Article summary
The CFPB's May 2026 overhaul of small-business lending data rules carves out merchant cash advances entirely—just as tariff pressures funnel more desperate small businesses toward high-cost advances and New York, Connecticut, and federal enforcers tighten the screws on abusive practices.
Article content
The merchant cash advance industry enters mid-2026 at an inflection point: a landmark federal data rule keeps MCA in a regulatory gray zone, yet state legislatures and courts are filling that void fast, and a flood of tariff-squeezed borrowers is expanding the market even as warnings multiply.
CFPB Finalizes Section 1071 Rule — MCAs Left Out On May 1, 2026, the Consumer Financial Protection Bureau issued its long-awaited final revision to Regulation B's small-business lending data collection requirements under Section 1071 of Dodd-Frank.
The rule requires lenders to collect and report application data for women-owned, minority-owned, and small businesses — but the final text expressly excludes merchant cash advances from the definition of "covered credit transaction." The Bureau defines MCAs in the rule as agreements "under which a small business receives a lump-sum payment in exchange for the right to receive a percentage of the small business's future sales or income up to a ceiling amount," and concluded that initial data collection should focus on "core, widely used lending products." Agricultural lending and small-dollar loans under $1,000 are also excluded.
The rule is effective June 30, 2026, with lender compliance required by January 1, 2028.
Significantly, the CFPB acknowledged in the rule's preamble that some advances could resemble loans — signaling possible future scrutiny — but for now, MCA funders face no federal reporting mandate.
Tariffs Create a New Wave of High-Cost Borrowers The MCA industry has grown from roughly $9 billion in 2014 to nearly $20 billion, and tariff-driven demand is accelerating that trajectory.
As NPR reported in February 2026, MCA funders have found a fresh market in small businesses scrambling to cover the added cost of imported goods — from steel and aluminum to microchips — after tariffs raised landed costs by 10% to 25% or more.
Traditional bank credit is too slow for businesses facing immediate cash crunches.