April 10, 2026 – By Christian Smith, Berkshire Financial Services.
New York expanded its attorney general’s enforcement reach to cover MCA collection tactics that are unfair or abusive, not just deceptive. Texas banned confession of judgment clauses and restricted lender access to your bank account at the source. Both laws are active right now. Both developments change the practical position of every business owner currently carrying MCA debt with exposure to either state.
New York: The AG Can Now Come After Lenders for More Than Deception
New York’s General Business Law Section 349 has existed since 1970. For 55 years, its operative prohibition covered one category of conduct: deceptive acts and practices. If a lender’s collection behavior was aggressive, coercive, or disproportionate but not technically deceptive, it fell outside the attorney general’s enforcement reach under that statute.
That changed on February 17, 2026. Governor Hochul signed the Fostering Affordability and Integrity through Reasonable Business Practices Act, known as the FAIR Act, in December 2025. The Act added two categories of prohibited conduct alongside deception: conduct that is unfair and conduct that is abusive. The standards track those the Consumer Financial Protection Bureau established at the federal level, now codified in New York law. The Act also eliminated the consumer-oriented requirement that previously limited who the attorney general could protect. Small businesses and nonprofits are now explicitly covered.
What this means for MCA enforcement is significant. Aggressive demand letters to merchants in default, UCC-1 enforcement actions that choke receivables before any court order, and collection tactics designed to coerce settlement through operational pressure are all now within scope. The attorney general does not need to prove the lender lied. The attorney general needs to show the conduct was unfair or abusive and caused substantial injury.
New York was already the most active enforcement state in the MCA space. The Yellowstone Capital settlement, a 1.065 billion dollar judgment with more than 534 million dollars in cancelled merchant debts and a permanent industry ban, established what the attorney general was willing to pursue. The FAIR Act expanded what the attorney general is legally able to pursue without proving deception as the threshold.
Texas: Confession of Judgment Clauses Are Void. ACH Access Is Restricted.
Texas House Bill 700 took effect September 1, 2025. It created a new regulatory framework under Texas Finance Code Chapter 398 specifically covering commercial sales-based financing, the statutory category that includes merchant cash advances. Two provisions are immediately actionable.
The first is the confession of judgment prohibition. A confession of judgment clause is a contractual provision that lets a lender obtain a court ruling without a trial. HB 700 makes those clauses, and any provision that functions similarly, void and unenforceable under Texas law. The historical mechanism by which lenders obtained judgments against merchants without notice or a court hearing does not hold up in Texas.
The second is the ACH restriction. Under HB 700, automatic ACH debits from a merchant’s deposit account are prohibited unless the provider holds a first-priority perfected security interest in that account. Legal analysts describe meeting that requirement as nearly impossible for most MCA lenders operating in Texas. Lenders with senior UCC-1 liens, prior creditors, or IRS tax liens ahead of them in the priority stack cannot satisfy the first-priority requirement. The mechanism most MCA lenders use to pull payments directly from your account may now be operating outside the boundaries of Texas law.
There is also a registration requirement. MCA providers and brokers must register with the Texas Office of Consumer Credit Commissioner by December 31, 2026. The enforcement rules are not finalized until September 1, 2026. The industry is currently in a compliance gap: the statutory obligations are live, the enforcement infrastructure is still being built, and registration compliance is incomplete across much of the market. An unregistered lender’s ability to enforce its contract in a Texas court is legally compromised.
This does not mean MCA debt disappears in Texas. It means the legal ground beneath a lender’s ability to collect in the ways they have historically used has been substantially narrowed.
What Both Laws Mean If You Are Currently Carrying MCA Debt
The legal environment for challenging MCA enforceability has never been more developed. Courts are applying a three-factor test to identify disguised loans. State attorneys general are pursuing enforcement at scale. And now two major states have restructured the rules governing how lenders can collect from you in the first place.
The businesses that come out of MCA debt in the strongest position are the ones who installed structure, legal oversight, and a supervised negotiation process before the lender exercised whatever enforcement tools remain available. The window for a controlled resolution is defined by one thing. Whether you act before lenders figure out how to navigate the new compliance environment or escalate under the tools they still have. Right now that window is open.
The ruling does not do the work. The structure does. Enrollment is what activates the structure.
To speak with a Berkshire Financial Services Finance Manager about your file, call 1-800-801-1019.
Informational purposes only. Not legal advice. Berkshire Financial Services is not a law firm. Results vary.