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MCAs and New York’s Truth In Lending Act regulations

On Behalf of | May 6, 2024 | Merchant Cash Advances

New York’s Commercial Finance Disclosure Law (CFDL) marks a significant step in bridging the regulatory gap where merchant cash advance (MCA) companies have historically operated with less oversight than traditional banks. Small business owners in New York City should be aware that MCAs are not extensively regulated at the state and federal levels, like bank loans. But that does not mean New York State is not turning a blind eye.

Under the CFDL, any non-exempt financing under $2.5 million must come with detailed disclosures akin to those provided in consumer loans. This includes MCAs and a range of other commercial financial products.

What MCA companies must disclose

The disclosures the CFDL requires MCA businesses to make upon extending a financing offer include the total finance amount, costs, APR, payment amounts and frequency, and any collateral requirements. The specifics the company quotes you as the potential advance receiver are not casual suggestions — they are binding once you accept. Also, your acceptance triggers further disclosure requirements on the MCA company.

Compliance is not optional. If the MCA provider fails to provide you with these disclosures, it can cost them, with civil penalties reaching up to $10,000 for intentional violations. However, MCA companies have up to 60 days to correct genuine mistakes (not intentional fraud).

Beyond the agreement signing

Transparency at the contract stage can help you know exactly what you are getting into and keep you from accepting an advance at terms your business cannot repay. But if problems emerge later on and your business’s survival is at stake, you may need an attorney to help you assert your rights.