How the FTC Is Cracking Down on MCA Practices

The Federal Trade Commission does not regulate merchant cash advances directly. It does not need to. The FTC regulates deception, and deception is the common thread running through the practices it has begun to target.

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The FTC’s authority comes from Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices in or affecting commerce. The statute does not distinguish between consumer transactions and commercial transactions. It does not distinguish between loans and purchases of future receivables. It covers conduct. When the conduct is deceptive — when a business is misled about the cost, the terms, or the nature of a financial product — the FTC has jurisdiction regardless of how the product is labeled.

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For years, MCA funders operated in a regulatory gap. State banking regulators treated MCAs as outside their purview because the transactions were structured as purchases, not loans. Federal lending regulations did not apply for the same reason. The FTC was focused elsewhere. The gap allowed practices to develop and harden into industry norms — practices that, when examined under the light of consumer protection law, do not survive scrutiny.

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What the FTC Is Targeting

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The FTC’s interest in the MCA industry centers on several categories of conduct that fall within its deception and unfairness framework.

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Misrepresentation of costs. When an MCA broker or funder presents the cost of an advance in terms that obscure the true annual percentage rate — quoting a factor rate without context, omitting the effect of daily repayment on the effective cost, or comparing the product favorably to traditional loans without disclosing the actual price differential — the presentation may constitute a deceptive act. The FTC does not require that the misrepresentation be intentional. It requires that the representation be likely to mislead a reasonable business owner, and that the misrepresentation be material to the decision to accept the advance.

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Deceptive collection practices. Threats of criminal prosecution, misrepresentation of legal rights, unauthorized account debits, and harassment during collection are not merely aggressive. They are deceptive when they imply consequences that do not exist or rights that the funder does not have. The FTC’s authority to address deceptive collection practices overlaps with, but is not limited to, the Fair Debt Collection Practices Act.

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Unfair acts causing substantial injury. The FTC can also pursue practices that are “unfair” — practices that cause substantial injury to businesses, that the businesses cannot reasonably avoid, and that are not outweighed by countervailing benefits. An MCA with a reconciliation clause that the funder systematically refuses to honor causes substantial injury. The business owner cannot avoid the injury because the refusal occurs after the contract is signed. The funder derives no legitimate benefit from refusing reconciliation — only the benefit of collecting more than the contract entitles it to collect.

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The Disclosure Push

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Parallel to its enforcement activity, the FTC has signaled support for mandatory disclosure requirements in the MCA industry. Several states have already enacted or proposed disclosure laws requiring MCA funders to present the cost of the advance in standardized terms — including an annualized rate or total cost of capital — before the business owner signs. California’s SB 1235, New York’s commercial financing disclosure law, Virginia’s disclosure requirements, and Utah’s Commercial Financing Registration and Disclosure Act are examples of this trend at the state level.

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The FTC’s involvement elevates the disclosure push from a state-by-state patchwork to a potential federal framework. A federal disclosure rule would apply uniformly across all states, eliminate the forum-shopping that allows funders to avoid state-specific requirements, and create a standardized metric by which business owners can compare the cost of an MCA to the cost of alternative financing. The metric that MCA funders have resisted most aggressively — the annualized percentage rate — is the metric the FTC is most likely to require.

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Enforcement Actions and Their Effects

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When the FTC brings an enforcement action, the consequences extend beyond the specific defendant. The complaint and the consent order become public documents. The legal theories articulated in the complaint become templates for state regulators, private attorneys, and other business owners. The consent order’s requirements — mandatory disclosures, prohibited practices, restitution for affected businesses — become the industry’s new minimum standard, enforced by the threat of contempt proceedings for any violation.

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The FTC’s enforcement actions also generate referrals to state attorneys general, who may pursue parallel investigations under their own consumer protection statutes. The federal action provides the evidentiary foundation. The state action provides the state-specific remedy. The combination creates regulatory pressure from two directions simultaneously.

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For more on this topic, see What the CFPB’s Small Business Lending Rule Means for MCA.

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What This Means for Your MCA

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If the FTC has taken action against the company that funded your advance, the action may provide direct relief — restitution, balance reduction, or cancellation of the obligation. Even if the FTC has not targeted your specific funder, the legal theories and factual findings from FTC actions can be cited in your own dispute. The FTC’s determination that certain MCA practices are deceptive is persuasive authority that supports your individual claim.

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The regulatory landscape is shifting. The gap that MCA funders relied upon is closing from multiple directions — state disclosure laws, state AG enforcement, FTC scrutiny, and evolving case law. The funder that designed its business model around the absence of regulation is now operating in an environment where regulation is arriving. The business owner who challenges an MCA agreement today does so in a more favorable legal environment than the business owner who tried five years ago. The trend has direction, and the direction favors the borrower.