MCA Legal Analysis | May 4, 2026 | By Dennis Ray, Resident MCA Expert, Berkshire Financial Services
On May 1, 2026, the Consumer Financial Protection Bureau published its final rule revising the Section 1071 small business lending data collection requirements. Merchant cash advances are permanently excluded. No MCA provider will ever be required to collect or report data on who they lend to, at what cost, or with what outcomes under this rule. The only federal mechanism that would have created a public record of MCA lending practices has been finalized with MCAs written out of it entirely.
This is not a proposal. It is not pending. It is done.
What Section 1071 Was Supposed to Do
Section 1071 of the Dodd-Frank Act was signed into law in 2010. It directed the Consumer Financial Protection Bureau to require financial institutions to collect and report data on small business loan applications, including the race, sex, and ethnicity of applicants, the loan amount, the pricing, and the outcome. The stated purpose was to increase transparency in small business lending, identify community development needs, and facilitate the enforcement of fair lending laws.
The CFPB spent thirteen years attempting to implement it. The 2023 final rule, issued under the prior administration, swept merchant cash advances into coverage for the first time. MCA providers would have been required to report data on every transaction, including the total repayment amount and the pricing structure. For the first time in the industry’s history, there would have been a public federal record of how MCA lenders priced their products, who they targeted, and what the outcomes were.
The industry sued. Three separate lawsuits were reportedly filed challenging the 2023 rule. The Revenue Based Finance Coalition’s lawsuit, filed in Florida, had the MCA exclusion as its central demand.
The CFPB, now under Acting Director Russell Vought, gave them what they asked for.
What the Final Rule Actually Does
The May 1, 2026 final rule is a fundamental restructuring of the Section 1071 framework. The changes that matter most for business owners carrying MCA debt are these.
Merchant cash advances are excluded from the definition of covered credit transactions. The CFPB’s stated rationale is that MCAs are structured differently from traditional lending products, that traditional lending concepts like interest rate do not fit the way MCAs are priced, and that it would be premature to include them before observing how state laws address the products. The bureau frames this as a start small, expand carefully approach and describes Section 1071 as a multi-decade project.
The plain translation. The federal government has decided that the product reportedly charging effective annual rates ranging from roughly 40 percent to 350 percent to small businesses, the product a New York appellate court called unconscionable in February 2026, the product that reportedly drove over $2.2 billion in defaults last year, does not need to be in the federal data collection framework at this time. Those rate and default figures are as reported in industry coverage and not independently verified by this publication.
The coverage threshold for lenders that are included was raised from 100 originations to 1,000 originations per year. Pricing data, denial reasons, and LGBTQI-owned business status were removed from the required data points entirely. The compliance date is January 1, 2028. The first reporting deadline is June 2029, nineteen years after the law was enacted.
What Was Stripped Out and Why It Matters
The 2023 rule would have required disclosure of the total repayment amount and the pricing structure for every covered transaction. For MCA lenders, that would have meant publicly reporting the factor rate, the total payback obligation, and the effective cost of every deal originated above the threshold.
That data does not exist in any public federal repository. It never has. The MCA industry has operated for fifteen years without any mandatory public disclosure of its pricing practices at scale. The 2023 rule would have changed that. The 2026 rule ensures it stays that way.
Consumer advocates noted the consequence immediately. Reporting in American Banker quoted Elena Babinecz, former CFPB manager of the prior 1071 rulemaking effort, observing that the rule leaves significantly less information available on potential fair lending issues and on how lenders serve their communities. Industry coverage of the rule reportedly characterized the broader industry response as supportive while civil rights groups expressed substantial concern. Those characterizations are as reported and not independently verified by this publication.
The industry’s satisfaction is well-founded. An MCA lender operating today faces no federal obligation to report what it charges, who it charges, or whether those borrowers succeed or fail. That has always been true. The 2026 rule makes it permanently true for the foreseeable future of this rulemaking cycle.
What Replaced Federal Oversight
The CFPB’s own rationale for excluding MCAs points directly to state law as the alternative framework. The bureau said it believes it would be advantageous to observe how state laws address MCAs before deciding whether to collect federal data on them. That statement is an institutional acknowledgment that the regulatory work on MCA oversight is happening at the state level and that the federal government is watching rather than leading.
The states that are acting are doing so aggressively.
The New York Appellate Division First Department called MCA contracts unconscionable in February 2026 and affirmed a $77 million judgment on four simultaneous grounds. That is the court’s word, not ours. The ruling does not automatically erase any specific obligation. What it does is establish appellate-level legal ground that a properly represented business owner with their original agreements in hand can use to challenge whether their obligation is enforceable as structured.
The New York FAIR Business Practices Act expanded the attorney general’s enforcement authority to cover conduct that is unfair or abusive, not just deceptive, effective February 17, 2026. Texas banned confession-of-judgment clauses and restricted automatic ACH access in September 2025. Ten states now require written disclosures of MCA terms before a business owner signs. Three more reportedly added laws in 2026.
The federal government is not protecting business owners from MCA predatory practices. The states are. And the states are doing it through enforcement, court rulings, and legislation that give attorneys challenging these contracts genuine legal ground to stand on.
The Loophole Is Bidirectional, Even Without Federal Disclosure
The federal exemption is significant for what it confirms about the regulatory environment. It is not significant for what it changes about the legal architecture under standard MCA contracts.
That architecture is the same as it has been. The product was sold to small business owners using the language of lending. The contracts were written to characterize the transaction as a purchase of future receivables specifically to circumvent the lending laws, the usury caps, and the disclosure requirements that would otherwise have applied. That gap between how the product was marketed and what the contract said is the legal vulnerability courts have been working for years. The federal disclosure that would have documented the pricing practices at scale is gone. The contractual contradiction at the heart of every standard MCA agreement is not.
The lender used that gap to get around the laws that would have protected the borrower. The same gap, surfaced by the right legal challenge, is the ground on which contracts are being unwound, settled, and in some cases voided entirely. The federal data the 2023 rule would have produced would have made that argument easier to document at scale. Its absence does not change the argument itself.
What This Means If You Are Currently Carrying MCA Debt
The MCA industry just received a federal exemption from the only data collection requirement that would have created a public record of its pricing practices. That exemption does not make existing contracts more enforceable. It does not reverse the Richmond Capital ruling. It does not restore the SBA refinancing path. It does not close the legal challenge framework that state courts and state attorneys general have been building for years.
What it does is confirm that no federal cavalry is coming. The business owner carrying MCA debt in 2026 cannot wait for a federal agency to document the problem and act on it. The federal agency just formalized its decision not to look.
What exists instead is a state-level legal architecture that is more developed, more specific, and more favorable to challenging these agreements than at any prior point in the industry’s history. Courts are applying a documented three-factor test to identify disguised loans. Appellate courts are calling contracts unconscionable. States are stripping lenders of their most aggressive enforcement tools one statute at a time.
None of that activates on a specific file without representation and a program structure built around it. The legal ground is there. Using it requires an attorney who understands how to apply it to a specific contract and a program that builds the leverage necessary to negotiate from it. The window for a controlled resolution is defined by whether that structure is installed before the lender forces the outcome. Federal oversight is not coming. State-level legal ground is available right now. The MCA debt is not waiting for either.
Informational purposes only. Not legal advice. Berkshire Financial Services is not a law firm. Results vary.