State by State Primer to MCA Regulation
California, Texas and New York as Starting Points

No single rule governs a merchant advance in every state, and the location named in the agreement answers fewer questions than most owners assume.

A protection described for one jurisdiction may have no counterpart in the state where the business operates. Provider identity, recipient location, transaction dates and governing law language each point toward different bodies of law.

California, Texas and New York illustrate the range. Each jurisdiction chose a different instrument, disclosure in one, registration with contract limits in another, court review of substance and judgment procedure in the third. The current statute and its effective date require checking before any claimed protection becomes advice.

California Disclosure Duties

The California advisory that invites small business complaints about merchant advances rests on a disclosure regime in effect since December 2022. Commercial financing disclosure regulations cover specified products that include merchant advances and factoring, with terms that permit comparison across offers.

A federal district court upheld those disclosure requirements in December 2023. A subsequent department release described protections against unfair, deceptive or abusive commercial financing practices under rules effective in October 2023, with an April 2025 advisory inviting businesses to report misconduct.

The complaint route is, if we are being precise, a report to a regulator rather than a remedy the business grants itself. A filed complaint does not cancel a balance.

Simply retain the signed agreement alongside the original disclosures, the offer papers and the deposit record. A disclosure claim requires the paper that carried the figures, a page extremely difficult to reconstruct after the fact. We have yet to see such a claim succeed without the original paper.

Texas Coverage and Limits

In September 2025, Texas added chapter 398 to its Finance Code through House Bill 700. Specific offers under one million dollars require stated disclosures covering financing and disbursement amounts, finance charges, payment information and broker compensation, and the chapter reaches covered providers serving Texas recipients over the internet even without a physical presence in the state.

Exemptions include specified financial institutions and transactions, so coverage requires assessment before any provision is treated as applicable. The enrolled text supplies the threshold that controls.

Section 398.055 declares a covered sales based financing contract containing a confession of judgment or a similar provision void and unenforceable. The statute restricts the term. The statute supplies no private lawsuit to enforce the restriction. The enrolled House Bill 700 text states the restriction, while the adopted Texas commercial financing rules condition automatic debits on a first priority interest, shown valid and perfected, in all recipient accounts receivable.

Registration is not endorsement. Existing operators hold a transition through December 2026, and what a provider files, or fails to file, decides nothing about whether a particular contract term survives. No universal cap on advance pricing arises from this chapter.

The protection that decides the outcome tends to differ from the one in the article the owner read first.

New York Characterization and Judgment Procedure

In LG Funding v United Senior Properties, a New York appellate court weighed reconciliation practice, the finite term and bankruptcy recourse in deciding whether repayment was absolute. The opinion preserved defenses. It invalidated no industry.

That substance test differs from the judgment procedure that decides the practical fight. CPLR 3218 requires a signed sworn affidavit stating the authority for judgment and the facts of the debt, with filing limited by residence and county rules. The confession of judgment statute governs entry of judgment rather than the characterization of the transaction itself.

A funder may pursue an available claim in order to recover a disputed obligation (a step industry defenders will describe as ordinary enforcement) even while the characterization dispute remains open. Resist the urge to merge the two inquiries into a general promise of cancellation.

Most owners encounter these rules after the affidavit is already filed, and often we see the affidavit before we see the agreement. The timing is unfortunate and extremely common.

Counsel should review and analyze the payment history alongside the clause (reconciliation language that went unhonored reads differently from a procedure the parties followed, though our files supply no tally of how often the distinction controls). The clause and its operation require joint proof rather than the marketing description. Counsel can test the affidavit, challenge the characterization, and construct a posture that addresses both the court file and the cash position.

The Jurisdiction File Counsel Needs

Six months after funding, nobody remembers which version was signed. The file should answer without reliance on memory: recipient operating location, state of organization and transaction dates, with the provider legal identity and the governing law and forum clauses attached. Those facts decide what counsel can argue, or must concede, before any negotiation begins.

That set of facts allows licensed counsel to name the rule and the evidence that establishes its coverage. Any statement about the debt, even a brief one to funder counsel, can become evidence used against the business.

Resolution After the Comparison

Delancey Street offers a free confidential initial review for merchant advance concerns. Its settlement services can support negotiation while independently licensed counsel addresses the jurisdiction questions above, since the company acts as a settlement company and is not a law firm. Eligibility and state availability require confirmation.

An adviser should ensure the proposed plan separates legal issues from creditor consent. A complaint, even a supported one, does not by itself produce a signed release.

Protect and preserve the agreement, the disclosures and any accepted resolution. Counsel should ensure the file is complete before any position is surrendered in correspondence. The comparison has served its purpose when the owner can distinguish a duty imposed on a provider from a defense available in a proceeding and from a concession with no counterpart in a signed release. Whether other states follow the Texas model is a question this primer cannot answer.

Every advance carries an address, a date and a clause selecting the law that governs. Resolution begins where those three facts meet the current text.

A judgment entered without valid affidavit support can still draw collection until a court orders otherwise.