Washington's Lending Transparency Rule Won't Cover Your Cash Advance — Here's What That Means for You

What Section 1071 is (and why you should care)

Section 1071 of the Dodd-Frank Act amended the Equal Credit Opportunity Act to require financial institutions to collect and report data on small-business credit applications — who applied, who got approved, on what terms, and demographic information on the businesses. The idea: you cannot fix unfair lending or spot market gaps if nobody is collecting the data.

The 2023 final rule implementing it covered merchant cash advances. Funders would have had to report application-level data on the businesses seeking advances — including demographics of principal owners. That rule never took effect: it was stayed during litigation, and after the Supreme Court upheld the CFPB's funding, the Bureau went back to the drawing board and issued a substantially revised rule in May 2026.

Why does a data-collection rule matter to you as a borrower? Because public data creates sunlight. When lenders have to report their terms, patterns surface: which products cost what, which borrowers get worse pricing, how terms vary by market. Without reporting, every merchant negotiates in the dark — and the side writing the contract benefits from the dark.

What the CFPB actually decided about MCAs

The May 2026 revised rule narrows coverage on multiple fronts: the small-business revenue threshold dropped from $5 million to $1 million, the loan-origination threshold for covered institutions rose from 100 to 1,000 loans a year, and — the part that matters here — "covered credit transactions" now means only core products: loans, lines of credit, and credit cards. Merchant cash advances, agricultural lending, and small-dollar business credit are expressly excluded.

The Bureau's reasoning, in plain English: the first years of a long-term data program should focus on core, widely used products before deciding whether to extend coverage to what it called niche or specialty products. It also said MCAs differ from traditional lending in ways that could make their data non-comparable, and that many smaller MCA providers lack the compliance infrastructure to report — which could produce data quality problems. The narrowed rule still captures an estimated 92 to 93 percent of small-business loans made by depository institutions; the excluded categories are, by the Bureau's own logic, the ones with the least public data already.

Two finer points worth knowing. First, the 2023 rule said all MCAs were "credit" under the Equal Credit Opportunity Act; the 2026 rule retracts that position without settling the question — the Bureau said the record does not support a bright-line test for which MCAs are credit and which are not. So MCAs sit in legal limbo: out of the data rule, but not declared outside fair-lending law either. Second, the CFPB's own October 2026 fair-lending report restates the change as settled policy — which is why you are hearing about it now, not in May.

This is educational context about a regulatory change, not legal advice. If you have a dispute with a funder, talk to an attorney who knows commercial finance.

The transparency gap this leaves for borrowers

Here is what the exclusion means in practice for someone shopping a cash advance:

• No standardized cost disclosure. A bank loan quotes an APR — one number, defined by law, comparable across lenders. An MCA quotes a factor rate (1.25, 1.35), a payback amount, and a daily payment — with no federal rule requiring those to be translated into an annualized cost. Two offers that "cost" the same factor rate can have wildly different real costs once term length differs. Our true-cost breakdown shows the math funders hope you skip.
• No public pricing data. With no reporting requirement, there is no public dataset showing what merchants actually pay for advances — so a funder quoting you a 1.45 factor rate can tell you it is "standard" and you have no official benchmark to check against.
• State law becomes the only backstop — and it is patchy. A few states have stepped in with MCA-specific disclosure and licensing rules; most have not. Which means your protections depend heavily on where your business is based, not on any national standard.

None of this is an argument against the product. Cash advances fund businesses banks turn down every day. But the price of using a product outside the federal disclosure regime is simple: you have to do the regulator's job yourself, offer by offer.

Who fills the gap: the states, and your own math

The states are not waiting for Washington. California's AB 2116, signed in September 2026, will bring MCA providers and brokers dealing under $500K under the California Financing Law — with licensing, ability-to-repay standards, a ban on confessions of judgment, and a requirement that brokers publish their prior-year average and maximum APRs. We covered what AB 2116 means for borrowers when it was signed.

That California model — licensing plus published pricing data — is exactly the sunlight the federal rule declined to create. If other states copy it, the MCA market gets measurably more transparent over the next few years. Until then, the only sunlight is the math you run yourself, before you sign anything.

Your three-number defense on every offer

Every legitimate funder can give you these three numbers in writing. If one can't — or won't — treat that as the answer:

• Total payback: the full amount that will leave your account over the life of the advance. Not the advance amount — the advance plus the cost. A $50,000 advance at a 1.35 factor rate is $67,500 out of your account. Read every offer as total payback first.
• Payment amount and frequency: exactly how much comes out and how often — daily, weekly — and for roughly how many payments. This is the number your cash flow actually feels.
• Term in time, not just payments: how long until the balance is gone. A factor rate means nothing without the term; a 1.30 over 6 months and a 1.30 over 12 months are two very different loans wearing the same price tag.

Before you sign, read the agreement itself — the five provisions in our walkthrough are where the expensive surprises hide. And because one funder's quote is not a market, start an application and let us run your file across 75+ lenders: the same business that one funder prices at a 1.45 can be another funder's 1.28. Comparison is the closest thing the MCA market has to a disclosure law — here is why shopping the market beats shopping one lender.

Frequently asked questions

What is Section 1071?

Section 1071 of the Dodd-Frank Act requires financial institutions to collect and report data on small-business credit applications, so regulators and the public can assess fair lending and market access. The CFPB implemented it through a 2023 final rule, then replaced it with a narrower revised rule finalized in May 2026.

Does the CFPB's 1071 rule cover merchant cash advances?

No. The May 2026 revised rule expressly excludes merchant cash advances — along with agricultural lending and small-dollar business credit — from the definition of covered credit transactions. Funders will not report MCA application data to the CFPB. The 2023 version would have covered them; the 2026 version reversed that.

Does this mean MCAs are unregulated?

No — it means they are outside this particular federal data rule. State disclosure and licensing laws, plus federal and state enforcement actions, still apply. California's AB 2116, for example, will require MCA broker licensing and published APR data for deals under $500K. But there is no national, standardized MCA disclosure regime.

Did the CFPB decide MCAs are not loans?

Not exactly. The 2026 rule withdrew the 2023 position that all MCAs are "credit" under the Equal Credit Opportunity Act, but it declined to decide the broader question — the Bureau said the record does not support a bright-line test for which advances count as credit and which do not. The legal status remains genuinely uncertain.

How do I compare MCA offers without standardized disclosures?

Demand three numbers in writing on every offer: total payback (advance plus cost), payment amount and frequency, and the term in time. Compare total payback across offers, not factor rates — a factor rate without a term is meaningless. Our true-cost guide walks through the conversion.

Will the CFPB ever cover MCAs?

The Bureau said the initial years of the program focus on core products and that it would decide later whether to extend coverage to specialty products — so the door is open, not closed. In the meantime, watch the states: California's broker APR-publication requirement is the closest thing to the transparency the federal rule passed up.