Key Takeaways
- The American Factoring Association is escalating its campaign against MCAs to the federal level, following new state laws in Texas and Vermont that restrict auto-debit mechanisms and impose disclosure requirements.
- Federal MCA regulation would create a single compliance baseline that demands auditable, documented bank verification for every funded deal, not just deals in regulated states.
- Bank verification software for funders that produces timestamped video evidence, encrypted audit trails, and structured activity logs will become a compliance necessity rather than a nice-to-have.
- Funders who rely on phone calls, manual screenshots, or inconsistent verification processes face the highest regulatory exposure in a federal enforcement environment.
- Async bank verification platforms like Exact Balance give funders a compliance-ready infrastructure that works across jurisdictions without adding headcount.
The Factoring Industry Wants Federal MCA Rules. Funders Should Pay Attention.
The merchant cash advance industry has spent years navigating a patchwork of state-level regulations. That patchwork just got a credible threat of federal replacement. In early July 2026, American Factoring Association President Cole Harmonson announced the next step in the factoring industry's campaign against MCAs: taking the fight to the federal level. The announcement came on the heels of new MCA laws in Texas and Vermont, both of which restrict automatic debiting and impose new disclosure requirements on providers.
For funders, this isn't just a political headline. Federal regulation would create a single compliance baseline that touches every deal, in every state, regardless of where the merchant is located. The funders most exposed are the ones whose bank verification processes live in spreadsheets, phone call notes, and ad hoc screenshot collections. Bank verification software for funders isn't a luxury in this environment. It's the infrastructure that determines whether a funder can demonstrate compliance under scrutiny or scramble to reconstruct evidence after the fact.
This article breaks down what federal MCA regulation would likely require from a verification standpoint, how the Texas and Vermont laws are already reshaping compliance expectations, and what funders should build now to avoid being caught flat-footed.
How Texas and Vermont Are Writing the Federal Playbook
Texas: The Auto-Debit Precedent
Texas moved first, passing legislation that imposed restrictions on how MCA providers can access merchant bank accounts for repayment. The law doesn't ban MCAs outright, but it constrains the automatic debiting mechanisms that most funders rely on for collections. That constraint has a direct verification implication: if a funder must demonstrate that its repayment structure complies with the law, the funder also needs to demonstrate that its underwriting process verified the merchant's banking activity before funding.
Phone calls and verbal confirmations don't produce the kind of documentation that regulators expect. A recorded, timestamped verification session does. As we explored when Vermont's MCA auto-debit ban reshaped bank verification compliance for funders, the regulatory direction is clear: states want evidence that funders did their due diligence before initiating any debit relationship.
Vermont: Disclosure Meets Documentation
Vermont's legislation followed Texas closely, prohibiting providers from establishing automatic debit mechanisms unless they hold a validly perfected security interest with first priority. That's a high bar. Meeting it requires funders to verify not just the merchant's revenue patterns, but the state of their deposit accounts and any existing liens or encumbrances.
Verifying these details through a live phone call is impractical. The underwriter would need the merchant to navigate through account details, security interest documentation, and transaction histories in real time, all while the underwriter takes notes that may or may not be accurate. Screen recording eliminates this gap entirely. The merchant records their banking portal at their convenience, the underwriter reviews on demand, and the recording itself becomes the compliance artifact.
Federal Regulation: One Baseline, Every Deal
The factoring industry's push to the federal level suggests a desire for uniform rules rather than a state-by-state maze. If federal MCA regulation materializes, it will almost certainly incorporate the strictest elements of existing state laws. That means auto-debit restrictions, disclosure requirements, and documentation mandates would apply to every transaction, not just those in Texas, Vermont, Connecticut, or New York.
For funders operating across state lines, this simplifies one problem (which rules apply where) but intensifies another (can our verification process produce compliant documentation for every single deal). The answer, for most funders still using manual processes, is no. The answer for funders using purpose-built bank verification software is yes, automatically.
What Federal MCA Compliance Would Demand from Bank Verification
Auditable Records for Every Funded Deal
State regulators in 2026 are already requesting verification records during examinations. Federal oversight would formalize this expectation. Every funded deal would need a retrievable, tamper-evident verification record that shows what the underwriter reviewed, when they reviewed it, and what the merchant's banking portal displayed at the time of verification.
Exact Balance produces this by default. Every verification request generates a secure screen recording of the merchant's live banking session, stored with encrypted uploads to Google Cloud. The activity log captures when the link was opened, when recording started, and when the submission was completed. That's a complete audit trail without any additional work from the underwriter.
Standardized Workflows Across Teams
Federal regulation would likely scrutinize whether funders apply consistent verification standards across their entire portfolio. An underwriter in one office verifying deposits by phone while another uses screen recordings creates exactly the kind of inconsistency that regulators flag. Bank verification software for funders solves this by enforcing a single workflow: create request, send to merchant, receive recording, review and verify.
Custom instructions within the platform ensure that every merchant sees the same requirements. Whether the underwriter needs to see account summaries, specific date ranges, or transaction details, those instructions are defined once and applied uniformly. This isn't just operationally efficient. It's the kind of standardization that compliance officers need to demonstrate during an audit.
Cross-Jurisdiction Documentation Without Added Headcount
One of the most practical challenges of federal regulation is that it doesn't reduce compliance work; it shifts it. Instead of tracking which state laws apply to which deal, funders would need to ensure that every deal meets the federal standard. For growing teams, that means either hiring more compliance staff or implementing systems that handle documentation automatically.
Async verification platforms eliminate the scheduling overhead that consumes underwriter time. As we've examined in the context of New York's MCA criminalization bill reshaping bank verification compliance, the regulatory trend across jurisdictions is toward more documentation, not less. Funders who invest in automated documentation infrastructure now will scale compliance without scaling headcount.
What This Looks Like in Practice
Consider a mid-size funder processing 200 deals per month across 15 states. Under the current patchwork, their compliance team spends significant hours determining which deals require enhanced verification documentation based on state-specific rules. Some deals get phone verification, some get bank statement uploads, and some get both. The documentation quality varies by underwriter.
Under federal regulation, every one of those 200 deals would need the same level of documentation. A phone call to verify a merchant's RBC or TD account generates no retrievable artifact. A PDF bank statement can be manipulated. But a screen recording of the merchant navigating their live banking portal, captured with browser-based recording technology that requires no software installation, produces evidence that is both visually verifiable and timestamped.
The operational difference is stark. The funder using manual processes needs to hire additional staff, create new documentation protocols, and train every underwriter on the federal standard. The funder using Exact Balance sends verification requests from their dashboard, receives recordings asynchronously, and reviews them when ready. The audit trail builds itself.
This scenario isn't hypothetical. The CFPB's small business lending data collection rules have already established the precedent that regulators expect granular, retrievable records of lending decisions. Federal MCA regulation would extend that expectation to the verification process itself.
The Competitive Advantage of Building Before the Mandate
Funders who wait for federal regulation to pass before upgrading their verification infrastructure will face two problems simultaneously: compliance pressure and implementation timelines. Software deployment, team training, and workflow integration take months. Funders who adopt bank verification software now get the operational benefits immediately, faster turnaround, reduced fraud risk, better audit trails, and compliance readiness as a bonus.
The factoring industry's federal push also signals something subtler. Institutional capital sources, the banks and credit funds that provide funder credit facilities, are paying attention to regulatory risk. A funder that can demonstrate a compliant, documented verification process is a more attractive counterparty than one relying on verbal confirmations and manual notes. As the industry explored when examining how SMB lending fraud is concentrating in MCA, the funders with the strongest verification processes are also the ones attracting the best capital terms.
Frequently Asked Questions
What would federal MCA regulation require from funders?
Federal MCA regulation would likely require funders to maintain auditable verification records for every funded deal, apply consistent underwriting standards across all transactions, and document compliance with disclosure and auto-debit restrictions regardless of the merchant's state. The Texas and Vermont laws provide the clearest template for what federal requirements might look like, including restrictions on automatic debiting and enhanced documentation obligations.
How does async bank verification help with MCA compliance?
Async bank verification replaces phone-based verification calls with browser-based screen recordings that merchants complete at their convenience. Each recording is timestamped, encrypted, and stored with a complete activity log showing when the verification link was opened, when recording began, and when the submission was completed. This creates the kind of tamper-evident, retrievable documentation that regulators expect during examinations.
Why is the factoring industry pushing for federal MCA rules?
The American Factoring Association views MCAs as a competitive threat to traditional factoring products and has argued that MCAs should face the same regulatory scrutiny as other financial products. After successfully supporting state-level legislation in Texas and Vermont, the association's leadership has signaled that federal regulation is the next objective. For MCA funders, this means preparing for a compliance environment where every deal, not just those in regulated states, requires documented verification.
What bank verification software do MCA funders need for compliance?
MCA funders need bank verification software that produces auditable screen recordings of live banking sessions, stores recordings with encryption and secure access controls, generates timestamped activity logs, and supports custom verification instructions that can be standardized across the entire underwriting team. Platforms like Exact Balance are purpose-built for this workflow, offering browser-based recording, encrypted cloud storage, and a centralized dashboard for managing verification requests.
Conclusion
The factoring industry's push to regulate MCAs at the federal level is not a distant possibility. It is the logical next step after Texas and Vermont demonstrated that state legislatures are willing to act. Funders who treat bank verification as an informal process, something handled over the phone or through ad hoc document collection, face real exposure in this environment. The funders who will navigate federal regulation smoothly are the ones building auditable, standardized verification workflows today.
Exact Balance gives MCA funders the infrastructure to meet these compliance demands without adding scheduling overhead or headcount. Every verification request produces a timestamped screen recording, an encrypted audit trail, and a structured activity log. Visit exactbalance.ca to see how async bank verification fits into your compliance workflow before the federal mandate arrives.