CFPB Retracts Prior Position and Equivocates on Whether Merchant Cash Advances Are “Credit” Under ECOA

On May 1, 2026, the Consumer Financial Protection Bureau (CFPB) issued a new final rule (the Amended Rule) amending its small business data collection and reporting requirements under Section 1071 of the Dodd-Frank Act. In 2023, the CFPB took the position that merchant cash advances (MCAs), also called sales-based financing, are “credit” for purposes of the Equal Credit Opportunity Act (ECOA). Among other modifications, the Amended Rule retreats from that position and expressly excludes MCAs from the Amended Rule’s data collection and reporting requirements. At the same time, the CFPB stopped short of adopting a position that MCAs are not credit under ECOA. Instead, the agency indicated that additional analysis and monitoring are necessary to determine which MCAs are credit and which are not. This shift not only affects MCA providers’ compliance obligations under the Amended Rule but also creates uncertainty regarding their fair lending and adverse action compliance obligations under ECOA more generally.

What Is an MCA?

An MCA is a form of commercial financing that is typically structured as a merchant’s sale of its future receipts (sometimes referred to as revenues or sales) to a provider, in which a provider advances funds to a merchant in exchange for a share of the merchant’s future receipts until the advance, plus an additional amount, is paid to the provider. For purposes of the Amended Rule, an MCA is specifically defined as the following: “[a]n 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.”

What Changed in the CFPB’s Approach to MCAs?

MCAs are now excluded from Section 1071 data collection and reporting. In 2023, the CFPB had stated that all MCAs were “credit” under ECOA and therefore subject to such data collection and reporting requirements. The Amended Rule withdraws that approach by adding MCAs to the list of transactions excluded from its coverage.

But the CFPB did not resolve the broader question of whether MCAs are “credit” under ECOA. It rejected categorical views that all MCAs are credit or that none are credit. It also said that the current record does not support a bright-line test for determining which MCAs are credit and which are not. Consequently, MCAs are outside Section 1071 for now, but their status under ECOA more generally remains uncertain.

Why Did the CFPB Change Its Mind?

The CFPB said that its 2023 “one-size-fits-all approach” was too broad because it failed to consider the diversity of MCAs in the marketplace, their ongoing evolution, relevant state regulation, and the lack of case law evaluating MCAs under ECOA. The CFPB acknowledged evidence from public comments that some MCAs “involve debt, confer a right to payment, and are loans” and specifically mentioned arrangements where MCA providers seek “recourse against the natural person owners of a small business that no longer has revenue.” On the other hand, the CFPB also acknowledged that some MCAs resemble factoring arrangements, which are expressly excluded from “credit” by the CFPB’s official interpretations. The CFPB said it plans to continue monitoring the marketplace to see if it can determine whether a subset of MCAs might in the future be included in the definition of “covered credit transaction.”

The CFPB also articulated implementation concerns, noting its desire for the new data collection and reporting program to focus on core lending products, not novel structures that could complicate compliance or compromise data quality. The CFPB noted that MCAs differ in structure and terms from traditional lending products and represent only a small proportion of overall small business financing such that they do not warrant inclusion at the start of this long-term data program. 

How Will MCA Providers Be Impacted by the CFPB’s Changed Position?

The most direct consequence is that MCA providers are no longer subject to the Amended Rule’s data collection and reporting requirements. As a result, they do not at this time need to build or maintain systems for gathering and reporting such data. This relief will be especially welcome to small providers having fewer resources available for compliance with complex regulatory requirements. However, the CFPB left the door open to subject at least some MCA products to these requirements in the future.

MCA providers should also continue to carefully evaluate their products and practices. In the absence of a categorical rule or meaningful guidance regarding the factors the CFPB considers in determining whether MCAs constitute credit, providers left in limbo may still face questions, for example, relating to ECOA’s fair lending and adverse action requirements.

We Can Help

We can help MCA providers and their investors and vendors assess product risk, evaluate fair lending and adverse action issues, and analyze interactions between federal law and evolving state requirements. For specific evaluations and recommendations or for additional information about any of the issues discussed in this client alert, please contact Alexander J. Callen.