Rules You Can Quote Back at a Funder: Vermont and California Just Raised the Bar

Where this fits: the Transparency Map so far

A few weeks back we published The MCA Transparency Map — the arc-level view of where borrower leverage is coming from: Texas's broker registration clock (deadline December 31, 2026), California's licensing build-out, Vermont's entry into the fray, the Georgia and Florida advance-fee bans, and the In re Kossoff ruling showing what courts actually look at when a funder says "this isn't a loan." If you haven't read it, start there.

This post goes one level deeper, on the two freshest legs. Recent law-firm analyses (Sheppard, Mondaq, lexblog) and fresh reporting add citable specifics to both states' laws — details sharp enough to quote back at a funder, a broker, or an attorney. Paraphrased here in our own words; this is a guide, not legal advice.

Vermont's void-contract rule (H.B. 648)

Vermont H.B. 648 — signed June 16, 2026, effective July 1, 2027, per deBanked's reporting — is the most aggressive borrower-protection language in the country right now. It applies to commercial financing deals under $1 million, bans confessions of judgment, requires APRs to be disclosed, requires a license to solicit a Vermont business, and copies Texas with an automatic-debit prohibition on sales-based financing.

The enforcement teeth are what matter. Per a fresh jdsupra analysis of the law:

Knowing and willful licensing violation = the contract is void. If a provider solicits or funds a Vermont deal without the license, and does so knowingly and willfully, the agreement is void. The provider may not collect or receive any amounts, payments, receivables, or charges under it. Nothing. The whole file dies.

A non-knowing violation = disbursement only. If the violation wasn't knowing or willful, the provider may collect only up to the actual disbursement amount paid out — the dollars that actually hit your account — and may not collect any charges on top of it. No factor rate, no fees, no payback markup.

The quoting language: "Under Vermont H.B. 648, an agreement made in knowing and willful violation of the licensing requirement is void, and the provider may not collect any amounts under it. Please confirm your Vermont license status before we proceed."

Vermont's forum lock: their law, their courts

The same law locks down where fights happen. Contracts must be governed exclusively by Vermont law, disputes must be brought in Vermont courts, and face-to-face arbitration proceedings cannot occur outside Vermont.

That matters because funder agreements have historically picked whatever forum the funder liked — often New York, regardless of where the merchant sits. Vermont borrowers no longer have to travel to fight. If your agreement names another state's law or another state's courts and you're a Vermont business, flag it before signing.

California: unlicensed means unenforceable (AB 2116)

California's AB 2116 — signed September 30, 2026 — builds the licensing regime we've been tracking in our AB 2116 explainer. From July 1, 2028, providers and brokers of financing of $500,000 or less to businesses with up to $16 million in gross receipts need a state license — covering advances, factoring, loans, and leases. From January 1, 2028, pre-default confessions of judgment are banned and funders must consider ability to repay.

The new citable details, from recent law-firm analyses:

Unlicensed agreements are unenforceable. The jdsupra/Troutman analysis frames it plainly: providers and brokers operating without the license cannot enforce their agreements. That's the borrower-facing version of the rule — if they weren't licensed when they funded you, their contract has a problem, not yours.

There's a compliance on-ramp, and you should know about it. Businesses that submit a complete license application by July 1, 2028 may continue operating while it is pending. So "we applied" is a legitimate status — but "we haven't bothered" is not.

Unconscionability is now a California Financing Law violation. A commercial financing transaction found unconscionable under California Civil Code § 1670.5 constitutes a violation of the CFL — giving the unconscionability argument a statutory home it didn't clearly have before.

The quoting language: "Under AB 2116, providers and brokers operating without the required license cannot enforce their financing agreements. Please confirm your California license status or pending-application status."

California bans gag clauses — and makes brokers post APRs

This is the sleeper provision with the biggest practical payoff for borrowers. AB 2116 provides that financing agreements may not restrict the recipient from disclosing information about the provider relationship — including the terms and conditions of the deal. Funders cannot contractually silence borrowers about what they were charged.

Read that again: if your agreement has a confidentiality clause that purports to stop you from discussing your terms, California law says that clause doesn't fly. You can talk to your broker, your attorney, other merchants — anyone. That single rule ends the information asymmetry funders have relied on for years.

The companion rule does the same thing to brokers: from 2028, brokers must publish the average and maximum APR of the deals they arranged the prior year. And from 2029, providers must report transaction volume, financing amounts, and APR data to the DFPI annually — a public data source our content will be mining the day it lands. The federal backdrop is the same direction: as our CFPB 1071 explainer lays out, small-business lending transparency is moving from optional to mandatory.

The quoting language: "AB 2116 prohibits contractual restrictions on disclosing the terms of a financing relationship. I'm discussing my terms with my advisor regardless of the confidentiality clause."

How to actually use each rule: the quoting language

Leverage only works if it's deployed. Here's the playbook, in order:

1. Before you sign, ask for the license number. Vermont and California both make licensing the load-bearing wall. One sentence in an email — "Please provide your Vermont/California commercial financing license number or pending-application confirmation" — does more due diligence than an hour of Googling. A legitimate provider answers immediately.

2. Read the confidentiality clause for gag language. In a California deal, any clause restricting your right to discuss terms is the exact thing AB 2116 prohibits. Flag it in writing before signing. (Our agreement-reading guide covers what else to flag in the same pass.)

3. In a dispute, cite the specific mechanism. Vermont: void contract (knowing/willful) or disbursement-only recovery (non-knowing). California: unenforceable unlicensed agreements. Quote the rule, not the vibe — funders respond to citations, not complaints.

4. If you're already funded and something feels off, check the timeline. Vermont's rules bite from July 1, 2027; California's licensing enforcement from July 1, 2028. Agreements signed before those dates live under the old regime — but the unconscionability and ability-to-repay provisions change the settlement math, as we cover in the negotiation guide.

5. Shop across funders regardless. Regulation exposes costs; it doesn't set them. Charter Capital's Texas explainer carries the honest line that even the strictest state rules include no rate caps — "APRs can still climb well into the hundreds on MCAs." Which is exactly why the shopping decision matters more under the new rules, not less.

What the rules don't do (the honest part)

No rate caps. None of these laws caps what a funder can charge — they cap what an unlicensed funder can collect, and they force disclosure. A fully licensed provider in Vermont or California can still offer an expensive advance. The leverage is over compliance, not pricing.

Timing matters. Vermont's H.B. 648 takes effect July 1, 2027. California's core licensing enforcement starts July 1, 2028 (pre-default confession-of-judgment ban and ability-to-repay from January 1, 2028). Until then, the quoting language above is a preview of rights, not current ammunition — and Texas's registration deadline (December 31, 2026, per our Texas deadline tracker) is the live clock right now.

This is not legal advice. State financing law is genuinely technical — "knowing and willful" is a legal standard, not a vibe — and the analyses these rules come from are law-firm reads, not court rulings. Use the quoting language to open conversations, then bring an MCA-experienced attorney when the dollars are real.

Frequently asked questions

Can a funder really lose the entire contract in Vermont?

If the licensing violation was knowing and willful, yes — the agreement is void and the provider may not collect any amounts, payments, receivables, or charges. If it wasn't knowing/willful, the provider is limited to recovering only the disbursement amount actually paid out, with no charges. Both outcomes are far better for the borrower than the status quo.

Does California's gag-clause ban apply to deals signed before 2028?

The licensing provisions phase in from July 2028 (with the January 2028 confession-of-judgment ban and ability-to-repay rule). The no-gag provision rides with the AB 2116 framework — check the effective-date language with an attorney for your specific agreement, but the direction of travel is clear: confidentiality clauses restricting term disclosure are on borrowed time in California deals.

What does "unenforceable" mean for my California agreement?

It means the provider or broker cannot use the courts to enforce the agreement against you if they operated without the required license. It doesn't automatically erase a debt or stop a funder from trying — but it gives you (and your attorney) the single strongest sentence in any dispute: they weren't licensed, so the agreement can't be enforced.

I'm not in Vermont or California. Does any of this help me?

Directly? The statutes only govern their states. Indirectly? A lot. These rules are becoming the national template — Texas already led on auto-debits, and every funder operating nationally is building compliance for the strictest state, which raises the floor everywhere. And the no-gag-clause concept is worth citing in any negotiation: funders know where the law is heading.

Where does the Texas registration deadline fit in?

Texas is the live clock: providers and brokers must be registered with the Texas OCCC by December 31, 2026. It's the nearest-term compliance event in the space — track it on our Texas deadline page.

Funding in Vermont, California, or Texas — or disputing an advance anywhere? Bring us the agreement. We'll check the licensing status, read the confidentiality and forum clauses, and tell you straight what leverage you actually have before you sign or before you fight. Start with the 2-minute application or call (352) 809-3201.