MCA Laws in Ohio: What Business Owners Need to Know
Ohio has seen growing MCA activity as the state's small business sector expands, particularly in cities like Columbus, Cleveland, and Cincinnati. While Ohio does not have MCA-specific legislation, the state does have some notable protections. including a prohibition on confessions of judgment in consumer transactions. that affect how MCA companies operate.
This guide covers the current regulatory landscape for MCAs in Ohio and what business owners should know.
Current MCA Regulations in Ohio
Ohio does not have laws specifically targeting merchant cash advances. MCAs are treated as commercial transactions (purchases of future receivables) rather than loans, which means they fall outside the Ohio Consumer Sales Practices Act's direct scope and the Ohio Short-Term Lender Law.
The current regulatory situation:
- MCA companies do not need an Ohio lending license specifically for MCA products
- Ohio's usury statute (which sets maximum interest rates for various loan types) does not directly apply to MCAs
- There are no state-mandated disclosure requirements for MCAs
- The Ohio Department of Commerce, Division of Financial Institutions, does not directly oversee MCA transactions as lending products
However, Ohio is not entirely a regulatory vacuum. The state's existing legal framework provides some protections that can apply to MCA disputes.
Confession of Judgment Rules
Ohio has a notable protection against confessions of judgment. Under Ohio Revised Code Section 2323.13:
- COJs in consumer transactions are prohibited. Ohio law prohibits confessions of judgment in consumer transactions.
- Commercial COJs are permitted but regulated. COJs in commercial transactions (which is how MCAs are classified) are permitted but must meet specific requirements.
- Strict procedural requirements. Any COJ must be properly executed, with the debtor signing a separate cognovit note that clearly states the waiver of rights.
- Court review. Ohio courts can review and vacate COJ judgments that were improperly obtained.
- Right to move to vacate. Ohio debtors who have a COJ judgment entered against them can file a motion to vacate and present defenses, including that the amount is incorrect or that the underlying agreement was fraudulent.
Ohio courts have been increasingly willing to scrutinize COJs in commercial financing disputes, particularly when the business owner did not have legal representation when signing the agreement.
Domestication of Foreign Judgments
If a COJ judgment was obtained in another state, the creditor must domesticate it in Ohio through the Ohio courts before it can be enforced against Ohio assets. This process gives the business owner notice and an opportunity to challenge the judgment.
UCC Filing Rules
MCA companies file UCC-1 financing statements with the Ohio Secretary of State. These filings are public and create a lien on your business receivables.
Key points for Ohio business owners:
- Search for UCC filings through the Ohio Secretary of State website
- Ohio UCC filings are effective for five years
- After satisfying your MCA, send a written demand for UCC-3 termination. The funder has 20 days to file it.
- Ohio's UCC Article 9 provides remedies if a funder wrongfully refuses to terminate a filing
Consumer Protection Laws That Apply
Ohio Consumer Sales Practices Act (CSPA)
The CSPA (Ohio Revised Code Chapter 1345) prohibits unfair, deceptive, and unconscionable consumer sales practices. While the CSPA primarily applies to consumer transactions, Ohio courts have applied it more broadly in some cases.
For MCA disputes, the CSPA is most likely to apply when:
- The business owner is a sole proprietor or very small business operating in a consumer-like capacity
- The MCA company engaged in practices that would be deceptive regardless of whether the transaction is consumer or commercial
Ohio Attorney General
The Ohio Attorney General's Consumer Protection Section investigates complaints about unfair and deceptive business practices. While MCA transactions are commercial in nature, the AG's office has expressed interest in predatory commercial financing practices and can take action under its general enforcement authority.
Filing a complaint with the Ohio Attorney General creates a record of the MCA company's behavior and contributes to the state's ability to identify patterns of abuse.
Recent Developments
Ohio's MCA regulatory environment is gradually evolving:
- Legislative interest. Ohio lawmakers have discussed the potential need for commercial financing disclosure requirements, following the lead of states like California and New York. No specific MCA bill has passed yet.
- Growing market. Ohio's major cities have seen increased MCA activity, which has generated more complaints and media attention.
- Court decisions. Ohio courts have examined MCA agreements in contract disputes, and some judges have questioned whether MCAs with fixed daily payments constitute loans under Ohio law.
- Federal coordination. Ohio's Division of Financial Institutions participates in multistate conversations about MCA regulation through the Conference of State Bank Supervisors (CSBS).
- Small business advocacy. Organizations like the Ohio Small Business Development Centers have been educating business owners about MCA risks and alternatives.
What Ohio Business Owners Should Do
- Calculate the true cost. Ohio does not require APR disclosures, so ask the MCA company for the total payback amount and term. Calculate the effective annual cost or have your accountant do it.
- Understand the COJ clause. If the MCA agreement includes a confession of judgment, know that Ohio courts can review and vacate improperly obtained COJs. Have an attorney review the clause before signing.
- Search UCC filings. Check the Ohio Secretary of State website for existing liens before taking on more MCA debt.
- Keep detailed records. Document all payments, communications, and whether the MCA company performs reconciliation as promised. This evidence is critical if you need to challenge the MCA.
- Consult an attorney early. If you are struggling with MCA payments, talk to a business attorney before you default. Proactive negotiation is almost always better than reactive defense.
- Explore alternatives. The SBA Cleveland District Office and Ohio SBDC can help you find lower-cost financing options.
Helpful Resources
- Ohio Attorney General for consumer and business protection complaints
- Ohio Secretary of State for UCC filing searches
- SBA Cleveland District Office for alternative financing
- Ohio Small Business Development Centers for free business counseling
Related Resources
- What Is a Merchant Cash Advance? — understand how MCAs work before diving into the legal details
- MCA Laws by State — see how your state compares to others
- MCA Contract Red Flags — 8 warning signs in MCA contracts
- MCA Confession of Judgment — the most dangerous clause in your contract
- MCA Cost Calculator — calculate the true cost of any MCA offer
Frequently Asked Questions
Does Ohio have any laws specifically regulating MCAs?
Are confessions of judgment enforceable in Ohio?
Do MCA companies need a license to operate in Ohio?
Where can I file a complaint about an MCA company in Ohio?
Sources
- Ohio Attorney General. Consumer and business protection.
- Ohio Secretary of State. UCC filing searches and business records.
- SBA Cleveland District Office. Federal small business resources for Ohio.
- Ohio Small Business Development Centers. Free business counseling and resources.