MCA Laws in Arkansas: What Business Owners Need to Know
Arkansas stands out from most states because of its constitutional usury limit. Article 19, Section 13 of the Arkansas Constitution caps interest rates at 17% per year for most transactions. While MCAs are not classified as loans, this constitutional provision could come into play if an Arkansas court determines that an MCA is actually a loan in disguise. This makes Arkansas one of the more interesting states for MCA regulation, even though it has no MCA-specific laws on the books.
This guide explains how Arkansas law applies to MCAs and what protections are available to business owners.
Current MCA Regulations in Arkansas
Arkansas does not have any statutes specifically regulating merchant cash advances. The Arkansas Securities Department and the Arkansas State Bank Department regulate traditional financial institutions, but MCA companies are generally not required to obtain licenses or register with these agencies.
However, Arkansas is one of only a few states with a constitutional usury limit. The Arkansas Constitution sets a maximum interest rate of 17% per year (or 5% above the Federal Reserve discount rate, whichever is higher) for most transactions. This is significant because if an MCA is ever recharacterized as a loan by an Arkansas court, the effective interest rate (which often exceeds 100% APR) would almost certainly violate this constitutional cap.
The Constitutional Usury Provision
The Arkansas usury provision is enshrined in the state constitution, making it much harder to override than a regular statute. This provision has been the subject of litigation over the years, particularly in the context of payday lending and other high-cost financing products.
For MCA transactions, the key question is whether the MCA is a "true sale" of future receivables or a loan disguised as a sale. If the MCA agreement includes fixed daily payments that do not vary with actual sales, no meaningful reconciliation process, or a guarantee of a fixed return to the MCA company, an Arkansas court might recharacterize the transaction as a loan. If that happens, the 17% usury cap would apply, and the MCA company could face penalties including forfeiture of all interest.
This is a powerful potential protection for Arkansas business owners, but it requires legal action to enforce. No Arkansas court has yet issued a definitive ruling on MCA recharacterization.
Confession of Judgment Rules
Arkansas law does not explicitly prohibit confessions of judgment in commercial transactions, but Arkansas courts generally require proper service of process and an opportunity to be heard before a judgment can be enforced. Pre-dispute confessions of judgment, which are commonly included in MCA contracts, are viewed with skepticism by Arkansas courts.
If an MCA company obtains a COJ judgment in another state, enforcing it in Arkansas requires domestication through Arkansas courts. Under the Uniform Enforcement of Foreign Judgments Act (adopted in Arkansas), you have the right to challenge the judgment on grounds such as lack of jurisdiction, fraud, or violation of due process.
The combination of Arkansas's skepticism toward COJs and its constitutional usury limit creates a potentially strong defense for Arkansas business owners dealing with problematic MCA agreements.
UCC Filing Rules
MCA companies file UCC-1 financing statements with the Arkansas Secretary of State. These filings create a public record of the MCA company's claim on your business receivables.
What you need to know about UCC filings in Arkansas:
- You can search for UCC filings against your business through the Arkansas Secretary of State business services portal
- UCC filings in Arkansas are effective for five years from the date of filing
- When you pay off an MCA, the funder must file a UCC-3 termination statement within 20 days of receiving a written demand from you
- If the funder refuses to terminate the filing, you may have a claim for damages under Arkansas's adoption of UCC Article 9
Stacked MCA filings can destroy your ability to get a bank loan or SBA loan. Check your filings before applying for any new financing.
Consumer Protection Laws That Apply
Arkansas's Deceptive Trade Practices Act (ACA 4-88-101 et seq.) prohibits deceptive and unconscionable trade practices. This statute applies broadly to business transactions and can be used to challenge MCA companies that misrepresent the cost of financing, conceal fees, or engage in misleading conduct.
The Arkansas Attorney General's office enforces the Deceptive Trade Practices Act and has authority to investigate businesses operating in the state. Filing a complaint with the AG's office is free and can lead to an investigation.
Arkansas courts also recognize the common law doctrine of unconscionability. If an MCA agreement contains terms that are so one-sided or oppressive that they shock the conscience, a court may refuse to enforce the agreement or specific provisions within it.
Recent Legislation and Court Cases
Arkansas has not passed any MCA-specific legislation as of early 2026. However, the state's constitutional usury limit continues to be a significant factor in the commercial financing landscape.
Key developments to be aware of:
- Usury enforcement. Arkansas courts have historically been willing to enforce the constitutional usury cap against non-bank lenders. This precedent could be important if MCA recharacterization cases reach Arkansas courts.
- No disclosure legislation. Unlike California, New York, and Virginia, Arkansas has not introduced any commercial financing disclosure bills.
- Federal preemption debates. Some MCA companies have argued that federal law preempts state usury limits, but this argument is generally weak for non-bank MCA companies because federal preemption typically applies only to banks and federally chartered lenders.
Arkansas business owners should be aware that the 17% constitutional cap is a potential tool in their arsenal if they believe their MCA is actually a disguised loan.
What Arkansas Business Owners Should Do
If you are considering an MCA in Arkansas or already have one, take these steps:
- Understand the usury cap. Arkansas's constitutional 17% usury limit could protect you if your MCA is recharacterized as a loan. If your MCA has fixed daily payments with no true reconciliation, consult an Arkansas attorney about whether it might qualify as a disguised loan.
- Get all costs in writing. Ask for the total repayment amount, factor rate, holdback percentage, and all fees before signing. Calculate the effective APR yourself and compare it to the 17% constitutional limit.
- Check your UCC filings. Search the Arkansas Secretary of State website for liens on your business. Multiple filings from different MCA companies will block traditional financing.
- Refuse COJ clauses. Do not sign an MCA agreement with a confession of judgment clause. Arkansas courts are skeptical of pre-dispute COJs, but avoiding them entirely is the safest approach.
- File complaints when warranted. If an MCA company uses deceptive practices, file a complaint with the Arkansas Attorney General.
Helpful Resources
- Arkansas Securities Department for financial regulation information
- Arkansas Attorney General for consumer protection and complaints
- SBA Arkansas District Office for alternative financing resources
- Arkansas Small Business and Technology Development Center for free business counseling
Frequently Asked Questions
Does Arkansas's 17% usury cap apply to merchant cash advances?
Can an MCA company enforce a confession of judgment in Arkansas?
Where can I file a complaint about an MCA company in Arkansas?
Does Arkansas require MCA companies to disclose APR or total cost?
Sources
- Arkansas Securities Department. Financial regulation and oversight in Arkansas.
- Arkansas Attorney General. Consumer protection and deceptive trade practices enforcement.
- SBA Arkansas District Office. Federal small business resources for Arkansas businesses.
- Arkansas Small Business and Technology Development Center. Free counseling and resources for Arkansas small businesses.