The Legal Ground You’re Standing On
California MCA law: the three facts that shape every option
Every resolution strategy — renegotiation, settlement, defense, refinancing — plays out differently depending on these three pieces of California law. A firm that can’t speak to them isn’t the best firm for a California file.
1Usury limits & the recharacterization question
California's Constitution (art. XV, § 1) caps interest on non-consumer loans at the higher of 10% or 5% plus the Federal Reserve Bank of San Francisco discount rate, with licensed lenders exempt; willful usury is also "loan-sharking," a felony under Civil Code § 1916-3(b), and § 1916-3(a) allows recovery of treble the usurious interest paid. MCAs structured as true sales of future receivables fall outside the cap — but California courts and the DFPI look past labels to economic substance. Where fixed payments, funder recourse, and merchant-borne risk make the transaction function as a loan, it can be recharacterized as an unlicensed, usurious loan: the DFPI has ordered an MCA funder to refund California merchants amounts collected above the 10% constitutional cap on exactly that theory.
Sources: Cal. Const. art. XV, § 1 · Cal. Civ. Code § 1916-3 (treble damages; felony loan-sharking) · Manatt — DFPI consent order confirms California MCA enforcement (Allup Finance)
2Confessions of judgment in California
Banned since 2023 California bans confessions of judgment outright. Code of Civil Procedure § 1132(a), as amended by SB 688 (2022), provides that a judgment by confession "is unenforceable and may not be entered in any superior court," effective January 1, 2023 (pre-2023 confessions are grandfathered). MCA funders therefore cannot enter a COJ in California courts — they rely on out-of-state judgments instead, and the domestication of those judgments can itself be challenged.
Sources: Cal. Code Civ. Proc. § 1132 (Justia) · CCP §§ 1132 et seq. (Legislative Information)
3California Commercial Financing Disclosures Law (SB 1235): what funders must tell you
California was the first state to require consumer-style disclosures for commercial financing. SB 1235 (2018), codified at Financial Code §§ 22800–22805 with DFPI regulations effective December 9, 2022, requires providers — expressly including MCA companies — to disclose, for specific offers of $500,000 or less: total funds provided, total dollar cost, term or estimated term, payment method/frequency/amount, prepayment policy, and the total cost expressed as an annualized rate (APR). The recipient must sign the disclosures, SB 33 (2023) made the APR requirement permanent, and the Ninth Circuit upheld the regime against a First Amendment challenge in 2025. The DFPI administers and enforces it — if a funder never showed you a signed APR disclosure, that is a compliance failure worth raising.
Sources: DFPI — Commercial Financing Disclosures (SB 1235) · DFPI — disclosure regulations effective Dec. 9, 2022 · DFPI — SB 33 (2023) made APR disclosure permanent
How funders actually enforce here: MCA agreements typically choose out-of-state (often New York) forums, so funders commonly take a judgment there and domesticate it under California's Sister State Money Judgments Act (CCP §§ 1710.10–1710.65) — the clerk enters a California judgment on application, and the debtor has 30 days after notice to move to vacate before execution. Funders also routinely file blanket UCC-1 liens on receivables, deposit accounts, inventory, and equipment, and pursue bank levies and writs of attachment against California businesses. That 30-day vacate window is a real deadline: a file that sits for a month loses its best procedural option. CCP §§ 1710.10–1710.65 (Sister State Money Judgments Act) · Credible Law — California MCA enforcement mechanisms
