CFGMS Admin March 7, 2023 Categories: Business Tips, Working Capital Financing

Stay ahead of the new MCA disclosure regulation with guidance from our Compliance Department. 

When a new disclosure law is implemented, it typically requires businesses to make changes to their operations and processes to ensure compliance. For Independent Sales Organizations (ISOs) processing merchants in Virginia, California, and Virginia Utah might involve updating contracts and other paperwork to include the required disclosures and cancellation language. Along with training staff on the new requirements and implementing new systems and procedures. This ensures that disclosures are provided to borrowers in a timely and accurate manner. 

While we don’t have access to future events or information, lenders and ISO partners need to stay up to date on any changes to disclosure laws. This will ensure compliance and avoid potential legal and financial consequences down the road. At CFG Merchant Solutions we have a strong focus on staying ahead of the curve regarding compliance. We stay informed and disclose all the required information to the merchants we finance. Together with our ISO partners, we can stay on the right side of regulation while continuing to grow responsibly.  

CFG Merchant Solutions is proud to provide its ISO partners with guidance regarding any submitted deal package in California, Utah, and Virginia. Contact our Compliance Officer Dan Taylor directly.  

For CFGMS ISO partners who have questions about funding active deals in light of MCA disclosure regulations, Dan Taylor, CFGMS’s VP of Compliance & Data Assurance, is available to provide guidance and support. Dan is well-versed in the regulatory requirements that apply to MCAs in California, Utah, Virginia, and other states. ISO partners can contact Dan directly for any questions related to funding active deals, or for general guidance on compliance with MCA regulations. 

Please feel free to contact Dan directly: at dtaylor@cfgms.com or call our main line (844-663-3467) and ask for a scheduled call with Dan Taylor.  

Will CFG Merchant Solutions add support for states like New York as disclosure regulation becomes active? 

Yes! CFGMS looks forward to providing industry-leading support for its ISO partners. As new state disclosures become active, CFGMS will be ready to fund your deals the same day with the best guidance and practices. The compliance date for the final regulation in New York is August 1, 2023. Any active ISOs that have deals submitted in disclosure states are encouraged to reach out to our compliance department with any questions or concerns.  

Let’s start with California Disclosure, what is required and what should ISOs be focused on?  

California implemented a new disclosure law on December 9th, 2022. It is requiring lenders and finance companies to provide specific information for certain commercial transactions. Such as small business loans and merchant cash advances. The law’s regulations detail the content of these disclosures, covering all commercial loan and cash advance transactions, and requiring the disclosure of specific information on all terms. Notably, California is the first state to mandate nonbank lenders to disclose the annual percentage rate businesses pay when borrowing $500,000 or less. Additionally, funders must obtain the borrower’s signature on the specific commercial financing offer before carrying out any documents.  

It is important to note that the law does not apply to depository institutions, commercial financing transactions secured by real property, or commercial loans under $5,000. The law requires financial providers to prepare written disclosures. Including the funding provided, annual percentage rate, finance charges, total payment amount, and periodic payment amount. They must also provide written disclosure to the recipient when the terms of an existing contract change. Specifically leading to an APR increase and have a signed copy of the disclosure before the transaction begins. 

Utah Disclosure SB183, and how it impacts commercial financing. 

Utah signed SB183 into law, which requires commercial financing providers to register formally with the State and provide standardized disclosures for their transactions. Starting January 1, 2023, these providers must obtain approval from the State to conduct business with Utah customers. The law mandates specific disclosures to be included in contracts. Such as the total amount of funds provided and disbursed, the total cost of the transaction, and the payment schedule. Additionally, brokers must disclose their commission amounts, and providers must explain the payment methodology and any hypothetical scenarios that may cause variations. Utah joins Virginia, New York, and California in implementing commercial financing disclosure laws. While Maryland is the next state likely to pass similar legislation. 

Virginia MCA disclosure regulations 

Virginia has become the second state to introduce a registration regime for MCA providers. This new law requires MCA providers to register with the Virginia State Corporation Commission by November 1, 2022, and annually thereafter. The law also extends the registration requirement to “sales-based financing brokers.” Providers and brokers must also obtain authority to transact business in Virginia. The law imposes disclosure obligations on MCA providers. Similar to the disclosure requirements under the laws passed in California, New York, and Utah. MCA providers must disclose financing terms to the merchant. Including the total amount of financing, finance charge, total repayment amount, estimated number of payments, payment amounts, and other fees. Unlike California and New York laws, Virginia does not require the disclosure of an annual percentage rate or APR.

Regulators may need to issue guidance or regulations to implement the disclosure obligations. As the law does not define many of the terms used in the disclosure requirements. The disclosure obligations go into effect on July 1, 2022, but the short period between the law’s enactment and effective date may not be adequate for the Commission to conduct proper notice-and-comment rulemaking. 

CFG Merchant Solutions is always funding responsibly, and that includes California, Utah & Virginia! 

CFG Merchant Solutions (CFGMS) is a leading provider of MCAs and is committed to staying ahead of regulatory requirements to ensure that its ISO partners and borrowers are fully informed and protected. To this end, CFGMS has implemented robust compliance policies and procedures. As well as regularly reviewing its products and practices to ensure that they comply with all applicable laws and regulations. 

In conclusion, MCA disclosure regulations in California, Utah, and Virginia are an important step toward providing greater protection for small business owners. These regulations require MCA providers to disclose key terms and conditions. As well as the total cost of the advance, expressed as an APR. Giving small business owners the information they need to make informed decisions.