The Commonwealth of Massachusetts has assembled, through statute and judicial interpretation, one of the more hostile regulatory environments for merchant cash advance funders operating in the United States. Five provisions in particular deserve the attention of any business owner who has signed an MCA agreement and now questions the terms.
The Usury Statute and Its Opt-In Requirement
Massachusetts General Laws Chapter 271, Section 49(d) caps annual interest at twenty percent. The statute permits a lender to exceed that cap, but only if the lender files a specific opt-in notice with the Massachusetts Attorney General within two years of originating the loan. The filing requirement is precise, and the consequences of failing to comply are severe.
Most MCA funders have never filed that notice. They operate under the assumption that their agreements are purchases of future receivables, not loans, and therefore fall outside the usury statute altogether. That assumption has not held up well in Massachusetts courts. When a court recharacterizes the MCA as a loan, the absence of the Attorney General filing means the entire agreement may be void ab initio. Not voidable. Not reformable. Void from the inception, as though the contract had never been executed.
The effective annual percentage rate on a typical MCA, once calculated, falls somewhere between sixty and three hundred fifty percent. Against a twenty percent cap, the arithmetic is not subtle.
Chapter 93A, Section 11
This statute was designed for disputes between businesses. It does not require a consumer relationship. Section 11 permits a commercial entity to bring an action against another commercial entity for unfair or deceptive acts or practices, and the remedy includes treble damages where the conduct is willful or knowing.
In the MCA context, the deceptive conduct takes familiar forms. The reconciliation clause that promises adjustment based on revenue decline but produces no adjustment. The disclosure that omits the true cost of capital. The stacking of multiple advances against the same receivables stream without adequate notice. Each of these practices, when documented, supports a Chapter 93A claim that concentrates the funder’s attention on settlement.
The treble damage provision does not merely increase the recovery. It transforms the negotiation. A funder facing exposure of three times the actual damages has a different conversation with its attorneys than a funder facing simple contract claims.
Attorney fees shift to the prevailing plaintiff. That detail matters more than most business owners appreciate at the outset.
The Confession of Judgment Ban
A confession of judgment is a clause that permits a creditor to obtain a judgment against the debtor without filing a lawsuit, without notice, without a hearing. The debtor signs away the right to defend. Massachusetts does not enforce these provisions.
The significance of this prohibition extends beyond Massachusetts courts. When an MCA funder obtains a confession of judgment in New York and then attempts to domesticate that judgment in Massachusetts, the Commonwealth’s courts will examine the underlying procedure. A judgment obtained through a mechanism that Massachusetts law prohibits offends the state’s public policy, and Massachusetts courts have refused to give such judgments effect.
The funder who relies on a confession of judgment clause against a Massachusetts business owner has built a collection strategy on a foundation that does not exist.
Unconscionability Under the Uniform Commercial Code
Massachusetts adopted the UCC, and Section 2-302 permits a court to refuse enforcement of any contract or clause that the court finds to have been unconscionable at the time of formation. The analysis has two components: procedural unconscionability, which examines the circumstances of the agreement, and substantive unconscionability, which examines the terms themselves.
MCA agreements are fertile ground for both. The procedural element often appears in the speed of execution. A business owner in financial distress receives an offer, signs within hours, and begins receiving daily withdrawals before the terms have been reviewed by counsel. The substantive element appears in the terms themselves: factor rates that translate to triple-digit annual costs, personal guarantees that extend liability beyond the business entity, and reconciliation provisions that exist in the contract but not in practice.
Unconscionability is a harder argument to win than Chapter 93A. But in the right case, it provides a basis for voiding terms that the other statutes may leave intact.
940 CMR 38.00 Disclosure Requirements
The Massachusetts Attorney General’s regulations under 940 CMR 38.00 impose disclosure obligations on commercial financing providers. The framework requires standardized presentation of fees, repayment terms, and equivalent annual percentage rates in a format that permits comparison across products.
Compliance has been uneven. Many MCA funders operating in Massachusetts have continued to use disclosure formats that predate the updated regulations, or have provided disclosures that technically satisfy the letter of the rule while obscuring the substance. A funder who fails to comply creates an additional basis for regulatory action and, in some circumstances, a private cause of action that supplements the other claims.
The AG’s office has signaled its interest in this area. A complaint from a business owner, supported by documentation of inadequate disclosures, reaches an office that has already committed resources to examining commercial financing practices in the Commonwealth.
These five statutes do not operate in isolation. The recharacterization argument triggers the usury analysis. The usury violation supports the Chapter 93A claim. The disclosure failure adds regulatory exposure. The confession of judgment ban eliminates the funder’s preferred enforcement mechanism. Together, they compose a framework that gives a Massachusetts business owner substantial room to contest an MCA agreement that has become unsustainable.
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