MCA Laws in Vermont: What Business Owners Need to Know
Vermont has a reputation as a consumer-friendly state with strong regulatory oversight of financial products. While the state has not passed legislation that specifically targets merchant cash advances, the Department of Financial Regulation actively monitors commercial financing and Vermont's existing consumer protection framework offers more safeguards than many other states.
This guide covers how Vermont's regulatory environment applies to MCAs and what business owners should know.
Current MCA Regulations in Vermont
Vermont does not have a law that specifically regulates MCAs. However, the state's Department of Financial Regulation (DFR) has broad authority to oversee financial services providers, and Vermont has traditionally taken a proactive approach to protecting consumers and small businesses.
MCAs are structured as purchases of future receivables rather than loans, which means they are not directly subject to Vermont's lending statutes. However, Vermont's DFR has the authority to investigate financial companies that operate in the state, and the state's regulatory philosophy leans toward protecting small businesses from predatory practices.
Licensing and Registration
Vermont requires certain financial services companies to be licensed or registered with the DFR. While MCA companies may not fall neatly under existing licensing categories, the DFR has the authority to require registration if it determines that a company is engaging in lending activities. If an MCA agreement has characteristics of a loan (such as fixed payments with no reconciliation), the DFR could potentially take action.
Usury Limits
Vermont has a usury statute that caps interest rates on certain types of loans. If a court determines that an MCA is actually a loan rather than a true purchase of receivables, Vermont's usury limits could apply. This is an important consideration because Vermont courts tend to look at the substance of a transaction rather than just the label the parties give it.
Confession of Judgment Rules
Vermont has strong protections against confessions of judgment. Vermont courts generally require proper notice and an opportunity to be heard before a judgment can be entered against a defendant. Cognovit notes and pre-dispute waivers of the right to defend a lawsuit are viewed unfavorably.
If an MCA company obtains a COJ judgment against your Vermont business in another state, enforcing that judgment in Vermont would require domestication through Vermont courts. Vermont courts would likely scrutinize the judgment closely and could decline to enforce it if proper due process was not followed.
This is a significant protection. If you see a COJ clause in an MCA contract, know that Vermont provides meaningful safeguards, but consult an attorney to understand your specific situation.
UCC Filing Rules
MCA companies file UCC-1 financing statements with the Vermont Secretary of State to establish their interest in your business's future receivables. These filings are public records.
Key points about UCC filings in Vermont:
- You can search for UCC filings against your business through the Vermont Secretary of State website
- UCC filings in Vermont are effective for five years from the date of filing
- After paying 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 Vermont's version of the Uniform Commercial Code
Vermont is a small state with a close-knit business community. Multiple UCC filings can quickly become known and affect your business reputation as well as your ability to obtain other financing.
Consumer Protection Laws That Apply
Vermont's Consumer Protection Act (9 V.S.A. Chapter 63) is one of the stronger consumer protection statutes in the country. It prohibits unfair or deceptive acts or practices in commerce and applies broadly.
Attorney General Enforcement
The Vermont Attorney General's Consumer Assistance Program actively investigates complaints about unfair business practices. If an MCA company uses deceptive marketing, misrepresents the cost of financing, hides fees, or engages in aggressive collection tactics, you can file a complaint with the Attorney General.
Vermont's AG has historically been proactive about investigating financial services companies that operate in the state, even when specific statutes have not caught up to new financial products like MCAs.
DFR Oversight
The Department of Financial Regulation can investigate complaints about financial services companies and has the authority to take enforcement action if a company is operating in violation of Vermont law. If you believe an MCA company is engaging in predatory practices, filing a complaint with the DFR is an important step.
Recent Legislation and Court Cases
- Regulatory interest. Vermont's DFR has been monitoring the growth of commercial financing products including MCAs. While no specific legislation has been introduced, the state's regulatory posture suggests that action is possible if problems increase.
- Consumer-friendly courts. Vermont courts have a track record of looking beyond contract labels to examine the substance of financial transactions. An MCA that functions as a loan could be treated as one by Vermont courts.
- National trends. Vermont legislators are aware of commercial financing disclosure laws passed in states like California, New York, and Virginia. Vermont could adopt similar measures in the future.
- Small business focus. Vermont's economy is heavily dependent on small businesses, which makes MCA regulation a potential priority for state lawmakers.
What Vermont Business Owners Should Do
If you are considering an MCA in Vermont or already have one, take these steps:
- Request full cost disclosures. Even though Vermont does not mandate them, ask the MCA company for the total repayment amount, factor rate, all fees, and an APR estimate. A reputable company should be willing to provide this information.
- Look for reconciliation provisions. A true MCA adjusts payments based on your actual revenue. If your contract requires fixed daily or weekly payments regardless of sales, it may be a loan in disguise, which could trigger Vermont's usury protections.
- Check your UCC filings. Search the Vermont Secretary of State website for any active liens on your business. Make sure old liens from paid-off MCAs have been terminated.
- File complaints when needed. If an MCA company engages in deceptive practices, file a complaint with both the Vermont Attorney General and the Department of Financial Regulation. Vermont regulators take these complaints seriously.
- Explore alternatives. Contact the Vermont Small Business Development Center for free counseling on financing options that may be less expensive and more transparent than an MCA.
Helpful Resources
- Vermont Department of Financial Regulation for financial services regulatory information
- Vermont Attorney General, Consumer Assistance Program for complaints about unfair business practices
- SBA Vermont District Office for alternative financing resources
- Vermont Small Business Development Center for free business counseling
Frequently Asked Questions
Does Vermont regulate merchant cash advances?
Can an MCA company enforce a confession of judgment in Vermont?
Does Vermont have usury limits that could apply to MCAs?
Where can I file a complaint about an MCA company in Vermont?
Sources
- Vermont Department of Financial Regulation. Regulatory oversight of financial services in Vermont.
- Vermont Secretary of State, UCC Filings. Search for UCC liens filed against your business.
- SBA Vermont District Office. Federal small business resources for Vermont businesses.
- Vermont Small Business Development Center. Free counseling and resources for Vermont small businesses.