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.

Civil lawsuits filed by the AG’s office seek multiple forms of relief: restitution for affected borrowers, disgorgement of the funder’s profits from the illegal conduct, civil penalties calculated per violation, and injunctive relief prohibiting future misconduct. The civil suit is the AG’s most powerful tool because it combines backward-looking relief — compensation for past harm — with forward-looking relief — prevention of future harm.

Consent decrees are negotiated resolutions in which the funder agrees to change its practices, pay restitution, and submit to monitoring in exchange for the resolution of the investigation. Consent decrees are public documents. They describe the AG’s findings, the funder’s commitments, and the consequences for breach. They serve as a public record of what the funder did and what the funder agreed to do differently.

Legislative referrals occur when the AG’s investigation reveals a gap in the existing legal framework — a practice that is harmful but not clearly prohibited under current law. The AG refers the finding to the state legislature with a recommendation for new legislation. The 2019 New York amendments to the confession of judgment rules were, in part, the product of this process.

How This Affects You

If the AG in your state has taken action against the MCA company that funded your advance, the action may directly affect your obligation. Consent decrees and court orders sometimes include restitution provisions — refunds, payment reductions, balance forgiveness, or debt cancellation — for affected business owners. If you are within the class of borrowers covered by the order, you may be entitled to relief without filing your own lawsuit.

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Even if no AG action has been taken against your specific funder, the legal theories, factual findings, and judicial conclusions from existing AG actions can be used as persuasive authority in your own dispute. The AG’s characterization of certain MCA practices as deceptive, unconscionable, or illegal supports your individual claim. The AG’s economic analysis of effective interest rates supports your usury argument. The AG’s findings about industry-wide collection practices support your claim of illegal collection conduct.

You can also file a complaint with your state AG’s consumer protection division. The complaint should be specific: the funder’s name, the date of the agreement, the terms, the conduct you believe was illegal or deceptive, and any documentation you have. One complaint may not trigger an investigation. But your complaint joins a file. When the file is thick enough, the investigation begins. Your complaint may be the one that tips the balance.

An attorney can assess whether existing AG actions are relevant to your MCA agreement, determine whether you are within the scope of any restitution orders, file complaints with the appropriate AG offices, and incorporate the AG’s legal theories and findings into your individual legal strategy. The AG’s work does not replace your own legal representation. It supplements it. The regulatory machinery and the individual legal claim work in parallel, and together they apply more pressure than either could alone.

For more on this topic, see Federal vs. State MCA Regulation: Where Things Stand.

For more on this topic, see How the FTC Is Cracking Down on MCA Practices.