MCA Disclosure Laws: The Costs of Non-Compliance

Running a successful merchant cash advance (MCA) funding operation can certainly be exciting—but imagine the shock and stress of receiving a notice of non-compliance out of the blue.

Suddenly, you realize your disclosure practices no longer align with state-level regulations. What was once routine now threatens your bottom line with hefty fines and legal fees.

Unfortunately, that’s the harsh reality of today’s MCA disclosure regulations: non-compliance poses a direct threat to your business’ financial health.

In this article, we’ll explore the costly repercussions—from hefty fines to potential legal battles—of falling short on compliance when it comes to MCA funding.

We’ll also equip you with the knowledge, resources, and actionable insights you need to navigate the ever-changing compliance landscape effectively, so you can safeguard your business for long-term success.

MCA Disclosure Laws Overview

Let’s be clear: commercial financing disclosure laws are not a bad thing for the merchant cash advance industry. In fact, they strengthen the industry by ensuring providers operate in a transparent way while also protecting the financial interests of merchants.

So what’s the issue? 

Well, nearly every month we hear or read about new state-level rules taking shape and becoming law. Just search “commercial financing disclosure laws” along with a state name, and you’ll find a slew of links detailing the latest developments.

It can be daunting to understand the requirements of one state, let alone multiple states. It might even be tempting to brush aside these changes and take on an “ignorance is bliss” mindset.

But flouting these laws can spell big trouble for MCA providers. We’re talking hefty fines—up to $100,000 per violation in some states. The consequences are very real, and very serious.

That said, Onyx IQ is here to help you navigate through the confusion. For starters, our MCA Disclosure Laws Map is a one-stop resource for tracking:

• Where Commercial Financing Disclosure Laws (CFDLs) have been passed.
• Where CFDLs are still pending
• What each piece of legislation entails for merchant cash advance providers.

By keeping this map at hand, it can be easier for your organization to achieve compliance with state-level regulations.

State-Specific Non-Compliance Penalties

Although no two state regulations are the same, they share similarities—particularly for violation fines and consequences. 

However, to help you understand the full extent of failing to meet these merchant cash advance regulations, we’ve summarized the penalties imposed by each state’s enacted CFDLs—as well as a basic overview of the law. For the full information, visit our disclosure map.

California

Providers of commercial financing must disclose details including the funding provided, finance charge, total payment amount, and annual percentage rate (APR).

While California’s CFDL does not mention specific penalties, legal experts have highlighted that non-compliance can lead to $500 penalties per violation, up to $10,000 for willful violations, and even jail time.

Connecticut

MCA providers must register with the state banking commissioner by October 1, 2024, and renew yearly. They also need to disclose details to businesses, including the total loan amount, costs, repayment schedule, and broker earnings.

For those who don’t follow the rules, they can expect to face some major fines—possibly as high as $100,000 per violation.

Florida

Merchant cash advance providers who do business in Florida must disclose financing terms to business owners, including total funds, costs, and the like. The Florida Commercial Financing Disclosure Law (FCFDL) also imposes specific rules on brokers.

Violations could lead to fines up to $20,000 for multiple offenses, with potential additional penalties of up to $50,000.

Georgia

To do business in Georgia and/or with Georgia-based clients, MCA providers must share details similar to those mandated by the federal Truth in Lending Act. This includes things like total funding amount, total dollar cost of the financing, as well as a payment schedule.

Funders who don’t comply may incur penalties ranging from $500 to $20,000, and possibly more if they keep violating the rules after receiving a warning.

New York

Under New York’s Consumer Financial Disclosure Law (CFDL), providers must comply with Truth in Lending-like written disclosures for financing offers. If a broker is involved in the transaction, providers must also disclose how and by whom brokers will be compensated.

If your MCA financing operation doesn’t follow these rules, you could get hit with fines up to $2,000 per slip-up. Intentional violations could even land you with fines as high as $10,000, and that’s not all—the state’s Department of Financial Services might also take legal action against you.

Utah

If you’re doing commercial financing in Utah and/or with Utah-based businesses, you must register with the Utah Department of Financial Institutions, and then renew every year.

You must also inform businesses of total funds provided, what they’ll need to pay back, how and when they will make payments, and if there are any broker commissions.

Non-compliance can result in some pretty big fines—$500 for each violation, up to $20,000 in total. Continued non-compliance may even result in the doubling of these fines.

Virginia

Under Virginia’s CFDL, providers must register every year with the State Corporation Commission, disclose nine specific terms when offering MCAs, and abide by dispute-resolution procedures.

Penalties aren’t explicitly stated in the law. However, breaking the rules could lead the Virginia Attorney General to seek injunctions, restitution payments, damages, and possibly attorney’s fees.

Best Practices for MCA Disclosure Compliance

Taking a proactive approach to compliance isn’t just about sidestepping potential pitfalls and legal problems—being compliant also helps you build a reputation as a trustworthy business.

Below, we outline some key best practices to uphold merchant cash advance regulations and remain compliant, while fostering business growth.

Perform Regular Audits and Reviews

It’s not enough to just be aware of disclosure laws. You also need to achieve and maintain compliance, even amidst continuous regulatory change.

Here are three strategies to remain ahead of the curve:

• Assign dedicated individuals or teams to oversee compliance consistently. You may also want to consider hiring external legal counsel with MCA regulation expertise.
• Develop policies and procedures for adapting to regulatory changes, while ensuring all transactions are recorded for compliance evidence.
• Regularly conduct comprehensive audits that cover contract terms, disclosure practices, and overall business operations. For example, ensure contracts are clear, transparent, and compliant with relevant laws, detailing repayment terms and fees.

By following these best practices, MCA funders can mitigate legal risk while also maintaining trust and credibility with clients.

Prioritize Training and Education

Training and education are essential components of achieving compliance with disclosure regulations for MCA providers—all teams and employees within a funding organization must know how to handle compliance.

Here’s how MCA funders can implement effective training and education programs to ensure compliance:

• Implement training programs and hold regular sessions covering disclosure laws, regulations and best practices for all staff—especially those handling contracts and client interactions. Ensure clients understand all terms, fees, and risks.
• Subscribe to legislation updates from reputable sources to stay abreast of changes in disclosure regulations, and encourage staff to do the same.
• Use quizzes and scenario-based exercises to assess staff understanding and identify areas for improvement, and adjust training based on feedback as well as regulatory changes.

By prioritizing training and education for all staff members (and clients), merchant cash advance providers can foster a culture of compliance and ensure that disclosure regulations are consistently adhered to throughout the organization—and beyond.

Leverage Technology for Compliance

MCA providers can make life a whole lot easier by using a loan management platform. These specialized solutions help you keep up with new and evolving regulations, ensuring you’re always on the right side of the law.

A loan management platform like Onyx IQ, for example, helps you stay updated on disclosure laws and other rules, and automates the process of disclosure compliance. That means you’ll never miss a beat when it comes to changes in the law.

This type of technology can help you avoid potential penalties by:

• Enabling automatic tracking and auditing of all MCA transactions, ensuring alignment with disclosure legislation and other regulations.
• Streamlining the creation of customizable and compliant contracts and disclosure documents, tailored to each state’s specific laws.
• Securely storing and managing all compliance-related documentation for easy access and auditing purposes.

In essence, a tool like Onyx IQ comes with everything needed to simplify compliance management across your organization. 

Build a Compliance-First Culture

Establishing a culture that prioritizes compliance is vital for MCA providers to maintain regulatory standards and trust with clients. Here are a few ways to cultivate such a culture:

• If you haven’t done so already, make compliance a core company value and emphasize ethical behavior and legal compliance in all aspects of the business—executives and senior management must lead by example.
• Create channels for compliance discussions and feedback, encouraging transparency and accountability. Meanwhile, recognize and reward employees who demonstrate exemplary compliance behavior.
• Establish a dedicated compliance team to monitor adherence to regulations and provide guidance and support. Regularly evaluate and refine compliance processes based on feedback and regulatory changes.

When MCA providers make compliance a priority, they can lower their risk with regulators, build trust with clients, and keep their reputation solid as trusted financial folks.

Full Disclosure—Onyx IQ Is Key to MCA Compliance

If we haven’t said it clearly enough yet, we’ll say it one more time—the stakes of non-compliance with state-level commercial financing disclosure laws are very high and cannot be ignored.

Keeping compliant is the only true way to success for your merchant cash advance business: you won’t get into trouble or receive fines, of course, but you will also build trust with your current and potential clients. 

The good news is that there are many strategies and resources to mitigate regulatory risk while also fortifying your business.

With these tips and resources, your MCA operation can navigate the compliance landscape effectively while maintaining a solid reputation in the industry.

More so if you partner with Onyx IQ.

Built by funders for funders, our platform was designed with MCA stakeholders in mind, offering a fully integrated ecosystem and robust reporting functionality to help you stay compliant.

Book your demo today.