Rep. Jacobson urges curbs on merchant‑cash advances: APR disclosure, court protections for borrowers
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Summary
Rep. Jonathan Jacobson told the Banking Committee HB 5211 would require estimated APR disclosures for sales‑based financing, prohibit contractual waivers of notice/hearing for prejudgment remedies and ban nondisclosure clauses; industry groups warned the bill could restrict access to fast capital.
State Rep. Jonathan Jacobson, the bill author, told the Joint Committee on Banking that HB 5211 responds to widespread harms he has seen in merchant‑cash‑advance (MCA) and sales‑based financing arrangements. "I view the industry to be nothing less than the golden age of piracy," Jacobson said, drawing on his experience as a civil litigator to describe contracts that can freeze operating accounts and remove borrowers’ access to due process.
Jacobson said the bill would: require an estimated APR calculation modeled after the Truth in Lending methodology; prohibit contract clauses that waive a borrower’s right to notice or a hearing before a prejudgment remedy (attachment) is obtained; prohibit nondisclosure provisions that silence borrowers; and add modest procedural cooling‑off safeguards.
Industry trade groups and funders testified in opposition, saying the product’s utility depends on speed and that a mandatory seven‑day waiting period or elimination of ex‑parte prejudgment remedies would push merchants to out‑of‑state providers or reduce capital availability. Jared Alphen, an attorney for providers, said a mandatory seven‑day delay would “fundamentally defeat the purpose” of fast access financing. Providers argued that some proposals raise constitutional concerns and operational impracticalities.
Supporters — including consumer‑protection groups and a coalition representing small‑business advocates — urged APR disclosure and clearer guardrails, citing enforcement actions in other states and federal interest in greater transparency.
Committee members probed the practical effects of banning waivers, how courts currently handle PGRs and whether estimated APRs can be reliably calculated for revenue‑based products. No formal committee votes were taken at the hearing; members invited additional written testimony and technical drafting suggestions.
Jacobson closed by urging the committee to protect small businesses from aggressive collection practices while preserving access to capital where appropriate.