Key Takeaways
- The American Factoring Association is escalating its campaign against MCAs to the federal level, signaling a new wave of regulatory scrutiny for funders.
- Federal oversight would likely mandate standardized documentation and audit trails that most MCA funders currently lack.
- Bank verification software for funders becomes a compliance necessity, not just an operational convenience, once federal regulators get involved.
- Asynchronous verification with timestamped recordings creates the kind of defensible evidence trail that federal auditors expect.
- Funders who build compliance infrastructure now will have a structural advantage when new rules arrive.
The Factoring Industry Takes Its MCA Fight to Washington
For years, the regulatory battle over merchant cash advances played out state by state. New York passed disclosure rules. Texas restricted automatic debits. Vermont banned certain ACH practices. But the American Factoring Association (AFA) has now made its intentions explicit: the next front is federal. AFA President Cole Harmonson publicly called for taking the fight against MCAs to the federal level in July 2026, framing merchant cash advances as a competitive threat to traditional factoring that requires national oversight. This is not idle posturing. The factoring industry has significant lobbying infrastructure and a clear incentive to push Congress and federal agencies toward regulating an industry that has operated largely outside their reach.
For MCA funders, the implications are immediate. Bank verification software for funders is no longer a workflow optimization. It is becoming a compliance requirement. Federal regulation brings standardized documentation expectations, audit obligations, and enforcement mechanisms that dwarf anything state-level rules have demanded. Funders who treat verification as a back-office afterthought will find themselves exposed when examiners come calling.
This article breaks down what the factoring industry's federal push means for bank verification practices, what compliance infrastructure funders need to build now, and how asynchronous verification creates the audit trail that regulators will demand.
Why Federal Regulation Changes the Verification Calculus
The State Patchwork Versus Federal Standards
The current regulatory landscape for MCAs is a patchwork. Each state that has enacted rules, from Connecticut's disclosure requirements to Vermont's auto-debit ban, has created its own compliance framework. Funders operating across multiple states already struggle to maintain consistent processes. A federal framework would replace this fragmentation with a single, presumably more rigorous, set of standards.
Federal regulators operate differently than state-level agencies. The Consumer Financial Protection Bureau and the Federal Trade Commission have dedicated enforcement divisions, subpoena power, and the resources to conduct systematic audits. When these agencies examine a lender's practices, they do not accept verbal assurances. They want documentation. They want timestamps. They want evidence that verification processes were followed consistently across every transaction.
The Documentation Gap Most Funders Face
Most MCA funders in 2026 verify bank transactions through one of two methods: reviewing uploaded bank statements (which can be easily manipulated) or conducting live verification calls (which produce no standardized record). Neither method creates the kind of defensible audit trail that federal compliance demands.
Consider what happens during a typical live verification call. An underwriter dials the applicant, asks them to log into their banking portal, and walks through transactions over the phone. The underwriter might take notes. They might not. There is no recording of what the applicant's screen actually showed. There is no timestamp proving when the session occurred. If a regulator asks for proof that verification was conducted properly six months later, the funder has nothing to produce except an underwriter's memory and maybe a checkbox in a CRM.
This gap is precisely what the factoring industry will highlight in its federal lobbying efforts. The AFA's argument is straightforward: MCAs lack the consumer protections and operational standards that factoring and traditional lending maintain. Whether you agree with their framing or not, the documentation weakness is real, and it gives regulators an easy target.
What Federal Compliance Infrastructure Looks Like
When federal agencies regulate financial products, they typically require three things from service providers: consistent processes applied uniformly, contemporaneous documentation of each transaction, and accessible records retained for defined periods. For MCA bank verification, this translates into specific operational requirements.
First, every verification must follow the same process. Ad hoc phone calls where different underwriters ask different questions and check different things will not satisfy a federal examiner. Second, each verification must produce a record at the time it occurs, not a summary written after the fact. Third, those records must be stored securely and retrievable on demand for the duration of any applicable retention period.
Asynchronous screen recording verification meets all three requirements by design. The applicant receives standardized instructions specifying exactly what to show. The recording captures precisely what appeared on screen, with timestamps embedded. The file is stored securely in cloud infrastructure with access controls. This is not coincidental. This is the architecture that regulated industries have relied on for decades, adapted for modern bank verification workflows.
Building Audit-Ready Verification Before the Rules Arrive
The Lesson from State-Level Scrambles
Every time a state has passed MCA-related legislation, funders have scrambled to comply after the fact. When Vermont enacted its auto-debit ban, funders had to retrofit their payment collection processes overnight. When New York's disclosure rules took effect, compliance teams worked weekends to update contracts and disclosures. The pattern is predictable: regulation arrives, funders react, and the transition is expensive and chaotic.
Federal regulation will magnify this pattern by orders of magnitude. A CFPB rulemaking or a Congressional act applies nationwide on a fixed effective date. There is no gradual state-by-state rollout. Funders who wait for the final rule to start building compliance infrastructure will find themselves competing for the same implementation resources as every other funder in the industry, simultaneously.
The smart move is to build now. Not because you know exactly what the rules will say, but because the fundamental requirements of auditable, standardized, documented verification processes are predictable regardless of the specific regulatory text.
How Async Verification Creates Federal-Grade Audit Trails
Exact Balance was designed for the Canadian MCA market, where lenders face their own regulatory pressures, but the compliance architecture translates directly to the demands of federal oversight. Every verification request generates a complete activity log: when the link was sent, when the applicant opened it, when recording started, when it was submitted. The AI-guided recording coach ensures applicants show the required account views, date ranges, and transaction details. The resulting video is encrypted, timestamped, and stored in Google Cloud with token-based access controls.
For a federal examiner, this produces exactly the evidence package they need. They can see the standardized instructions the applicant received. They can watch the actual banking session, not a summary of it. They can verify that the recording was made on a specific date and time. They can confirm that the underwriter reviewed it and made a documented decision. Every step in the chain is captured automatically, eliminating the human error and inconsistency that manual processes introduce.
The Competitive Advantage of Early Compliance
Funders who build audit-ready verification workflows before federal rules arrive gain more than just regulatory readiness. They gain a competitive advantage in three dimensions.
First, institutional capital partners increasingly require compliance documentation as a condition of funding facilities. As we explored in our analysis of how investment-grade note issuances are reshaping verification requirements, institutional investors want to see that the deals they are backing were underwritten with defensible processes. Auditable verification recordings satisfy this requirement immediately.
Second, brokers and ISOs will gravitate toward funders who can demonstrate clean compliance practices. As federal scrutiny increases, brokers face their own liability exposure for deals that go wrong. Funders who can show a complete verification trail for every transaction become safer partners.
Third, merchants themselves benefit from a faster, more predictable process. Async verification eliminates the scheduling friction that delays funding. Applicants record at their convenience, funders review on demand, and deals close faster. Compliance and speed are not trade-offs when the right infrastructure is in place.
Frequently Asked Questions
Will federal MCA regulation actually happen?
The probability has increased significantly. The American Factoring Association is actively lobbying for it, and recent state-level laws in Texas and Vermont demonstrate that legislators are receptive to regulating merchant cash advances. While the timeline is uncertain, the direction of travel is clear. Multiple Congressional committees have already held hearings on small business lending practices, and the Consumer Financial Protection Bureau has signaled interest in the space. Funders should plan for federal oversight as a question of when, not if.
What documentation do federal regulators require for bank verification?
Federal regulators typically require contemporaneous records created at the time of the verification, not after-the-fact summaries. This means timestamped evidence of what was reviewed, standardized processes applied consistently across all transactions, and secure retention of records for defined periods. Screen recordings of live banking sessions with embedded timestamps, activity logs, and encrypted storage meet these requirements comprehensively. Notes from phone calls or screenshots generally do not.
How does async bank verification improve compliance?
Asynchronous bank verification improves compliance by standardizing the entire process. Every applicant receives the same instructions, the AI-guided recording ensures the required information is captured, and the resulting video provides an unambiguous record of what was shown. This eliminates the variability inherent in live calls, where different underwriters may check different things or forget to document key details. The automated activity tracking creates a complete chain of custody from request to review.
Can MCA funders use open banking APIs instead of screen recordings for compliance?
Open banking APIs provide transaction data feeds, but they do not provide visual evidence that an applicant's banking portal was reviewed in real time. Federal regulators concerned about fraud and manipulation want to see that the data presented to the underwriter came directly from the bank's own interface, not from an intermediary data feed that could be manipulated upstream. Screen recordings of live banking sessions serve as primary evidence that APIs alone cannot replicate. The most robust compliance posture uses both: API data for analysis and screen recordings for evidentiary documentation.
Conclusion
The factoring industry's push for federal MCA regulation is not a distant hypothetical. It is an active lobbying campaign backed by an organized industry association with clear incentives and growing political momentum. For MCA funders, the message is straightforward: build compliance-ready verification infrastructure now, or scramble to build it later at greater cost and higher risk.
Auditable, standardized, timestamped bank verification is the foundation of any credible compliance program. Exact Balance provides this out of the box, with AI-guided recordings, encrypted storage, full activity tracking, and a review workflow designed for underwriting teams. Visit exactbalance.ca to see how async verification fits into your compliance strategy before the rules make it mandatory.