MCA Laws in Montana: What Business Owners Need to Know
Montana stands out among states because of its strict 15% usury limit, one of the lowest in the country. While merchant cash advances are not classified as loans and therefore technically fall outside usury laws, Montana's regulatory environment creates unique considerations for MCA companies and business owners alike. If a court determines that an MCA is actually a loan in disguise, Montana's usury cap could void the entire agreement.
This guide explains how Montana law applies to MCAs and what protections are available to you.
Current MCA Regulations in Montana
Montana does not have legislation specifically targeting merchant cash advances. MCAs are structured as purchases of future receivables, not loans, so they are not directly subject to the state's lending regulations.
However, Montana's strict usury law is a critical factor. Under Montana law (Mont. Code Ann. 31-1-107), the maximum lawful interest rate is 15% per year. If a court recharacterizes an MCA as a loan, any interest rate above 15% would be considered usurious, and the lender could face penalties including forfeiture of all interest charged.
Division of Banking and Financial Institutions
The Montana Division of Banking and Financial Institutions, part of the Department of Administration, oversees banks, credit unions, and licensed financial service providers. While the Division does not currently regulate MCA companies, it monitors commercial financing activity in the state and can receive complaints from business owners. Given Montana's strong usury protections, the Division could play a significant role if MCA companies are found to be operating as unlicensed lenders.
Confession of Judgment Rules
Montana provides protections against confessions of judgment:
- Montana law restricts the enforceability of cognovit notes and confessions of judgment
- Courts in Montana require proper notice and due process before entering any judgment
- A COJ must be supported by clear written authorization from the debtor, and courts scrutinize whether consent was truly voluntary
- Out-of-state COJ judgments must be domesticated through Montana courts, where the debtor can raise defenses and challenge the judgment
Montana courts have historically favored protecting debtors' rights to due process. If an MCA company attempts to enforce a COJ against your Montana business, you likely have strong grounds to challenge it.
UCC Filing Rules
MCA companies file UCC-1 financing statements with the Montana Secretary of State to establish their claim on your future receivables. These filings are public records.
What you need to know about UCC filings in Montana:
- You can search for UCC filings against your business through the Montana Secretary of State online portal
- UCC filings in Montana 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 terminate the filing, you may have a claim for damages under Montana's Uniform Commercial Code
Because Montana is a smaller market, having even one UCC filing can raise questions with local banks and credit unions. Make sure any paid-off MCAs have their filings properly terminated.
Consumer Protection Laws That Apply
Montana has consumer protection laws that provide meaningful coverage for business owners.
Montana Unfair Trade Practices and Consumer Protection Act
The Montana Unfair Trade Practices and Consumer Protection Act (Mont. Code Ann. 30-14-101 et seq.) prohibits unfair or deceptive acts or practices in trade or commerce. This statute has broad application and can be used to challenge predatory MCA practices.
Key protections include:
- Prohibition against deceptive representations about the cost or terms of financial products
- Prohibition against misleading omissions of material facts
- Authority for the Montana Attorney General to investigate and take enforcement action
- Private right of action allowing individuals and businesses to sue for damages
- Potential for recovery of actual damages plus reasonable attorney's fees
The Usury Defense
Montana's 15% usury cap is one of the most powerful tools available to Montana business owners dealing with MCAs. If an MCA agreement has fixed daily payments, no true reconciliation based on actual sales, and other characteristics of a loan, a Montana court may recharacterize it as a loan. In that case, any effective interest rate above 15% would be usurious, and the lender would forfeit all interest. This defense has been a strong deterrent against some MCA companies operating in Montana.
Recent Legislation and Court Cases
Montana's regulatory landscape for MCAs has some notable developments:
- Usury enforcement. Montana's strict usury cap has deterred some MCA companies from operating aggressively in the state, as the risk of recharacterization is significant.
- AG office activity. The Montana Attorney General's office has shown willingness to investigate financial services companies that engage in deceptive practices, including those operating in the commercial financing space.
- No MCA-specific legislation. Montana has not introduced bills specifically targeting MCA regulation or disclosure requirements, though the state's existing usury protections provide a strong baseline.
- Court precedent. While there are no landmark Montana court decisions specifically about MCAs, courts in other states with usury caps have recharacterized MCAs as loans, providing persuasive authority for Montana cases.
What Montana Business Owners Should Do
If you are considering an MCA in Montana or already have one, take these steps:
- Understand Montana's usury protection. Montana's 15% usury limit is one of the lowest in the country. If your MCA has fixed payments that do not adjust based on your actual sales, it may be a disguised loan subject to this cap. Consult a Montana attorney to evaluate your agreement.
- Request full cost disclosure. Ask the MCA company for the total repayment amount, total cost of financing, estimated APR, and payment schedule. Compare these numbers to the 15% usury limit. If the effective rate is far above 15%, you may have a strong legal argument.
- Check your UCC filings. Search the Montana Secretary of State database for liens on your business. In Montana's smaller business community, UCC filings can quickly affect your reputation with local lenders.
- Do not sign a confession of judgment. Montana courts provide protections against COJs, but avoiding one entirely is the safest approach. Negotiate to remove the clause before signing.
- File complaints when needed. Report predatory MCA companies to the Montana Attorney General and the Division of Banking and Financial Institutions.
Helpful Resources
- Montana Division of Banking and Financial Institutions for financial regulation and complaints
- Montana Attorney General for consumer protection enforcement
- SBA Montana District Office for alternative financing resources
- Montana Small Business Development Center Network for free business counseling
Frequently Asked Questions
Does Montana's 15% usury cap apply to MCAs?
Can an MCA company enforce a confession of judgment in Montana?
Are MCA companies required to be licensed in Montana?
Where do I report a predatory MCA company in Montana?
Sources
- Montana Division of Banking and Financial Institutions. Regulatory oversight of financial services in Montana.
- Montana Code Annotated 31-1-107. Montana's usury statute setting the 15% interest rate cap.
- SBA Montana District Office. Federal small business resources for Montana businesses.
- Montana Small Business Development Center Network. Free counseling and resources for Montana small businesses.