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Potential MCA regs collection practices that MCA companies utilize, and the
alleged re-characterization of these types of lending offers
could change the to skirt regulations intended for traditional lending offers.

Nothing has been finalized regarding these lawsuits (yet).
industry forever But it's obviously not the best of news when both the state
of New York and the FTC are taking action against this
kind of financing.
By Chad Otar California is prepping new regs
Lending Valley
California is also eyeing regulation of MCA contracts.
mall businesses across America have been lean- California has been particularly litigious against
ing on alternative lending solutions like mer- nontraditional lenders for quite a while now, and it appears
chant cash advances (MCAs) for years now. to be leading the charge in this department. Because of
S Helping small businesses and entrepreneurs unique verbiage and the California laws that govern
access the cash and capital they need to build and grow lending for loans of $2,500 or more, MCA organizations
their businesses, this form of financing offers benefits that were able to obtain California Finance Lenders Law
traditional financing can't. Luckily, there haven't been licenses.
many regulatory barriers or obstacles for lenders look-
ing to offer these lending opportunities. The industry is Once companies have these licenses registered to them,
streamlined, does a solid job of regulating itself, and for all of their transactions—including those that could be re-
the most part, succeeds or fails based on the reputation of characterized later as traditional loans—are not considered
the individual lenders themselves. to be usurious by the state of California. However, the
Department of Business Oversight in California (working
That may be changing in the near future, though. closely with the California Senate and Assembly) have
been looking for ways to change the laws to strip out these
The current lay of the land kinds of protections for nontraditional lenders.
Currently, there isn't much regulatory interference
associated with MCAs. That goes for many other Again, nothing has been done (yet) but it will be interesting
nontraditional lending products, too. The majority of to see how things proceed moving forward.
MCAs aren't considered loans in the traditional sense. The MCA industry may see major shake ups in 2022?
That allows them to sidestep regulations intended for
traditional lenders. The odds are good that as alternative lending solutions
continue to gain popularity, nonbank lending and
The current landscape of nontraditional lending, from a nontraditional lending operations will come under closer
regulatory standpoint, allows these kinds of lenders to scrutiny by state and federal government organizations.
be more flexible and more adaptive, and to innovate and
iterate their services much faster. There just aren't as many State and federal government bodies are already taking a
regulatory issues to contend with. closer look at the kinds of regulations already in place—
as well as the kind of regulations that are missing—to
However, this has fostered a bit of a Wild West perception better control nontraditional lending operations. So 2022
on the part of state and federal regulators, who are could very well be a year that we see a number of new
itching to institute regulations on MCA offers and similar bills signed into law governing this industry. Only time
nontraditional lending packages. will tell.
New York is leading the charge Note: I referred to the following resources for this article:
New York is quickly becoming a hotbed for legislation • https://businessdebtlawgroup.com/merchant-cash-
by state and federal government officials and lenders advance-regulation/
scrutinizing MCA lending packages and other • www.fundera.com/business-loans/guides/merchant-cash-
nontraditional lending services. In June 2020 both the advance-regulation
Federal Trade Commission and the New York Office of
the Attorney General filed lawsuits against major MCA • www.ftc.gov/news-events/blogs/business-blog/2020/08/
companies. protecting-small-businesses-seeking-financing-during

These lawsuits were filed in the Southern District of New
York (a particularly litigious federal court system) as well as Chad Otar is CEO of Lending Valley Inc. For information about the com-
with the Supreme Court of the state of New York. The suits pany, please visit www.lendingvalley.com. To reach Chad, send an email
make claims against the marketing of MCA programs, the to chad@lendingvalley.com.

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