Texas and Vermont passed disclosure laws for merchant cash advances. The American Factoring Association announced it's taking the fight against those laws to the federal level.
Before we get into what that fight means, let's settle something the industry would prefer to leave unsettled.
Factoring and MCA are the same product
Factoring works like this: a business sells its future receivables to a funder at a discount. The funder advances cash today. The business repays from tomorrow's revenue at a total cost that exceeds what was borrowed.
MCA works like this: a business sells its future receivables to a funder at a discount. The funder advances cash today. The business repays from tomorrow's revenue at a total cost that exceeds what was borrowed.
The documents look different. The industry associations are different. The sales pitch uses different words. The economic structure is identical. Calling one product "factoring" and the other "an advance on future receivables" is branding, not a meaningful distinction. A rose by any other name costs whatever the factor rate makes it cost.
The argument that these products "aren't loans" is technically accurate and deliberately misleading. The legal classification matters enormously to funders — it's what they've used for thirty years to avoid the disclosure requirements that apply to every consumer loan in America. Whether it matters to the small business owner who just signed is a different question entirely.
What the regulation actually asks
Texas and Vermont's laws require funders to disclose the annual percentage rate equivalent of these products.
Not the factor rate. Not the "purchase price of receivables." The APR — the same number that appears on every credit card, every auto loan, every mortgage originated in the United States. A number every American adult already knows how to interpret.
That's the entire ask. One comparable number. In a standard format.
The industry's objection is that APR doesn't apply because these aren't loans. Technically true. Irrelevant. If a 1.35 factor rate on a six-month advance translates to an effective 85% APR, a business owner deserves to know that before signing — not because the product is necessarily wrong for their situation, but because comparison requires a number. If they're also looking at a bank line at 9% or an SBA loan at 11%, the APR equivalent is the only way to put those options next to each other and make an informed choice.
The objection to disclosure isn't a methodology argument. It's a competition argument.
The sticker problem
When you buy a car, there's a number on the sticker. The manufacturer tells you the horsepower. They might measure at the flywheel rather than at the wheels — there's room for methodological quibble in exactly how that number is produced. But there's a number, and you can compare it to the car next to it on the lot. Measurement conventions aside, you know roughly what you're getting.
The commercial funding industry has spent years fighting the equivalent of putting any comparable number on the sticker at all. Not a perfect number. Not a number that captures every nuance of how a factoring product differs structurally from a term loan. A number that lets a business owner ask: What does this compare to, expressed in terms I already understand?
When the contract runs to forty pages and the factor rate is buried in a table on page thirty-one, the business owner signs what they can comprehend and hopes the rest is boilerplate. Sometimes it isn't.
The costs that accumulate at closing — origination fees, documentation fees, wire fees, renewal fees — don't appear in the factor rate. They're not reflected in the number on the first page of the pitch deck. The real cost of the product is often substantially higher than what was quoted. Not because the funder lied, but because nobody was required to add it up.
Who wins under disclosure
Funders who offer genuinely competitive products win. A funder who can demonstrate that their effective APR is 45% while a competitor's is 180% has a weapon. Disclosure hands it to them. Some of the strongest operators in this space have quietly supported disclosure laws for years — precisely because opacity benefits competitors with worse products more than it benefits them.
Funders whose business model depends on customers not fully understanding what they're paying lose. They know it. That's why the American Factoring Association is going federal — not because federal coordination produces better regulatory policy, but because federal preemption could kill the state laws before they spread further.
The factoring lobby isn't fighting regulation. It's fighting the market.
Adam Smith's invisible hand works best when prices are legible. Competition corrects for bad products and bad actors, but only when buyers can distinguish good from bad. Opacity doesn't suspend capitalism's self-correcting mechanism — it defeats it. Regulation that requires disclosure doesn't pick winners. It lets the market do that instead.
Solid lenders will benefit from disclosure. The lesser ones will not survive the light.
— J.P. Howlett