State-by-State MCA Regulation: Starting With California, Texas, and New York

No short guide contains the rule that governs any particular advance. The recipient, the provider, the agreement, and the dates decide which law applies, and the relevant text must be checked before a claimed protection becomes advice.

California, Texas, and New York illustrate different approaches to the same product and provide a starting map. The map ends where the agreement governing law begins.

1. California Disclosure Records

In California, most cost disputes turn on three documents rather than on any summary of the law. Simply retaining the signed agreement may leave the original disclosures missing, so keep the offer, the deposit record, and any later amendment to the payment terms.

California commercial financing disclosure regulations took effect in December 2022 and cover specified products, including MCAs and factoring. The framework addresses funding amounts, cost, and whatever payment information the disclosure contains. I have yet to see a disclosure packet arrive organized, though the statute describes the contents with admirable confidence.

The California DFPI advisory for small businesses describes protections against unfair commercial financing practices under rules effective October 2023 and invites business complaints. A complaint creates a record with the regulator. A complaint does not cancel the account or suspend a proceeding by itself. Most owners keep the agreement and lose the disclosure. The loss is understandable.

2. Texas Coverage and Exemptions

The enacted Texas HB 700 text supplies the starting point for coverage, thresholds, and exemptions, and the enrolled version rather than any earlier summary is the text that controls. The statute took effect September 1, 2025 as Finance Code Chapter 398, and specific offers under one million dollars require stated disclosures covering financing and disbursement amounts, finance charges, payment information, and broker compensation.

The law reaches covered internet providers serving Texas recipients without a physical presence in the state, while exemptions include specified institutions and transactions. That distinction decides which sections even apply. Coverage should be assessed before any provision is treated as applicable, since a summary cannot make an excluded institution subject to every section.

Often we see registration mistaken for endorsement, though the commission register records an administrative obligation rather than a recommendation. Existing operators may complete registration through December 31, 2026. Whether any particular offer falls inside the chapter is a question counsel must answer from the enrolled text and the transaction dates.

3. Texas Confession and Debit Limits

Section 398.055 declares a covered sales based financing contract containing a confession of judgment void and unenforceable. Most funders understand the difference between a restriction and a remedy. They prefer the borrower to confuse them. A substantive restriction and the route for asserting it are separate legal questions, and the separation decides the strategy.

The confession of judgment, which defenders of the MCA industry will insist is freely negotiated, transfers all procedural advantage to the funder before the first payment is missed. Section 398.102 then withholds the private lawsuit the restriction seemed to promise, which means counsel must review and analyze available defenses rather than assume every violation supports the same lawsuit.

A restriction without a remedy is a paragraph in search of a lawsuit.

Match the Debit Rule to the Security Record

The adopted Texas commercial financing rules explain the automatic debit condition through a validly perfected first priority security interest in all recipient accounts receivable. That is a specific requirement rather than a blanket prohibition on every debit. Counsel should examine the actual security documents and competing interests before applying the condition. The chapter prohibits the commission from adopting a maximum rate or fee, so no universal interest cap should be inferred from an extremely broad reading of the chapter.

4. New York Substance and Judgment Procedure

In LG Funding v. United Senior Properties, the Second Department weighed reconciliation, a finite term, and bankruptcy recourse in assessing whether repayment was absolute. The opinion preserved defenses and factual issues on the record before it, though the sample of reported decisions remains limited, and each new opinion is extremely dependent on its own record. The opinion did not invalidate every MCA.

You sign the contract and then you discover what the contract means. A funder may pursue an available claim in order to recover a disputed obligation even where a particular procedure is challenged, so resist the urge to combine different rules into a general promise of cancellation.

CPLR 3218 governs confession of judgment affidavits and filing, and the New York confession of judgment statute treats a business entity as residing in any county where it keeps a place of business. Counsel should check dates, residence, and whether the affidavit states a valid debt.

Disclosure, classification, and registration do not perform the same work as judgment procedure. The New York appellate analysis of MCA repayment belongs early in the file, before the argument begins. A peculiar weakness in state comparisons is treating every protection as though it does.

5. The Map Ends at the Forum Clause

No map replaces the primary authority for the business’s own state (this comparison verifies only California, Texas, and New York pinpoints). For states outside that range, obtain the current primary authority with qualified counsel. Disclosure obligations, licensing or registration, and remedies may carry different coverage conditions.

Record the operating location, the state of organization, and the transaction dates. Add the provider identity and the governing law clauses. Keep the source date with the research.

6. From Rules to a Resolution

For a business applying these rules to its own agreement, Delancey Street offers a free confidential initial review, with independent counsel addressing the jurisdiction rules. The company is not a law firm, so confirm state availability and account eligibility. Any statement to the funder about a pending complaint, even briefly, can alter the posture of the negotiation.

An adviser should ensure the proposed plan distinguishes legal issues from creditor consent, since a regulatory complaint does not automatically cancel debt or suspend a proceeding. Protect and preserve the agreement, the disclosures, and whatever resolution bears the creditor signature, and ensure the file shows which rule supported each decision. It is extremely useful to keep those propositions in one closing memorandum.

A useful review distinguishes a provider requirement from an available defense.