New York MCA Final Disclosure Laws
DO ANY REGULATIONS EXIST THAT GOVERN A MERCHANT CASH ADVANCE?
- New York State, by all accounts the haven State for Merchant Cash Advances, ironically is also one of the first States to enact laws that require certain consumer like disclosures even for several commercial loans.
- This is significant development since New York’s Commercial Finance Disclosure Law (CFDL) went into effect August 1st, 2023 and in the law the CFDL has extended disclosure requirements ordinarily required for consumer lending to commercial financing instruments such as a merchant cash advance.
- The laws apply equally to both MCA brokers and MCA funders.
- The final rules are a good start, but fall short in several areas. For example an MCA Funder is exempt from full disclosure if they are “partnered” with FDIC insured banks. Another shortfall is the inclusion of a $2,500,000 cap. Thus, commercial financing in excess of $2.5M is exempt from the CFDL. Hardly ideal.
- Still in comparison to other States that enacted similar laws such as Virginia, California and Utah, the New York law goes a little further.
- The CFDL was in fact originally passed in 2020 and later amended to include additional commercial financing instruments such as a Merchant Cash Advance.
- Since 2020, the New York Department of Financial Services NYDFS issued multiple versions of the regulation and the law finally took effect on August 1, 2023.
Significant Adoptions of the CFDL:
- Bank Exception: MCA Entities of which a majority of the voting power or equity interest is owned, directly or indirectly, by a financial institution will be exempt from the CFDL. The most common institution would be a depository bank.
- New York Nexus:The final rules severely narrow the geography of where a transaction takes place or where the parties are from, in order to trigger the applicability of the CFDL.
- MCA Recipient Located:The final rules limit the CFDL to transactions where the recipient is directed or managed from New York or is a resident of New York. This is very similar to California’s law. Both NY and CA allow a Merchant Cash Advance Funder to rely on the business address provided by the recipient in its application for financing to make the determination.
- Assignment:The law permits a Merchant Cash Advance Funder to assign their rights in the MCA Contract.
- Broker Compensation Disclosure: The final rules require any commercial financing that incorporates a Broker that the MCA Funder must inform the Business receiving the MCA in writing of how and by whom the broker will be compensated.
- Finance Charge Calculation: The final rules provide that the finance charge on a transaction should be calculated and disclosed. This means the fees that the Merchant Cash Advance Funder usually charges for underwriting and origination.