CFPB Exempts MCAs from Section 1071 Rule as NY FAIR Act and New State Disclosure Laws Reshape the Industry

The merchant cash advance industry is navigating a split regulatory moment: federal regulators are stepping back from one major data-collection requirement, while state lawmakers are simultaneously adding new teeth to small-business protection statutes. Here is what MCA funders, brokers, and borrowers need to know.

CFPB Finalizes Revised Section 1071 Rule, Officially Excluding MCAs

On May 1, 2026, the Consumer Financial Protection Bureau finalized its revised small business lending data collection rule under Section 1071 of the Dodd-Frank Act — and merchant cash advances are explicitly out. The revised rule narrows scope significantly from the 2023 version: it raises the origination reporting threshold from 100 to 1,000 covered transactions per year and excludes MCAs, agricultural lending, and small-dollar loans entirely. Initial data collection will not begin until January 1, 2028.

Crucially, the CFPB is also walking back a 2023 position that MCAs are "credit" under the Equal Credit Opportunity Act (ECOA). The amended rule retreats from that stance but stops short of definitively declaring MCAs are not credit — the Bureau says "additional analysis and monitoring" is necessary before drawing a firm conclusion. Industry publication deBanked reported that MCAs are now "officially out" of the rule, framing it as a meaningful win for the industry under the current administration. The CFPB also eased rules for small business lenders more broadly, reflecting a general pull-back from the 2023 regulatory posture.

New York's FAIR Act Gives the AG New Weapons Against Abusive MCA Practices

While the federal picture offers some relief, New York is moving in the opposite direction. Governor Kathy Hochul signed the FAIR Business Practices Act on December 19, 2025, and it took effect February 17, 2026 — the most significant update to New York's General Business Law § 349 in over 40 years.

The law matters directly to MCA funders. For the first time, the New York Attorney General can pursue enforcement actions for "unfair" and "abusive" practices — not just "deceptive" ones — and the protections explicitly extend to small businesses and nonprofits, not only individual consumers. Skadden noted in April that the law could expose MCA providers to liability for aggressive collection tactics including account freezes, stacking, and threats of personal liability. MCA agreements with fixed daily payments and no true reconciliation mechanism may also be recharacterized as loans subject to New York's 25% criminal usury cap. A Morningstar press release from Delancey Street Group in April highlighted the law as a "powerful new shield" for businesses trapped in predatory MCA structures.

SBA Closes the MCA Refinancing Exit Ramp

A rule change under SOP 50 10 8 that applies to SBA loan applications submitted after June 1, 2025 makes MCA and factoring debt ineligible for refinancing through the SBA 7(a) loan program. As FastWaySBA detailed, the SBA's reasoning is that borrowers who refinanced MCA debt into 7(a) loans frequently returned to MCA funding shortly after, driving up guarantee claim rates.

The practical impact: a path many small businesses used to escape high-cost MCA obligations is now closed. Existing MCA balances still factor into debt-service-coverage calculations during SBA underwriting, potentially pushing marginal applicants below approval thresholds. Lighter Capital summarized the situation bluntly: "MCA and Factoring Debt Refinancing Blocked by SBA."

Illinois and New Jersey Join the State Disclosure Movement

Six states — California, New York, Utah, Virginia, Georgia, and Connecticut — already require MCA funders to disclose a standardized APR-equivalent and total repayment amount before a merchant signs. In 2026, Illinois and New Jersey enacted similar laws, and Florida is actively debating its own version. The pattern reflects a sustained legislative effort to apply disclosure norms historically reserved for consumer lending products to small-business financing.

What It Means

The MCA regulatory landscape is bifurcating. At the federal level, the CFPB under the current administration is retreating from its 2023 push to categorize MCAs as credit products subject to ECOA — a relief for funders worried about federal data-reporting mandates. But at the state level, the trajectory is sharply the other direction: New York's FAIR Act adds real enforcement teeth, the SBA has closed a critical escape valve for over-leveraged borrowers, and disclosure requirements are spreading state by state. Funders operating in multiple states face a patchwork of compliance obligations that will only grow more complex. For small businesses, the message is clear: understand the full cost of any MCA before signing, because the routes out are narrowing.