CFPB’s New 1071 Rule Excludes Merchant Cash Advances: What It Means for Business Owners

Last reviewed: September 2026  |  CredibleLaw — Legal Resource & Attorney Referral Network

On May 1, 2026, the Consumer Financial Protection Bureau published a final rule at 91 FR 23530 removing merchant cash advances from the federal small business lending data collection program built under Section 1071 of the Dodd-Frank Act. The rule carries Docket No. CFPB-2025-0040 and RIN 3170-AB40. It took effect June 30, 2026, with a single compliance date of January 1, 2028.

Most coverage of this rule was written for bank compliance officers. This page is written for the business owner who has an advance outstanding and wants to know whether anything just changed for them. The short answer is that nothing about your contract changed — but the reasoning the Bureau published alongside the rule is more useful to merchants than the rule itself, and almost no one has reported it.

Key takeaways

• 12 CFR § 1002.104(b)(7) now lists merchant cash advances as an excluded transaction. Agricultural lending and business credit of $1,000 or less were excluded at the same time.
• The rule defines an MCA as an agreement under which a small business receives a lump-sum payment in exchange for the right to receive a percentage of the small business’s future sales or income up to a ceiling amount.
• The CFPB did not hold that merchant cash advances are not credit. It expressly rejected that argument when funders’ trade groups made it.
• Section 1071 never gave a business owner a cause of action. It is a lender reporting statute, so this change does not alter an existing advance, a UCC-1 filing, a confession of judgment, or a pending collection suit.
• Meaningful regulation of these transactions now runs through state disclosure and registration laws and through federal and state enforcement actions — not through the CFPB’s data rule.

What the CFPB Actually Decided

Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Equal Credit Opportunity Act to require financial institutions to collect and report data on credit applications from small businesses, women-owned businesses, and minority-owned businesses. Congress gave the program two purposes: to facilitate enforcement of fair lending laws, and to let communities, governments, and creditors identify business and community development needs.

The Bureau implemented that mandate through a final rule published May 31, 2023, which added subpart B to Regulation B. That rule covered merchant cash advances. Funders would have had to collect and report application-level data on the businesses seeking advances, including demographic data on principal owners.

The 2026 rule reverses that decision. The Bureau concluded that the first years of a long-term data collection program should focus on what it called core, generally applicable lending products — loans, lines of credit, and credit cards — before it decides whether to extend coverage to what it described as more niche or specialty lending products. On that reasoning it excluded merchant cash advances, agricultural lending, and small dollar business credit. The CFPB’s own summary of the change describes it as refocusing coverage on core lenders, products, and data points.

By the Bureau’s estimate, the narrowed rule still captures roughly 92 to 93 percent of small business loans made by depository institutions, against 94 to 95 percent under the 2023 version. The reduction in reported volume is small. The reduction in market visibility is not, because the excluded categories are exactly where the least public data already exists.

Context matters here. Challenges to the 2023 rule were pending in three jurisdictions when the Bureau proposed the change, and courts in those cases had stayed compliance deadlines for some market participants. The Bureau also acknowledged that because of those stays and successive compliance-date extensions, the 2026 changes would not meaningfully alter compliance obligations as they stood at the time. Roughly 410 comments were filed on the proposal, from lenders, trade associations, community groups, and Members of Congress.

How the Rule Defines a Merchant Cash Advance

Final § 1002.104(b)(7) excludes merchant cash advances, defined as agreements under which a small business receives a lump-sum payment in exchange for the right to receive a percentage of the small business’s future sales or income up to a ceiling amount.

That sentence is worth reading twice, because it is the first fixed definition of a merchant cash advance in a federal regulation. Three elements do the work: a lump sum to the business, a right to a percentage of future sales or income, and a ceiling amount. A product structured as a fixed daily debit with no genuine relationship to sales volume, and no reconciliation mechanism, sits awkwardly against that definition.

Be careful how far you carry that observation. The definition governs one thing — whether a transaction is reportable under Regulation B subpart B. It does not determine whether your agreement is a loan under your state’s usury law, and no court is bound by it in a recharacterization fight. State statutes use their own and generally broader terms: Texas regulates “commercial sales-based financing,” while California and New York regulate “commercial financing” by transaction size. A single agreement can fall outside the federal definition and squarely inside a state one.

The Part Almost Everyone Missed: The CFPB Did Not Say MCAs Aren’t Credit

Trade associations representing merchant cash advance providers asked the Bureau to use this rulemaking to declare that merchant cash advances are categorically not “credit” under ECOA. They argued that advances involve no debt, confer no right to defer payment, are not loans, and that funders had a reliance interest in a supposedly longstanding federal interpretation to that effect.

The Bureau refused, and said so plainly in the rule’s preamble. It disagreed with the assertion that merchant cash advances are categorically not credit. It disagreed with categorical attempts to exclude them on the theory that they are simply purchases of future receivables. It pointed to evidence in the comment record that in certain instances these transactions do involve debt, do confer a right to payment, and are loans. It noted evidence that providers seek recourse against the natural-person owners of small businesses that no longer have revenue. And it rejected the claimed reliance interest outright, observing that the 2023 rule had said the opposite — that all merchant cash advance transactions constitute credit.

The Bureau declined to go the other way as well. It did not hold that every advance is credit, and it acknowledged that some may have features resembling factoring in certain circumstances. Its conclusion was that it could not draw a clear, bright line separating advances that constitute credit from those that do not, and that further analysis is required to determine what subset of merchant cash advances constitute credit for purposes of ECOA. It went further and said it had erred in the 2023 rule by prematurely deciding that all of them were credit.

So the federal question is open, deliberately, on the record. Two cautions follow. First, this is preamble commentary explaining a data-reporting rule; it is not a holding, and it binds no court. Second, it does not decide any state-law recharacterization question, which turns on the reconciliation provision, the presence or absence of a true reconciliation right, the term, and the remedies on default — not on a federal reporting definition.

What it does mean is narrower and still useful: no federal regulator has adopted the position that a merchant cash advance is never credit. Funders assert that proposition regularly in collection litigation. As of May 2026 the CFPB has declined to endorse it, in writing, in the Federal Register. If you are evaluating whether a particular agreement was in substance a loan, that record belongs in front of counsel alongside your state’s case law and the other defenses raised in merchant cash advance collection cases.

A related point from the same discussion: the Bureau acknowledged commenter evidence that SBA 7(a) loan proceeds may not be used directly to refinance merchant cash advance debt, and that this leaves some businesses choosing between restructuring and closing. That is a commenter’s characterization rather than a Bureau finding, but it reflects a real financing constraint many owners run into when they try to refinance or settle stacked advances.

What Changed for Lenders

Provision	2023 Rule	2026 Rule (effective June 30, 2026)
Covered credit transactions	Broad; merchant cash advances expressly covered	Excludes MCAs (§ 1002.104(b)(7)), agricultural lending (§ (b)(8)), and business credit of $1,000 or less (§ (b)(9))
Origination threshold	100 covered originations in each of two consecutive years	1,000 covered originations in each of two consecutive years (2026 and 2027 for the first cohort)
Farm Credit System lenders	Covered	Excluded
“Small business” definition	Gross annual revenue of $5 million or less	Gross annual revenue of $1 million or less, adjusted for inflation every five years
Discretionary data points	Included application method, application recipient, denial reasons, pricing, and number of workers	All five removed; collection focused on statutory data points
Compliance timing	Tiered by origination volume	Single compliance date of January 1, 2028, with a grace period through December 31, 2028

For a business owner, the practical translation is that a large share of alternative and online small business financing will not appear in the federal dataset when reporting begins. The 1,000-origination threshold and the $1 million revenue cap narrow it further. What eventually gets published will describe mainstream bank credit to the smallest businesses reasonably well, and will say almost nothing about the market most merchants encounter once a bank has already declined them.

If You Have an Advance Right Now, What Changes?

Nothing about your agreement, your obligations, or your defenses.

That is worth stating flatly, because the rule’s name invites confusion. Section 1071 is a reporting statute aimed at lenders. It never required anyone to disclose an annual percentage rate to you. It never capped the cost of financing. It never restricted collection conduct, ACH debits, personal guaranties, or judgment enforcement. Removing merchant cash advances from it lifts a reporting obligation off funders and takes nothing away from merchants, because merchants were never given anything to lose.

If you are dealing with daily or weekly debits you cannot sustain, a restrained or levied business account, a UCC-1 filed against your receivables, a confession of judgment, or a collection suit already filed, this rule is not part of that analysis. Those outcomes are governed by your contract, your state’s commercial and civil procedure law, and the court where the funder filed. Where the balance is simply beyond restructuring, Subchapter V and the other bankruptcy options sit outside this rule as well. A general overview of how these disputes are handled, and what to look for in counsel, is on our merchant cash advance defense hub.

Where Merchant Cash Advance Regulation Actually Lives Now

The Bureau leaned on state law in its reasoning, noting that several states have legislation and regulations addressing the merchant cash advance market and requiring providers to disclose terms such as the total cost of capital and the financing rate. It treated those developments as a reason the federal exclusion would not leave the product unregulated. Whether that is persuasive is contested — one commenter argued the state laws exist precisely because the product is pervasive and harmful, which cuts the other way — but it does describe where the rules that actually govern your transaction now sit.

As of 2026, ten states require commercial financing disclosures that reach merchant cash advances: California, Connecticut, Florida, Georgia, Kansas, Missouri, New York, Texas, Utah, and Virginia. Four of the most developed regimes are summarized below; the complete state-by-state breakdown covers the registration states and the roughly 35 to 40 states with no MCA-specific statute at all.

State	Law and status	Enforcement
California	SB 1235 (2018), Fin. Code §§ 22800–22807; DFPI regulations effective December 9, 2022. Covers commercial financing of $500,000 or less to businesses principally directed or managed from California. SB 362 (2025, Chapter 352), effective January 1, 2026, requires APR expression and restricts misleading use of “interest” and “rate.”	DFPI. Providers file an annual report by March 15.
Texas	HB 700 (2025), Tex. Fin. Code Ch. 398, effective September 1, 2025. Implementing rules at 7 TAC Ch. 86, Subch. C, effective July 9, 2026. Registration through NMLS required by December 31, 2026, with annual renewal. § 398.055 makes confession-of-judgment provisions void and unenforceable; § 398.056 restricts automatic debits absent a perfected first-priority security interest in all accounts receivable.	Office of Consumer Credit Commissioner. Administrative penalties up to $10,000 per violation. No private right of action.
Florida	Commercial Financing Disclosure Law, Fla. Stat. § 559.9613, effective for transactions on or after January 1, 2024. § 559.9612 excludes transactions over $500,000.	Attorney General has exclusive enforcement authority under § 559.9615. No private right of action, and § 559.9615(2)(c) provides that a violation does not render the transaction void or unenforceable.
Utah	SB 183 (2022), Commercial Financing Registration and Disclosure Act, Utah Code Title 7 Ch. 27, effective January 1, 2023. Registration with the Utah Department of Financial Institutions. Applies to transactions of $1 million or less; a “provider” is one doing more than five transactions per year. Does not require APR disclosure.	Utah DFI. $500 per violation up to $20,000. No private right of action, and a violation does not affect enforceability.

The point most articles get backwards

• Florida, Utah, and Texas all foreclose private enforcement of their commercial financing laws. Enforcement belongs to the regulator — the Florida Attorney General, the Utah Department of Financial Institutions, and the Texas Office of Consumer Credit Commissioner.
• In each of those states, a disclosure violation does not void your agreement or make it unenforceable. Florida says so in the statute.
• A funder’s failure to give a required disclosure is a real fact worth raising, and it can matter to how a court views the transaction. It is not a defense that erases your balance, and any source telling you otherwise is describing a law that does not exist.

Enforcement Is the Other Lever the Bureau Pointed To

Responding to comments about high costs and predatory practices, the Bureau said those concerns may be addressed by federal and state law enforcement agencies through their respective enforcement authorities. That is not hypothetical. The enforcement record in this market is substantial and largely predates the rule change.

• FTC v. RCG Advances, LLC (S.D.N.Y., No. 1:20-cv-04432). The FTC alleged misrepresentation of advance terms and unfair collection practices including threats. RCG Advances and Robert Giardina were permanently banned from the merchant cash advance industry, and a federal court later entered judgment requiring Jonathan Braun to pay $20.3 million in monetary relief and civil penalties.
• FTC v. Yellowstone Capital LLC. Yellowstone agreed to pay more than $9.8 million to settle charges that it withdrew money from businesses’ accounts without permission and misrepresented how much financing owners would receive.
• People v. Richmond Capital Group LLC, 2026 NY Slip Op 00990 (1st Dep’t, Feb. 19, 2026). The Appellate Division unanimously modified the judgment to vacate its monetary portion and remand, otherwise affirming. The court’s characterization of the agreements as loans subject to usury limits, and its unconscionability and fraud findings, stand.
• New York Attorney General v. Rapid Ruling (June 8, 2026). The Attorney General sued an online arbitration platform and its founders, alleging it held itself out as a neutral forum while working with the merchant cash advance industry.

Read these for what they are. They are agency actions, not class relief, and a business owner generally cannot bring a private suit under Section 5 of the FTC Act. What an enforcement record does give you is documented conduct by a specific funder — useful in negotiation, useful in discovery, and useful when a court is weighing how much credit to give that funder’s paperwork. Developments like these are tracked on our merchant cash advance news page.

What Section 1071 Never Gave Business Owners

Because this topic attracts a lot of confident misinformation, the negatives are worth stating directly. Section 1071 and Regulation B subpart B never provided any of the following, before or after the 2026 rule:

• A private right of action against a funder.
• A requirement that a funder disclose an APR, factor rate, or total cost to you.
• Any cap on the cost of an advance.
• Any restriction on ACH debits, personal guaranties, UCC filings, or judgment enforcement.
• Any retroactive effect on an agreement you have already signed.

The disclosures merchants sometimes think of as “the CFPB rule” are state law — California’s and New York’s commercial financing disclosure regimes, Texas’s sales-based financing statute, and their counterparts. Those are the rules to check your own paperwork against.

Timeline

Date	Event
May 31, 2023	CFPB publishes the Section 1071 final rule adding subpart B to Regulation B. Merchant cash advances are covered.
July 3, 2024	Interim final rule extends compliance dates in accordance with orders from the U.S. District Court for the Southern District of Texas.
June 18, 2025	Interim final rule extends compliance deadlines by approximately one year.
October 2, 2025	Compliance date final rule confirms the extension.
November 13, 2025	Proposed rule published to narrow the scope of the 2023 rule. Comment period is 30 days.
December 15, 2025	Comment period closes. Approximately 410 comments received.
May 1, 2026	Final rule published at 91 FR 23530. Merchant cash advances excluded under § 1002.104(b)(7).
June 30, 2026	Rule takes effect.
December 31, 2026	Separate but overlapping: Texas OCCC registration deadline for sales-based financing providers and brokers.
January 1, 2028	Compliance date. Covered institutions begin collecting data.
December 31, 2028	Grace period ends.

What to Watch Next

The Bureau did not close the door. It said it will continue to monitor developments in the markets for merchant cash advances and other sales-based financing, to determine whether over time sufficient evidence might become available to allow a subset to be appropriately included in the definition of covered credit transaction. It also identified two natural reassessment points: the inflation adjustment to the small business definition under § 1002.106(b)(2), which occurs every five years, and the retrospective assessment of significant rules required by Section 1022(d) of the Dodd-Frank Act five years after the effective date.

Three things to track in the meantime. The Texas OCCC registration deadline on December 31, 2026, which will produce the first public roster of registered sales-based financing providers in a major state. New Jersey’s pending commercial financing disclosure bill, S.1760. And any court that takes up the question the CFPB left open — whether a particular merchant cash advance constitutes credit under ECOA — because the Bureau noted there is a dearth of case law on exactly that point. Ongoing coverage is collected on our MCA legal news page.

Frequently Asked Questions

Did the CFPB make merchant cash advances legal or unregulated?

No. Merchant cash advances were legal before the rule and remain legal. The rule removed them from a federal data reporting program; it did not grant them any status or immunity. Ten states impose disclosure requirements that reach these transactions, several require registration, and both the FTC and state attorneys general retain enforcement authority.

Does this rule change my existing merchant cash advance contract?

No. Section 1071 is a lender reporting statute. It imposed no terms on your agreement and created no rights you can enforce. Your obligations, your funder’s remedies, and the defenses available to you are the same on and after June 30, 2026 as they were before.

Is a merchant cash advance a loan under federal law now?

The question is unresolved, and the CFPB said so deliberately. In the final rule it rejected the industry position that advances are categorically not credit under ECOA, rejected the opposite position that all of them are, and concluded that further analysis is required to determine what subset constitutes credit. Whether a specific agreement is a disguised loan is normally litigated under state usury law, where the analysis turns on reconciliation rights, term, and remedies on default.

How does the rule define a merchant cash advance?

Under 12 CFR § 1002.104(b)(7), a merchant cash advance is an agreement under which a small business receives a lump-sum payment in exchange for the right to receive a percentage of the small business’s future sales or income up to a ceiling amount. That definition governs federal data reporting only. State statutes use broader terms such as commercial financing and sales-based financing.

When did the rule take effect, and when do lenders have to comply?

The final rule was published May 1, 2026 and took effect June 30, 2026. Covered institutions have a single compliance date of January 1, 2028, with a grace period running through December 31, 2028. The first cohort consists of institutions originating at least 1,000 covered transactions in each of 2026 and 2027.

Can I sue my funder under Section 1071?

No. Section 1071 creates reporting obligations for financial institutions and provides no private cause of action for business owners. Claims against a funder generally arise from the contract itself, state usury and unconscionability law, state commercial financing statutes where a private remedy exists, and general fraud or misrepresentation principles.

Which states regulate merchant cash advances in 2026?

Ten states have commercial financing disclosure requirements that reach merchant cash advances: California, Connecticut, Florida, Georgia, Kansas, Missouri, New York, Texas, Utah, and Virginia. Texas, Connecticut, and Virginia have requirements written specifically for sales-based financing, and Utah, Virginia, and Texas also require registration. Roughly 35 to 40 states have no MCA-specific statute and treat these agreements as ordinary commercial contracts. Our state-by-state guide to MCA laws breaks down each one.

If my funder violated a state disclosure law, is my contract void?

Generally not. In Florida, Utah, and Texas the disclosure statutes are enforced by the regulator rather than by private litigants, and a violation does not void the agreement or make it unenforceable — Florida states this expressly at Fla. Stat. § 559.9615(2)(c). A documented violation is still worth raising with counsel and with the enforcing agency, and it may bear on how a court views the transaction as a whole, but it is not a mechanism for canceling your balance.

Does the exclusion affect a confession of judgment or a UCC-1 lien against my business?

No. Those are creatures of contract and state law. New York restricts confessions of judgment against non-New York residents under CPLR § 3218, as amended in 2019, and Texas voids confession-of-judgment provisions in covered sales-based financing agreements under Tex. Fin. Code § 398.055. UCC-1 filings are governed by Article 9 as adopted in the filing state. None of that is touched by the CFPB rule.

Why did the CFPB reverse its 2023 position on merchant cash advances?

The Bureau said it now believes it should begin a long-term data collection program with core lending products, core lenders, and mostly statutory data points, and expand later if the data supports it — an approach it compared to the fifty-year development of Home Mortgage Disclosure Act reporting. On merchant cash advances specifically, it said it had erred in 2023 by prematurely concluding that all of them constitute credit, and that it could not draw a workable line between those that do and those that do not.

Will merchant cash advances ever be covered by Section 1071?

Possibly. The Bureau committed to continue monitoring the market to determine whether over time sufficient evidence might become available to allow a subset of these transactions to be included. Any expansion would require a new rulemaking with notice and comment, which would appear on the Regulation B rulemaking docket.

Where can I read the rule myself?

The final rule is published at 91 FR 23530 and is available in full on the Federal Register, with the official PDF on govinfo.gov. The current regulation text sits at 12 CFR Part 1002 on eCFR, the CFPB’s own summary is on consumerfinance.gov, and the rulemaking docket with all public comments is on regulations.gov.

Getting Help With a Merchant Cash Advance

CredibleLaw is a national legal resource and attorney referral network. We are not a law firm, we do not provide legal advice, and no attorney-client relationship is created by reading this page or by contacting us. What we do is connect business owners with attorneys in their state who handle these disputes, and publish research on the statutes and cases that govern them.

If you are facing debits you cannot sustain, a restrained account, a lien on your receivables, or a suit already filed, the deadlines are set by your state’s civil procedure rules and can be short. You can request a free case review or call 888-201-0441.

Sources

1. Small Business Lending Under the Equal Credit Opportunity Act (Regulation B), 91 FR 23530 (May 1, 2026) — Docket No. CFPB-2025-0040; RIN 3170-AB40.

2. Official PDF of the final rule, FR-2026-05-01 — U.S. Government Publishing Office.

3. 12 CFR Part 1002 — Equal Credit Opportunity Act (Regulation B) — current regulation text, eCFR.

4. CFPB, Regulation B rules and policy page — agency summary of the 2026 revisions.

5. Rulemaking docket CFPB-2025-0040 and public comments — Regulations.gov.

6. 15 U.S.C. § 1691c-2 (ECOA section 1071) — U.S. Code.

7. FTC v. RCG Advances, LLC — case page — Federal Trade Commission.

8. NY Attorney General press release on Rapid Ruling (June 8, 2026) — Office of the New York State Attorney General.

This article is general legal information, not legal advice, and is current as of September 2026. Laws and regulations change. CredibleLaw is an attorney referral network and legal resource, not a law firm. Consult a licensed attorney in your jurisdiction before acting on anything described here.