MCA Laws in Michigan: What Business Owners Need to Know
Michigan does not have any laws specifically designed to regulate merchant cash advances. MCAs are not classified as loans in Michigan, which means they fall outside the state's traditional lending framework. However, Michigan business owners are not without protections. The state's Consumer Protection Act and the Department of Insurance and Financial Services (DIFS) provide avenues for recourse if you encounter predatory practices.
This guide covers the current regulatory landscape for MCAs in Michigan and what you can do to protect your business.
Current MCA Regulations in Michigan
Michigan does not regulate MCAs as financial products. Because merchant cash advances are structured as purchases of future receivables rather than loans, they are not subject to Michigan's usury laws, lending license requirements, or interest rate caps.
There is no state disclosure requirement for MCA companies operating in Michigan. Unlike states such as California and New York, Michigan does not require MCA providers to disclose an estimated APR, total cost of financing, or standardized payment terms.
Department of Insurance and Financial Services (DIFS)
The Michigan Department of Insurance and Financial Services oversees banks, credit unions, and other licensed financial institutions in the state. While DIFS does not directly regulate MCA companies, it serves as a resource for Michigan business owners and can refer complaints to the appropriate agency. DIFS also monitors the commercial financing landscape and may play a role in future regulation.
Confession of Judgment Rules
Michigan law permits confessions of judgment under certain conditions, but there are important limitations:
- Michigan court rules require that a COJ be supported by a verified statement setting forth the facts justifying the judgment
- The debtor must have signed the COJ voluntarily and with knowledge of its terms
- Michigan courts have the authority to vacate (set aside) a COJ if the debtor can show that the judgment was entered improperly or that there are valid defenses
- Out-of-state COJ judgments must go through the domestication process before they can be enforced in Michigan, giving business owners an opportunity to challenge them
While Michigan does not prohibit COJs outright, the procedural requirements provide some protection. If an MCA company has filed a COJ against you, consult a Michigan attorney to explore your options for challenging it.
UCC Filing Rules
MCA companies file UCC-1 financing statements with the Michigan Department of State to establish their claim on your business receivables. These filings are public records that any potential lender or creditor can access.
What you need to know about UCC filings in Michigan:
- You can search for UCC filings against your business through the Michigan Department of State UCC search portal
- UCC filings in Michigan 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 business days of receiving your written demand
- If the funder fails to file a termination, you may have a claim for damages under Michigan's version of the Uniform Commercial Code
Multiple UCC filings from different MCA companies can severely limit your ability to qualify for bank loans or SBA financing. Monitor your filings regularly.
Consumer Protection Laws That Apply
Michigan's primary consumer protection statute applies to MCA transactions in certain situations.
Michigan Consumer Protection Act (MCPA)
The Michigan Consumer Protection Act (MCL 445.901 et seq.) prohibits unfair, unconscionable, or deceptive methods, acts, or practices in trade or commerce. While the MCPA is primarily designed for consumer transactions, Michigan courts have applied its principles in business contexts where the practices are particularly egregious.
Key provisions that may apply to MCA disputes include prohibitions against:
- Misrepresenting the terms or conditions of a financial product
- Failing to disclose material information about costs or fees
- Using coercion or undue influence to obtain agreement to terms
- Engaging in deceptive collection practices
Common Law Remedies
Michigan business owners can also pursue common law claims against predatory MCA companies, including fraud, breach of contract, and unconscionability. Michigan courts have shown willingness to examine whether MCA agreements with excessively one-sided terms are unconscionable and therefore unenforceable.
Recent Legislation and Court Cases
Michigan's regulatory approach to MCAs has been relatively hands-off, but there are some developments worth noting:
- No pending legislation. As of now, there are no bills in the Michigan legislature specifically targeting MCA regulation or disclosure requirements.
- DIFS monitoring. DIFS has acknowledged the growth of the MCA industry and is monitoring complaints from Michigan business owners, though no formal regulatory action has been taken.
- Court activity. Michigan courts have handled disputes between MCA companies and business owners, with outcomes varying based on the specific terms of the agreements and the conduct of the parties.
- Federal attention. Federal regulators including the FTC have examined MCA practices nationwide, and any federal action would apply to Michigan business owners.
What Michigan Business Owners Should Do
If you are considering an MCA in Michigan or already have one, take these steps:
- Get everything in writing. Since Michigan does not require standardized disclosures, ask the MCA company for the total amount you will repay, the total cost of financing, an estimated APR, and the payment schedule. If they refuse to provide this information, look elsewhere.
- Search your UCC filings. Check the Michigan Department of State database for any liens filed against your business. Existing UCC filings can affect your ability to get other financing.
- Avoid signing a confession of judgment. While Michigan does not ban COJs, signing one gives the MCA company the ability to obtain a judgment against you without a trial. Negotiate to have the COJ clause removed from your agreement.
- Read the entire agreement. Pay close attention to the reconciliation clause. A true MCA adjusts payments based on your actual revenue. If the payments are fixed regardless of your sales, the product may actually be a loan subject to Michigan lending laws.
- File complaints if needed. Report predatory practices to the Michigan Attorney General and DIFS. Even if these agencies do not directly regulate MCAs, complaints help build a record that can lead to future action.
Helpful Resources
- Michigan Department of Insurance and Financial Services (DIFS) for financial services oversight and complaints
- Michigan Attorney General for consumer protection enforcement
- SBA Michigan District Office for alternative financing resources
- Michigan Small Business Development Center for free business counseling
Frequently Asked Questions
Does Michigan regulate merchant cash advances?
Are confessions of judgment enforceable in Michigan?
Where can I check for UCC filings against my Michigan business?
What should I do if an MCA company in Michigan is using deceptive practices?
Sources
- Michigan Department of Insurance and Financial Services. Regulatory oversight of financial services in Michigan.
- Michigan Consumer Protection Act (MCL 445.901). Text of Michigan's consumer protection statute.
- SBA Michigan District Office. Federal small business resources for Michigan businesses.
- Michigan Small Business Development Center. Free counseling and resources for Michigan small businesses.