How California's AB2116 Could Redefine Bank Verification for MCA Funders

California Just Told MCA Funders: Your Applicants Might Be Consumers

Bank verification software for funders has always operated in a gray zone, somewhere between the rigor of consumer lending compliance and the speed-first ethos of merchant cash advance underwriting. California's newly introduced AB2116 threatens to collapse that gray zone entirely. The bill proposes amending the state's Consumer Financial Protection Law to declare that any business generating less than $18 million a year in revenue qualifies as a "consumer" for the purposes of financial protections. That threshold covers the vast majority of MCA applicants.

The implications are significant. As deBanked reported this week, AB2116 doesn't just add a disclosure requirement here or a notice obligation there. It repositions the entire relationship between funder and merchant, pulling MCA transactions into a regulatory framework designed for individual borrowers. If you're funding deals in California, or funding merchants located there, your verification process is about to matter more than it ever has.

This article breaks down what AB2116 actually requires, why current bank verification practices fall short, and how funders can build compliance-ready workflows before the legislative window closes.

What AB2116 Actually Changes for MCA Underwriting

The $18 Million Threshold and Why It Captures Nearly Every MCA Deal

The $18 million revenue ceiling is not arbitrary. It aligns with thresholds used in other California commercial lending regulations, including the state's existing disclosure requirements under SB 1235. But AB2116 goes further. Rather than simply mandating disclosures, it would fold small business financing into the full apparatus of consumer financial protection, including the right to dispute, restrictions on unfair practices, and requirements for clear and complete record-keeping.

Consider the typical MCA portfolio. The median funded merchant generates somewhere between $300,000 and $3 million in annual revenue. Even the larger deals, those in the $5 million to $15 million range, fall comfortably under AB2116's ceiling. The practical effect is that virtually every MCA transaction involving a California-based business would be subject to consumer-grade scrutiny.

Audit Trail Requirements That Live Calls Cannot Satisfy

Consumer financial protection laws demand records. Not summaries, not notes in a CRM, not an underwriter's recollection of what they saw during a phone call. They demand verifiable, timestamped, reproducible evidence of due diligence.

This is where traditional bank verification breaks down completely. The standard MCA verification call, where an underwriter dials into a borrower's screen share and walks through their banking portal in real time, produces almost no durable record. Some shops take screenshots. Some jot notes. Almost none capture the full session in a format that would satisfy a regulator asking, "Show me exactly what you verified and when."

Under AB2116's consumer protection framework, that gap becomes a liability. Regulators accustomed to examining consumer lending files expect to see the raw evidence, not a summary of it. They want to know what accounts were viewed, what date ranges were checked, and whether the data presented was live or potentially manipulated. A phone call with handwritten notes does not meet that standard.

Documentation as a Legal Defense, Not Just Best Practice

There's a defensive dimension here that funders should not overlook. When a merchant is reclassified as a consumer, they gain access to consumer dispute mechanisms. If a merchant claims they were funded based on fabricated or misrepresented financial data, the funder's first line of defense is their verification documentation. Can you prove what you saw? Can you prove when you saw it? Can you prove the applicant was the one presenting the data?

These questions become existential if your verification process is a live call with no recording, or a recorded call stored informally on someone's local drive. The litigation risk alone should motivate a rethinking of how verification evidence is captured and stored. As we explored in our analysis of California's earlier small business advisory and its impact on MCA lenders, the state has been steadily building toward this kind of regulatory expansion. AB2116 is the next logical step.

How Funders Can Build Verification Workflows That Survive AB2116

Replace Live Calls with Recorded, Timestamped Sessions

The single most impactful change a funder can make is shifting from live verification calls to recorded verification sessions. When an applicant records their banking portal through a browser-based screen capture tool, every second of the session is preserved. The resulting artifact is not a summary or an interpretation. It is a complete, reviewable record of what the applicant's banking data actually showed at the moment of verification.

Exact Balance was built precisely for this use case. Applicants receive a secure link, record their banking session at their convenience, and the recording is encrypted and stored in the cloud with full timestamps and an activity log. The underwriter reviews the recording on demand, verifies transaction authenticity, and marks the request as complete. Every step is logged. Every recording is preserved. The audit trail generates itself.

Define What Must Be Shown Before the Recording Starts

Consumer protection frameworks reward specificity. If a regulator examines your verification file, they'll want to see that you defined clear requirements for what financial data the applicant needed to present. Vague instructions like "show us your bank account" won't cut it.

Funders should build structured verification templates that specify exactly which views of the banking portal are required: account summary pages, transaction histories for defined date ranges, running balances, and any other data points relevant to the underwriting decision. Exact Balance supports custom instructions for each verification request, so the applicant knows precisely what to record before they start. The AI-guided recording assistant then walks them through each step and validates completion in real time.

Centralize Storage with Encryption and Access Controls

Scattered storage is a compliance nightmare. Recordings saved to individual desktops, shared drives with inconsistent permissions, or email attachments that disappear after 90 days will all fail regulatory inspection. AB2116's consumer protection framework would require that verification records be retrievable, secure, and auditable for the life of the funding agreement plus any applicable retention period.

Cloud-based storage with encryption at rest and in transit, token-based access controls, and centralized dashboards solves this. Every recording lives in one place, accessible to authorized team members, and protected from tampering or accidental deletion.

Why Early Movers Will Win When AB2116 Passes

Regulation rarely retreats. Even if AB2116 is amended or delayed, the trajectory is clear. In 2026, California is moving toward treating small business financing more like consumer lending, and other states are watching. New York, Virginia, and Utah have all introduced or passed commercial financing disclosure requirements in recent years. The Consumer Financial Protection Bureau has signaled interest in the space at the federal level as well.

Funders who build compliant verification infrastructure now gain three advantages. First, they avoid the cost and disruption of a rushed retrofit when legislation passes. Second, they reduce fraud exposure by capturing higher-quality verification evidence, an advantage we detailed in our piece on how to verify bank statements for MCA underwriting. Third, they can market their compliance posture as a differentiator. Brokers and ISOs increasingly prefer funders who can demonstrate clean, auditable processes because it protects them too.

The MCA market is growing. LendingTree's CFO confirmed as much during the company's latest earnings call, describing the space as "a strong market that is growing." Growth attracts regulation. Funders who treat compliance as a competitive weapon rather than a cost center will be the ones still standing when the regulatory environment matures.

There's also a practical consideration around deal velocity. Consumer-grade compliance doesn't have to mean consumer-grade slowness. Asynchronous verification actually accelerates underwriting because it eliminates the scheduling bottleneck entirely. Applicants record on their time. Underwriters review on theirs. No coordination required. The compliance artifact is a byproduct of the workflow, not an additional step bolted on after the fact.

Frequently Asked Questions

What is California's AB2116 and how does it affect MCA lenders?

AB2116 is a proposed California bill that would amend the state's Consumer Financial Protection Law to classify businesses generating under $18 million in annual revenue as consumers. For MCA lenders, this means transactions with most merchants would be subject to consumer-grade protections, including stricter documentation requirements, dispute rights, and oversight by consumer protection regulators. Funders operating in California or funding California-based merchants would need to ensure their underwriting and verification processes meet these higher standards.

How does AB2116 change bank verification requirements for funders?

Under consumer protection frameworks, regulators expect verifiable, timestamped, reproducible records of due diligence. Traditional live verification calls produce little or no durable documentation that would satisfy this standard. AB2116 would effectively require funders to capture and retain complete evidence of what financial data they reviewed, when they reviewed it, and how the applicant presented it. Recorded screen captures of live banking sessions, stored securely with full activity logs, meet this evidentiary bar.

Can MCA funders use async verification to meet consumer protection compliance?

Yes. Asynchronous verification platforms like Exact Balance generate exactly the kind of documentation that consumer protection compliance requires. Each verification session produces an encrypted, timestamped recording of the applicant's live banking portal, along with a detailed activity log showing when the link was opened, when recording started, and when the submission was completed. This creates a self-documenting audit trail that regulators can inspect without ambiguity.

Does AB2116 apply to funders located outside California?

The bill targets transactions involving California-based businesses, regardless of where the funder is headquartered. If you fund merchants located in California, or if merchants you fund have California operations generating revenue, AB2116 could apply to those deals. Given California's outsized share of the U.S. small business population, most national MCA funders would be affected to some degree. Canadian funders with U.S. operations or cross-border deal flow should also monitor this development closely.

Conclusion

California's AB2116 is a clear signal that the regulatory landscape for MCA lending is converging with consumer finance standards. Funders who rely on undocumented live calls for bank verification face growing legal, compliance, and fraud risk as these protections expand. The solution is not to slow down. It is to verify smarter, with tools that generate compliance-ready documentation as a natural part of the workflow.

Exact Balance provides the async, recorded, AI-guided bank verification infrastructure that AB2116's framework demands. Every session is captured, encrypted, timestamped, and stored in a centralized dashboard with full audit trails. Visit exactbalance.ca to see how async verification fits into your workflow before the next wave of regulation arrives.