Admitted Multi-State Licensed Federal Courts

Meet the Full Team

These four states represent the leading edge, not the entirety, of legislative reform. Other states have considered or introduced similar legislation. The Federal Trade Commission’s enforcement actions have created pressure for federal action. The trajectory is toward more regulation, more disclosure, and more accountability for practices that the industry, for years, conducted without scrutiny.

For business owners currently in MCA agreements, the relevance is immediate. The state where you operate, the state whose law governs your agreement, and the state where the funder is located may each provide defenses, claims, or procedural advantages that did not exist when the agreement was signed. An attorney familiar with the current legislative landscape can determine which, if any, apply to your situation.

The law has not caught up to the industry. But it is closing the distance faster than most funders anticipated.