The first half of 2026 has delivered a mixed bag for the merchant cash advance industry: regulatory certainty on the federal front, continued enforcement pressure from state attorneys general, and expanding disclosure mandates that are reshaping how funders do business across the country.

CFPB's Final 1071 Rule Formally Excludes MCAs

The biggest federal development of the month landed on May 1, when the CFPB published its final revised Section 1071 rule in the Federal Register. The rule, which implements small business lending data collection requirements under the Equal Credit Opportunity Act, now formally excludes merchant cash advances — along with agricultural lending and loans under $1,000.

The Bureau's reasoning: MCAs are "structured differently from traditional lending products" and are not credit transactions, placing them outside the rule's scope. The coverage threshold also jumped significantly, from 100 to 1,000 originations per year, meaning many smaller lenders won't need to report at all. The rule takes effect June 30, 2026, with a compliance date of January 1, 2028.

The Revenue Based Finance Coalition (RBFC) had actively lobbied for the MCA exclusion, and trade observers note that several of the final rule's changes reflect positions the RBFC advocated. As deBanked reported, no MCA provider will be required to collect or report 1071 data under the finalized framework.

State Disclosure Laws Continue to Spread

While the federal picture got clearer, the state-level regulatory patchwork kept growing. Illinois and New Jersey joined the disclosure mandate club in 2026, requiring MCA funders to disclose a standardized APR-equivalent and total repayment amount before a business owner signs. They join California, New York, Utah, Virginia, Georgia, and Connecticut — meaning eight states now have active MCA disclosure requirements, with Florida actively debating its own version.

The expansion means funders operating nationally must navigate an increasingly complex compliance matrix. Each state's disclosure format varies in detail, and the penalty regimes for non-compliance differ significantly.

Connecticut Moves to Close the Prejudgment Remedy Loophole

Connecticut is taking an additional step beyond disclosure. Legislation introduced in 2026 would outlaw waivers of prejudgment remedy rights for merchant cash advances — building on Public Act 23-201, which in 2024 already prohibited prejudgment remedy waivers in MCA contracts executed on or after July 1, 2024, for advances under $250,000. The new push would close remaining gaps that some MCA attorneys have exploited through alternative contract structures. As NPR reported in March 2026, Connecticut legislators are rethinking how aggressive collection tools can be used against small businesses in the state.

Yellowstone Capital Restitution Checks Hit Mailboxes

On the enforcement front, the aftermath of the New York AG's landmark $1.065 billion judgment against Yellowstone Capital continued to play out in April. The settlement administrator mailed restitution checks on April 3, 2026, to merchants who submitted claims before the January 9, 2026 deadline. Beyond the $16 million in direct restitution payments, $534 million in outstanding Yellowstone merchant debts were automatically canceled as part of the settlement.

The case, which alleged that Yellowstone disguised high-cost loans as MCAs to avoid usury laws, remains a reference point regulators and plaintiffs' attorneys cite when challenging MCA structures in court.

What It Means

The CFPB's 1071 exclusion offers MCA funders real regulatory breathing room at the federal level — no data collection burden, no reporting infrastructure to build. But that relief is increasingly offset by state-level activity, where disclosure laws are becoming the norm rather than the exception and enforcement actions like Yellowstone's continue to set precedents. Funders who treat state compliance as a checkbox risk are likely to find themselves on the wrong side of an AG investigation; those investing in disclosure infrastructure and clean contract terms are better positioned for the regulatory environment that 2026 has made clear is here to stay.