TILA and Merchant Cash Advances

Truth in Lending Act on a paper

ReconcileMyMCA.com is a premier debt relief practice representing small businesses on a nationwide basis. If you have obtained a merchant cash advance and are experiencing a receivables shortfall, both your business and personal assets may be in jeopardy. 

Unlike consumer loans that fall under the Truth in Lending Act (TILA) and other applicable laws, MCAs are almost entirely unregulated. Since a cash advance against future receivables is considered a sale rather than a loan, the transaction only needs to meet the minimal standards of the Uniform Commercial Code; and usury laws do not apply.  

While the state of California has enacted a law that imposes disclosure requirements on commercial purpose loans such as MCAs similar to those under TILA, it is unclear if/when other state or federal action will be taken. The best way to protect your business in the present regulatory environment is to consult ReconcileMyMCA.com. 

Our experienced debt relief specialists will negotiate with your MCA provider to restructure the payment terms of your cash advance. Above all, we are committed to preserving the business you’ve worked so hard to build. 

What is TILA?

The Truth in Lending Act of 1968 (TILA) is a federal law that ensures consumers have accurate information about the cost of a loan so that they can make an informed decision. TILA applies to all types of consumer loans (e.g. mortgages, auto loans, credit cards), but it does not apply to merchant cash advances and other types of commercial financing. 

In particular, TILA requires lenders to provide a written disclosure containing the following information:

  • The amount of the loan
  • Annual Percentage Rate (APR)
  • The amount financed (the total dollar amount payable over the life of the loan) 

Because cash advances are not covered by TILA, small businesses are often unaware of the APR that applies. MCA providers will quote a “factor” rate which typically ranges from 1.2 to 1.5. When that rate is converted to an APR, however, the cost of the advance may skyrocket to over 100 percent, which is the predicament that many small businesses are facing.

At ReconcileMyMCA.com., we work with small businesses to reconcile their cash advances and also provide ongoing counsel so that they can manage the terms of any cash advances in the future. When you become our client, we will work strategically to protect your business and your livelihood.

Disclosure Requirements of Merchant Cash Advances in California

In 2018, California passed a law imposing disclosure requirements on certain types of commercial financing, including:

  • Asset-based lending transactions
  • Commercial loans
  • Factoring
  • Merchant cash advances

The law is designed to allow businesses to compare the cost of financing like how consumers can use TILA’s APR disclosures. Commercial financiers, including merchant cash advance providers, are generally required to disclose the following information:

  • Amount of funds provided
  • The total dollar amount of the financing
  • Term or projected term
  • The total cost of the financing expressed at an annual rate

The law also imposes financial penalties for violations. While small businesses in California that receive merchant cash advances may have certain legal protections, enhanced disclosure requirements may not be sufficient to protect business owners from onerous payment terms.

How ReconcileMyMCA.com Can Help

If your business is at risk of defaulting on a merchant cash advance, it is crucial to move quickly to protect your assets. Depending on the terms of your MCA agreement, you may be bound by the terms of a Confession of Judgment (COJ). This is basically an agreement with the MCA provider whereby you agree to admit liability for the advance and waive any legal defenses. 

In short, filing a COJ allows the cash advance company to levy business accounts, which may result in a business bankruptcy. If your cash advance is backed by a personal guarantee, the MCA provider will also go after your personal assets. 

When the future of your business is in jeopardy, you need the informed representation and dependable service that ReconcileMyMCA provides. Remember: time is of the essence. To begin reconciling your cash advance, please complete the convenient intake form today. Our experienced debt relief specialists are available 24/7.