The merchant cash advance industry is navigating a split regulatory reality: federal oversight pulled back this spring while state capitals are tightening restrictions on collection practices, disclosure requirements, and courtroom shortcuts that funders have long relied on.

CFPB Finalizes Section 1071 Rule — MCAs Are Out

On May 1, 2026, the Consumer Financial Protection Bureau published its final revised Section 1071 rule, which requires covered lenders to collect and report small business lending data under the Equal Credit Opportunity Act (ECOA). The key headline for the MCA industry: merchant cash advances are expressly excluded from the rule's definition of a "covered credit transaction."

The CFPB limited data-collection coverage to core products—loans, lines of credit, and credit cards—and raised the origination threshold to 1,000 transactions per year for two consecutive years, up sharply from the original 100-transaction threshold. The Bureau also retreated from its 2023 position that MCAs constitute "credit" under ECOA, though it stopped short of declaring them definitively non-credit. Covered institutions won't need to begin collecting data until January 1, 2028.

As deBanked reported, the CFPB's equivocation on MCA's ECOA status leaves the legal question open for a future administration, and FunderIntel noted the exclusion is a near-term win but not a permanent one. Consumer Finance Monitor and Mayer Brown also covered the rule's finalization in depth.

Connecticut Moves to Ban Prejudgment Remedy Waivers

Connecticut has become one of the most active venues for MCA litigation, and lawmakers are pushing back. A bipartisan bill—backed by more than two dozen co-sponsors and House leaders from both parties—would ban prejudgment remedy (PJR) waivers in MCA contracts, according to NPR's March 2026 reporting. PJR waivers have allowed funders to freeze business bank accounts before obtaining a judgment, often crippling merchants before they can contest a claim in court.

In a notable turn, the Revenue Based Finance Coalition—an industry group representing funders and brokers—voiced support for the PJR ban, reflecting how much reputational pressure the tactic has generated. The bill would also require APR-equivalent disclosures, potentially making Connecticut the third state after New York and California to mandate such transparency for MCA products.

New York's FAIR Act and the Yellowstone Aftermath

New York's FAIR Business Practices Act, effective February 2026, amended General Business Law Section 349 for the first time in 45 years to prohibit not just deceptive but also "unfair" and "abusive" acts—extending those protections explicitly to small businesses. The change gives Attorney General Letitia James a broader legal basis to pursue MCA funders over collection tactics that previously fell outside Section 349's scope.

The law builds on the landmark Yellowstone Capital settlement: following a $1.065 billion agreement covering 25 affiliated entities, payments were mailed to qualifying claimants in April 2026, with over $534 million in outstanding merchant obligations cancelled and more than 1,100 judgments vacated. Meanwhile, a pending New York Senate bill, S2305, would go further still—barring confessions of judgment on any debt under $5 million, which would cover virtually every MCA agreement in existence.

New Industry Response: Pre-Default Reconciliation

On the industry side, Delancey Street announced the launch of its Reconciliation Shield™ on April 27, 2026—billed as the first formalized pre-default MCA reconciliation program. The service targets merchants who are still current on payments but seeing revenues fall, and formally activates the reconciliation clause present in most MCA agreements to negotiate a true-up of daily remittances before default occurs.

What It Means

The regulatory picture for MCA in mid-2026 is sharply bifurcated. At the federal level, the industry has secured breathing room: no ECOA data-reporting obligations and a CFPB that has—at least for now—stepped back from classifying MCAs as credit. But state attorneys general, legislatures, and courts are filling that vacuum aggressively. Connecticut's PJR ban would remove a key collection lever; New York's expanded FAIR Act creates new litigation exposure for hard-charging tactics; and the Yellowstone payouts arriving in mailboxes this spring are a visible reminder that yesterday's standard practice can become tomorrow's liability. Funders and brokers should expect the state-level pressure to intensify through the remainder of 2026.