Usury Law (MCA)
Usury laws cap maximum interest rates on loans — but generally do not apply to MCA transactions structured as receivables purchases rather than loans — the legal basis enabling MCA pricing well above traditional lending rate caps.
Why This Matters
MCA usury exemption rationale: MCA structured as purchase of future receivables (commercial sale) rather than loan (debt transaction); commercial sales not subject to usury restrictions; receivables purchase legal characterization established through reconciliation rights, true sale documentation, and merchant ability to repay slowly during low-revenue periods. Court challenges to MCA structure (alleging disguised loans subject to usury) have produced mixed outcomes — generally favoring MCA structure when properly documented but vulnerable when documentation suggests loan-like guaranteed payment. Several states (NY, CA, others) have enacted commercial finance disclosure laws regulating MCA without imposing usury caps.
Frequently Asked Questions
Frequently Asked Questions
Why aren't MCAs subject to usury laws?
Legal characterization as receivables purchases rather than loans. Loans have fixed payment obligations regardless of merchant performance; MCAs adjust payment with merchant revenue (true sale characteristic). When structured properly, MCAs avoid loan classification.
Which states have specifically addressed MCA usury treatment?
NY, CA, VA, UT, FL, and others have enacted commercial finance disclosure laws acknowledging MCA structure while requiring transparent disclosure. None have imposed traditional usury caps on MCAs. CA has applied lender licensing requirements without rate caps.