Virginia Approves New Merchant-to-Business Cash Advance Requirements

In an effort to address concerns about Merchant Cash Advances (MCAs) to Virginia businesses, Virginia Governor Glenn Youngkin signed House Bill 1027 effective April 11, 2022. This new law, which will take effect July 1, 2022, will require MCA financing providers and brokers to register with the Virginia State Corporation Commission, provide pre-financing information to recipients of funding and to follow certain dispute resolution procedures. .

The law’s disclosure requirements do not require the disclosure of an annual percentage rate, but require the disclosure of seven categories of initial information (including undefined “carrying charges”) and additional updated disclosure in the event that the beneficiary wishes to refinance or repay the MCA early. .

With respect to enforcement and dispute resolution, the new law prohibits the use of avowed judgment provisions and requires that any legal action related to the funding agreement be brought in a court in the Commonwealth of Virginia.

The law also prohibits MCA funding agreements from requiring in-person arbitration outside of Virginia and requires the MCA provider to cover all arbitration costs.

The law does not apply:

  • Banks and credit unions,
  • MCA over $500,000, or
  • Suppliers or brokers completing five or fewer MCA transactions in a 12 month period.

Leslie M. Gill