MCA LEGAL ALERT
Q2 2026 STRATEGIC UPDATE
THE TIDE IS TURNING:
HOW WE ARE USING NEW LAWS
TO VOID PREDATORY DEBT
Dear Valued Clients,
The Merchant Cash Advance (MCA) industry is currently facing a “Legal Reckoning.” For years, funders operated in a “gray area,” claiming they weren’t lenders to avoid usury laws. That era is over. As of April 2026, new statutes and aggressive judicial rulings have provided us with a lethal toolkit to dismantle these agreements.
At Grant Phillips Law, PLLC, we don’t just “manage” your debt— we hunt for the legal errors that can render these contracts
void and unenforceable.
LATEST VICTORIES: HOW WE ARE WINNING
VICTORY 1
THE “UNREGISTERED FUNDER” TAKEDOWN (TEXAS/UTAH)
THE CASE:
A funder attempted to seize $180,000 from a manufacturing client.
THE STRATEGY:
We discovered the funder failed to meet the January 1, 2026 registration deadline in the client’s home state.
THE RESULT:
The funder, fearing massive state penalties, settled for $0 and released all liens.
VICTORY 1
THE “UNREGISTERED FUNDER” TAKEDOWN (TEXAS/UTAH)
THE CASE:
A funder attempted to seize $180,000 from a manufacturing client.
THE STRATEGY:
We discovered the funder failed to meet the January 1, 2026 registration deadline in the client’s home state.
THE RESULT:
The funder, fearing massive state penalties, settled for $0 and released all liens.
2026 STATE-BY-STATE
LEGAL WAR MAP
CONNECTICUT
The “Transparency Trap” (HB 5211)
- Effective October 1, 2026 (Key provisions impacting contracts signed in early 2026)
- APR must be disclosed using the exact words “annual percentage rate.”
- Non-Disclosure clauses are now UNENFORCEABLE.
CALIFORNIA
No More “Rate” Deception (SB 362)
- Bans deceptive “factor rate” terms without immediately and repeatedly disclosing APR.
- Violations can force funders to walk away from balances entirely.
NEW YORK
The Disclosure & Licensing Noose
- CFDL enforced with zero tolerance.
- Pending End Loan Sharking Act (ELSA) seeks to reclassify almost all MCAs as loans.
- Legacy contracts missing 2026 disclosures can get judgments VACATED.
TEXAS
The End of the “Wild West” (SB 2677)
- Treats many sales-based financing charges as “interest” for usury purposes.
- All brokers and funders must be registered with the OCCC by January 1, 2026.
- Unlicensed operators can have their claims VOIDED.
DEEP DIVE: IS YOUR MCA ACTUALLY AN ILLEGAL LOAN?
To win, you must understand the “Legal Fiction” funders use. They call it a “Purchase of Future Sales,” but if it walks and talks like a law, the law treats it as a loan.
THE NEW YORK “THREE-PRONG” TEST
In New York, the gold standard for defeating an MCA is proving it fails this three-part test.
if it fails even one, it is a loan—and in NY, a loan with an interest rate over 25% is criminal.
THE RECONCILIATION
REQUIREMENT (The “Heartbeat” Test)
THE RECONCILIATION
REQUIREMENT (The “Heartbeat” Test)
EDUCATIONAL VIEW:
A real MCA must “pulse” with your business. If your sales go down, your payments must go down.
AGGRESSIVE REALITY:
If your contract has a “Fixed Daily Payment” with no easy way to reconcile, it is a loan. We hunt for “hidden hurdles” in these clauses to prove they are shams designed to trap you.
THE FINITE TERM
(The “Calendar” Test)
THE FINITE TERM
(The “Calendar” Test)
EDUCATIONAL VIEW:
Because sales fluctuate, a funder shouldn't know when they'll be finished collecting.
AGGRESSIVE REALITY:
If the contract mandates a specific end date (e.g., “120 days”), they aren't buying sales—they are charging a debt with a deadline. This is a loan.
THE BANKRUPTCY RISK
(The “Recourse” Test)
THE BANKRUPTCY RISK
(The “Recourse” Test)
EDUCATIONAL VIEW:
A funder “purchasing” sales must take the risk that you might go out of business.
AGGRESSIVE REALITY:
If the contract says “Bankruptcy is a Default” and demands immediate payment from you personally, the funder took zero risk. They are acting as a lender, not a purchaser. THIS IS A LOAN.
