Regulation
Texas on Pace to Pass MCA Bill With Broker Registration Requirement
May 13, 2025
The State of Texas is moving toward passing a “commercial sales-based financing” bill that would impact the merchant cash advance industry. Among the key details is an MCA broker registration requirement that would require brokers to get approved by the Office of Consumer Credit Commissioner (OCCC) in order to broker any MCAs to a merchant located in Texas. Brokers would be subject to OCCC oversight and the rules governing transactions with Texas-based merchants would apply regardless of where the broker themselves is located.
Furthermore, The Finance Commission of Texas would have the authority to adopt its own rules “to prohibit certain acts or practices by providers including acts or practices the commission considers unfair.”
The current iteration of the bill, which has already passed the House and is now in the hands of the Senate to confirm, can be found here.
Virginia’s Sales-Based Financing Provider List
April 21, 2025
Virginia updates its list of registered sales-based financing providers on a weekly basis. The current list can always be accessed via THIS LINK HERE. It has also been available on DailyFunder since March 2023. At last tally, there were 202 registered providers, which is not that many more than the 150 that were on the list two years ago.
Both funders and brokers are required to be registered if they plan to do any MCA business with VA-based merchants.
If you need help with registration, contact a qualified industry attorney. Here is a short list to start from.
NY Reminds MCA Industry That Annual Reports are Due April 30 (and how to know if this applies to your organization)
April 11, 2025
On April 10, the New York Department of Financial Services (NYDFS) sent an e-mail alert to remind providers of “sales-based financing” (New York’s term for merchant cash advance) that providers must file a report analyzing the annual percentage rates (or APRs) on transactions completed in New York. The report is required only for providers that use the so-called “opt-in” method of estimating APRs in the disclosures required by the New York Commercial Financing Disclosure Law (CFDL).
If you are currently asking yourself whether your organization uses the “opt-in” method, then there is a good chance that you are and don’t know it. The explanation of the opt-in method, its connection to APR, and the annual filing requirement, are all buried deeply within NYDFS regulations that are difficult to understand, and not very easy to explain. That said, here’s a simplified explanation.
As you may know, the CFDL is a disclosure law that requires providers of sales-based financing (and most other forms of commercial financing) to provide a set of disclosures designed to provide businesses with information about the cost of the financing they are obtaining.
Sales-based financing is a unique financial product because payments are based on a percentage of business revenue. The initial fixed payment is supposed to be a factor of this agreed percentage and the estimated average revenue of the business. Under the NYDFS regulations, there are two permitted methods for estimating this revenue. The first involves looking back at the historic revenue of the business and estimating future revenue based on a review of past revenue. In the NYDFS regulations, this is called the “historical method”. There are rigid rules for using the historical method. For example, the time period for the look-back generally must be no less than four months and no more than 12 months. You must use that period for all transactions in the state. There are a number of exceptions to these general rules. Another requirement is that, once you decide on the look-back period, you must record this decision in an internal document that identifies the effective date of this decision. You must do the same any time you change the look-back period.
The “opt-in method” is essentially any method that does not conform to the rules for the historical method. In other words, unless you are following the rules for the historical method, you are using the opt-in method.
If you are using the opt-in method, then you have to provide a report to NYDFS no later than April 30 of each year. Currently, the report must include the following information covering the period of the preceding calendar year:
- For each transaction, the estimated APRs disclosed to the recipient and actual retrospective APRs of completed transactions.
- The annual mean of all differences between the estimated APRs disclosed to the recipient and actual retrospective APRs of completed transactions, which mean shall be reported both weighted by financing amount, and unweighted.
- A statement of any unusual and extraordinary circumstances impacting the provider’s deviation between estimated and actual APR.
Making this report is not a task for the faint-hearted. A comparison of estimated APR to “actual retrospective” APR requires tracking the performance of all completed transactions in New York for the year and calculating APRs based on the exact date and exact amount of every payment!
Note that the reporting is exclusively focused on APR, not revenue. What does average business revenue have to do with APR? To paraphrase Michael Corleone . . . my answer is this Senator: Nothing.
The NYDFS seems to be under the impression that the estimated APR on a sales-based financing transaction can be manipulated by aggressively interpreting average sales revenue, which would (so the theory goes) lower the initial fixed payment and increase the effective term of the transaction. There are some very good reasons to conclude that this theory is deeply flawed. For example, reducing the payment and lengthening the term would lower the estimated APR. But it will also result in a lower actual retrospective APR. There is nothing manipulative about it. A provider need not manipulate the average revenue estimate to provide a lower payment and longer effective term.
Setting aside the point that it was unnecessary to create rules for estimating average sales revenue, it should be clear that few providers would knowingly put themselves in the position of having to file this annual APR report. How can you ensure that you do not trigger this reporting requirement? Make sure your organization is complying with the rules for the historical method.
Will the CFPB’s Small Business Data Collection Rules Change?
April 4, 2025On April 3, the CFPB filed papers agreeing with the Revenue Based Finance Coalition’s (RBFC) request to stay the litigation between them over coverage of the Small Business Lending Rule. As it last stood, a federal court was leaning toward the CFPB’s side that the 888 pages of data collection rules should apply to MCAs despite them not being loans.
As to why the CFPB would agree to a stay, the agency explained that it may now be tweaking the rules at issue.
“New leadership has been assessing the Final Rule and the issues that this case presents to determine the CFPB’s position. CFPB’s new leadership has directed staff to initiate a new Section 1071 rulemaking. The CFPB anticipates issuing a Notice of Proposed Rulemaking as expeditiously as reasonably possible. Because the anticipated rulemaking process may moot or otherwise resolve this litigation, holding this matter in abeyance would conserve the Court’s resources.”
– CFPB in its response to the Motion to Stay
“The CFPB respectfully proposes submitting periodic status reports every 90 days during the pendency of the rulemaking and will promptly inform the Court when the rulemaking process is complete,” the Agency stated. “Within 30 days of the issuance of a final rule, the CFPB proposes that the parties confer and notify the Court of whether and how they wish to proceed.”
The small business data collection rules are scheduled to go into effect in July.
Small Business Truth in Lending Bill Under Consideration in Maryland
March 27, 2025The “Small Business Truth in Lending” Bill introduced in Maryland on January 24, 2025, is continuing to advance through the state’s legislature. Among the finer details in the bill is an APR disclosure requirement on commercial finance transactions. The bill has attracted testimony from various organizations including the Responsible Business Lending Coalition, Revenue Based Finance Coalition, Innovative Lending Platform Association, Electronic Transactions Association, Rapid Finance, the Maryland Transportation Builders and Materials Association, and the Maryland Bankers Association. The majority have argued against the bill’s APR requirement. The combined testimonies are available here.
The bill’s path can be followed here.
Connecticut General Assembly Banking Committee Discusses Prejudgment Remedies and MCA
March 4, 2025The scheduled hearing on Connecticut Bill 1093 as it pertains to Ex Parte Prejudgment Remedies for Merchant Cash Advances took place this morning, the discussion of which was broadcast live.
It’s the very first bill discussed in this video below. I’d make the video start where the discussion starts but at present it is still being streamed live and won’t let me do that. Watch below:
Connecticut Introduces Bill on Ex Parte Prejudgment Remedies for MCAs
February 27, 2025A new bill introduced in the Connecticut legislature targets Merchant Cash Advance providers specifically.
It proposes “that section 36a-868 of the general statutes be amended to specify that no merchant cash advance business shall include in a commercial financing contract with a commercial financing recipient any provision allowing such business to obtain an ex parte prejudgment remedy against such recipient on the basis of a breach of such contract.”
A public hearing on the bill is scheduled for March 4th.
Time to File Your Annual Commercial Financing Report in California
February 27, 2025March 15th is the deadline for covered commercial financing providers to file their first annual report with the State of California. According to the DFPI, “any person engaged in the business of offering or providing commercial financing or another financial product or service to a small business, nonprofit, or family farm whose business activities are principally directed or managed from California” is required to file the report.
Per the state on exemptions:
Covered providers, as defined in California Code of Regulations, title 10, section 1060(e), are required to file this report. If you are not a covered provider under section 1060(e)(2) because you conduct all commercial financing under the authority of your CFL license, you are not required to file this report.
To determine if your company is or is not required to file a report, please consult with an industry knowledgeable attorney. If you need a list of potential attorneys in this field, please email info@debanked.com.
