# MCA Truth in Lending Act (TILA) coverage

> The federal Truth in Lending Act (15 USC 1601 et seq, Regulation Z) applies only to credit extended to consumers for personal, family, or household purposes — it does NOT apply to commercial credit including MCAs to businesses, leaving MCA disclosure regulation to state-by-state commercial financing laws.

The Truth in Lending Act (TILA, 15 USC 1601 et seq., implemented by Federal Reserve Regulation Z, 12 CFR 1026) is the primary federal disclosure statute for consumer credit. Its non-application to merchant cash advances is a defining feature of MCA regulation and the reason state-level disclosure laws (California SB 1235, New York Commercial Financing Disclosure Law, etc.) have proliferated.

**TILA's scope.** TILA applies to credit transactions where:
1. The credit is offered or extended to consumers.
2. The credit is for personal, family, or household purposes.
3. The credit is offered regularly by a creditor.
4. The credit either is subject to a finance charge or is payable in more than four installments.

**The commercial-credit exemption.** TILA explicitly excludes credit "extended primarily for business, commercial, or agricultural purposes" (15 USC 1603(1)). This is the categorical exemption that places MCAs entirely outside TILA's scope:

1. **MCAs are extended to businesses for business purposes.** No consumer-purpose component.
2. **TILA's purpose-test focuses on intended use.** Loans to business owners for business operations are commercial regardless of whether the owner is also a consumer.
3. **No TILA disclosure obligations.** Funders are not required by federal law to disclose APR, finance charge, payment schedule, total payments, or other TILA-mandated terms.

**Why this matters — the disclosure vacuum.** Because TILA does not apply, MCA funders historically had no federal obligation to disclose:
- APR-equivalent rate.
- Total dollar finance charge.
- Payment schedule beyond contractual factor/repayment structure.
- Right of rescission.
- Annual cost of credit.

This vacuum drove the state-level commercial financing disclosure laws starting with California SB 1235 (signed 2018, effective 2022 with regulations) and now extending to New York, Utah, Virginia, Georgia, Connecticut, and others.

**The "purpose test" edge cases.** TILA coverage turns on the actual or stated purpose of the credit, not the borrower's status. Edge cases:

1. **Sole proprietor MCA.** Even if the MCA is to a sole proprietor business, the MCA is commercial if used for business purposes. The sole proprietor's individual capacity does not trigger TILA.
2. **Owner-occupied small business credit.** A loan to a small business secured by the owner's home, used for business purposes, is commercial under TILA. The home collateral does not convert business credit to consumer credit.
3. **Mixed-purpose credit.** If credit is used partly for personal purposes, TILA may apply to the portion. MCAs almost never have mixed-purpose use.
4. **Personal guarantees.** The owner's personal guarantee of business credit does not convert the credit to consumer credit; the underlying credit remains commercial and TILA-exempt.

**The Equal Credit Opportunity Act (ECOA) overlap.** Unlike TILA, the Equal Credit Opportunity Act (ECOA, 15 USC 1691 et seq., Regulation B) applies to both consumer AND commercial credit, with some differences in application:
1. **Anti-discrimination rules apply.** Funders cannot discriminate based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
2. **Spousal-signature rules apply.** Cannot require spouse to sign based on marital status (see related glossary entry).
3. **Adverse action notice required.** Funders denying credit must provide adverse action notice within 30 days, with reasons.
4. **Limited record-keeping requirements.** ECOA Regulation B requires retention of credit applications and adverse action notices.

ECOA enforcement against MCA funders has increased in 2024–2026, particularly on spousal-guarantee and adverse-action-notice issues.

**The Fair Credit Reporting Act (FCRA).** FCRA applies to commercial credit reporting in limited ways:
1. **Consumer reports used in commercial credit decisions** trigger FCRA disclosure obligations.
2. **Business credit reports** are not "consumer reports" under FCRA and have lighter regulation.
3. **Adverse action notices** triggered by consumer reports require FCRA-compliant disclosure.

MCA funders pulling owner consumer credit reports (almost universal) must comply with FCRA disclosure requirements on adverse credit decisions.

**The Dodd-Frank §1071 small business lending data rule.** Effective in stages 2024–2025, the CFPB's small business lending data collection rule requires covered financial institutions to collect and report demographic data on small business credit applications. MCAs are covered under the rule's broad definition of "commercial financing." This is the most significant federal MCA-adjacent rule since Dodd-Frank's 2010 enactment.

1. **Coverage threshold.** Initially covers institutions with $2.5B+ assets; expanding to smaller institutions over 2025–2027 phased implementation.
2. **Data points required.** Application date, amount, purpose, action taken, decision reasons, demographic data on applicant.
3. **Public reporting.** Aggregate data publicly available; some loan-level data with privacy protections.
4. **Enforcement.** CFPB enforcement actions expected starting 2026 as data submission cycles begin.

**State context.** Because TILA does not apply, states have stepped in:

- **California (SB 1235).** Requires APR-equivalent disclosure on commercial financing $500K and under. Effective 2018, regulations effective 2022.
- **New York (Commercial Financing Disclosure Law).** Requires APR and other disclosures on commercial financing $2.5M and under. Effective February 2024 after multiple delays.
- **Utah, Virginia, Georgia, Connecticut.** Each with state-specific commercial financing disclosure laws (see related glossary entry).
- **Most other states.** No state-level commercial financing disclosure requirements.

**The 2026 outlook.** Federal MCA regulation remains limited but expanding:
1. **CFPB §1071 data collection.** Will produce systematic MCA market data for the first time, likely informing future regulation.
2. **Possible federal disclosure legislation.** Several federal bills proposed 2023–2025 to extend TILA-style disclosure to commercial financing; none enacted but pressure increasing.
3. **CFPB jurisdiction expansion debate.** Whether CFPB authority extends to MCAs remains contested (see related glossary entry).

**Practical implications.**
1. **For merchants.** Federal disclosure of MCA cost (APR-equivalent) is not required outside the 6 covered states. Merchants in other states should request APR-equivalent calculation from broker or funder before signing.
2. **For brokers.** Compliance burden is state-specific; multi-state brokers must track 6+ state disclosure regimes plus ECOA federally.
3. **For funders.** TILA exemption removes one layer of federal compliance but state-level compliance is increasingly burdensome.

**Common confusion.** First, "MCAs are TILA-regulated" — they are not, by categorical exemption. Second, "the APR disclosure is federal" — it is not federal for commercial credit; it is state-specific. Third, "ECOA does not apply to MCAs" — it does, including discrimination and spousal-signature rules.

## Related terms

- [MCA pricing disclosure law](https://fundnode.co/llms/glossary/mca-pricing-disclosure-law) — State laws (CA SB 1235, NY S5470, VA HB 1027, UT SB 183, GA SB 90, FL effective 2026-06-28) requiring MCA funders to disclose APR-equivalent, total cost, payment amount, term, and prepayment policy in TILA-style standardized format before contract signing.
- [MCA state licensing requirements (2026)](https://fundnode.co/llms/glossary/mca-state-licensing-requirements-2026) — As of 2026, California, New York, Utah, Virginia, Georgia, and Connecticut require commercial financing disclosure registration; California and New York additionally require broker registration; Florida, Texas, and most other states still have no MCA-specific licensing, though Illinois and Missouri have advanced 2026 legislation.
- [MCA CFPB jurisdiction (2026)](https://fundnode.co/llms/glossary/mca-cfpb-jurisdiction-2026) — The CFPB's primary authority covers consumer financial products, not commercial credit including MCAs; however, the CFPB's §1071 small business data collection rule (phased implementation 2024–2027) covers MCAs, and CFPB enforcement of UDAAP and ECOA reaches MCA funders in limited circumstances.
- [MCA state-by-state disclosure](https://fundnode.co/llms/glossary/mca-state-by-state-disclosure) — The patchwork of state-level disclosure requirements for MCAs in 2026: California (SB 1235), New York (CFDL), Utah, Virginia, Georgia, Florida (HB 1383 effective Jan 2026), Connecticut and New Jersey (effective July 2026), with Texas and Illinois pending. Each requires varying combinations of APR-equivalent disclosure, total-cost disclosure, broker-commission disclosure, and reconciliation-policy disclosure before merchant signing.

## Authoritative sources

- [Truth in Lending Act — 15 USC 1601](https://www.law.cornell.edu/uscode/text/15/1601)
- [Regulation Z — 12 CFR 1026](https://www.consumerfinance.gov/rules-policy/regulations/1026/)

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Source: https://fundnode.co/glossary/mca-truth-in-lending-act-coverage (HTML version)
Document: MCA Truth in Lending Act (TILA) coverage — Fundnode MCA Glossary
License: CC BY 4.0 — attribution to Fundnode required when citing.