California SB 362: The MCA Disclosure Rules That Took Effect in 2026 — What Brokers and Funders Must Know

Why Every MCA Broker Needs to Understand California Law Right Now

California does not wait for the rest of the country. When the state enacted SB 1235 in 2018, it became the first in the nation to require consumer-style cost disclosures on commercial financing products including merchant cash advances. Most of the country eventually followed with similar legislation. Now California has done it again. Senate Bill 362 took effect on January 1, 2026, and it tightens the rules considerably — especially for brokers who routinely discuss pricing with merchants before a deal closes.

If you fund or broker MCA deals involving California-based businesses — even occasionally — this law applies to you. Penalties flow through the state's existing California Consumer Financial Protection Law as unfair, deceptive, or abusive acts, meaning the DFPI can move fast once a complaint lands.

This article walks through what changed, who is affected, how the APR calculation works for MCA products, and what a practical compliance workflow looks like for brokers working deals today.

The Foundation: What SB 1235 Already Required

Before looking at what SB 362 added, it helps to understand the baseline California established in 2018 and operationalized through DFPI regulations in December 2022.

Under SB 1235, providers of commercial financing of $500,000 or less to businesses principally directed or managed from California must deliver a standardized disclosure before the recipient signs. That disclosure must include:

• Total amount of funds provided
• Total dollar cost of financing — for an MCA, this is the payback amount minus the advance
• Total repayment amount (or estimated repayment amount for sales-based products)
• Term or estimated term
• Payment frequency and method
• Annualized cost of capital calculated using the DFPI's specific methodology
• Prepayment terms
• Broker compensation when a broker is involved

These disclosures gave California merchants a standardized way to compare products across the funding landscape. But the law had a gap: the APR only had to be disclosed once, at the offer stage, and verbal conversations during the sales process were largely unconstrained.

What SB 362 Changes Starting January 1, 2026

SB 362 targets the gap between the initial written disclosure and everything that happens in conversations between a broker or funder and the merchant before closing. It makes two core changes:

1. APR Must Be Re-Disclosed Every Time Pricing Is Mentioned

After a provider has extended a specific offer to a recipient, any time the provider states a charge, pricing metric, or financing amount to that recipient during the application process, the provider must also state the annual percentage rate for that specific offer.

In plain terms: you cannot say "the factor rate is 1.35" or "you'll pay back $67,500" in a follow-up call or email without also stating the APR. Every pricing touchpoint — phone calls, emails, text messages, follow-up conversations — now triggers a re-disclosure obligation. This is a significant operational change for brokers who routinely discuss deal economics verbally with merchants throughout the approval process.

2. "Rate" and "Interest" Language Is Restricted

SB 362 prohibits using the terms "interest" or "rate" in any way that could reasonably mislead a recipient. Because MCA products are structured as purchases of future receivables rather than loans, the factor rate is technically not an interest rate. Using language that implies otherwise — describing a 1.35 factor rate as "a 35% rate" without the APR context, for example — is now explicitly prohibited if it would mislead the merchant about the true cost of the product.

Providers also cannot use the term "factor rate" as a substitute for APR disclosure. You can reference the factor rate, but it must accompany the compliant APR figure, not replace it.

3. Disclosure Updates Required When Terms Change

If the terms of an advance change between initial offer and final execution, the provider must deliver updated disclosures reflecting the new economics before the merchant signs. This applies to changes in advance amount, payback amount, or payment structure.

How the DFPI Calculates APR for MCA Products

Converting an MCA factor rate to an APR is not straightforward, and California's methodology differs from how APR is calculated under the federal Truth in Lending Act. Understanding the DFPI approach is essential for getting disclosures right.

The DFPI method works as follows:

1. Calculate the total dollar cost of financing: Payback Amount − Advance Amount
2. Divide that cost by the advance amount to produce a cost ratio
3. Annualize that ratio based on the estimated repayment term

To use a concrete example: a $50,000 advance with a 1.35 factor rate has a payback amount of $67,500. The dollar cost is $17,500. Divided by the advance, that is a 35% cost ratio. If the estimated repayment term is 120 days (approximately 4 months), annualizing that 35% over roughly 3 repayment periods per year produces an APR in the range of 105%–110%.

That number often surprises merchants who have only seen factor rates presented in isolation, which is precisely why California requires it. Brokers should be prepared to explain the APR in context — that MCA is a short-term, flexible product for businesses that cannot qualify for traditional financing, and that the annualized figure reflects the compressed repayment window, not a year-long obligation.

Most reputable MCA CRM and disclosure platforms now support DFPI-compliant APR calculation automatically. If your current system does not, that is the first gap to close.

Who Is Covered: Scope of the Law

The law applies to commercial financing transactions of $500,000 or less where the recipient's business is principally directed or managed from California. The physical location of the funder or broker does not matter — what matters is where the merchant operates.

This means a New York-based ISO submitting a deal for a restaurant in Los Angeles is subject to California's disclosure requirements. If your book of business includes any California merchants, SB 362 applies to your process.

Products covered include:

• Merchant cash advances
• Sales-based financing
• Invoice factoring
• Asset-based loans
• Equipment financing
• Open-end financing

The $500,000 threshold is per transaction, not per business. A funder that regularly approves $100,000–$300,000 advances is fully inside the law's scope.

Broker-Specific Obligations Under SB 362

Brokers occupy a distinct position in the compliance framework. Because brokers often control the merchant communication while the funder controls the formal offer, the law places explicit obligations on both parties — and requires them to coordinate.

Disclosure Delivery Documentation

Brokers must provide the funder with documentation that proves disclosures were transmitted to the merchant, including the timing of each delivery. If a funder cannot demonstrate the disclosure chain in an examination, both parties face exposure.

Broker Compensation Must Appear in the Disclosure

When a broker is involved, the SB 1235 disclosure form must reflect the broker's compensation. This was already required under the original law, but SB 362's re-disclosure requirement means broker compensation becomes part of every verbal pricing conversation where the deal economics are restated.

The Re-Disclosure Trigger Applies to Brokers Too

If a broker — rather than the funder directly — is the one calling the merchant to discuss pricing, the broker carries the re-disclosure obligation for that conversation. An ISO cannot rely on the funder's initial written disclosure to cover verbal pricing conversations the ISO has with the merchant afterwards.

Practically, this means brokers working California deals should build APR into every pricing email template, every follow-up call script, and any texted deal summary they send to merchants.

Enforcement: What Happens If You Get It Wrong

The DFPI has dual enforcement authority over SB 362 violations.

If the violation is by a person licensed under the California Financing Law, it constitutes a violation of that law — which carries civil money penalties, license suspension, and potential cease-and-desist orders.

Even if the provider is not licensed under the California Financing Law, a violation of SB 362 can be treated as an unfair, deceptive, or abusive act or practice (UDAP) under the California Consumer Financial Protection Law. UDAP classification expands the DFPI's investigative and penalty authority and also opens the door to private litigation by merchants.

The DFPI can and does initiate investigations based on merchant complaints. With MCA litigation increasing across the country in 2025 and 2026, merchants and their attorneys have become increasingly aware of disclosure requirements and use non-compliance as leverage in disputes over collections and defaults.

Practical Compliance Checklist for Brokers

If you submit deals for California businesses, work through this checklist now rather than after a complaint arrives.

• Audit your disclosure system. Confirm that your CRM or disclosure platform calculates APR using DFPI methodology, not federal TILA methodology. The two produce different numbers.
• Update all pricing email templates. Add a standardized APR line to every follow-up email that references deal economics. Something like: "The estimated APR for this offer, calculated pursuant to California DFPI methodology, is [X]%." Make this a required field, not an optional line.
• Brief your sales team on the re-disclosure trigger. Every person on a call with a California merchant who mentions a dollar amount, factor rate, or payment frequency needs to state the APR in the same conversation.
• Never use "interest rate" or "interest" for MCA products. Train your team to use "cost of financing," "factor rate," and "APR" — not "interest." Mixing loan terminology into MCA sales conversations is now an explicit compliance risk in California.
• Document disclosure delivery with timestamps. Email delivery logs, DocuSign records, or CRM activity logs showing when each disclosure was sent satisfy the documentation requirement. Keep these in your deal files.
• Confirm your funder partners are aligned. Call or email your top funders and ask how they are handling SB 362 re-disclosure. If a funder is not yet compliant, that is a risk to your book because joint enforcement exposure is real.
• Update terms if the deal changes. If approval comes back at a different amount than the initial offer, issue a fresh disclosure before the merchant signs. Do not assume the original form covers the revised terms.

What Other States Are Watching

California's trajectory matters beyond its own borders. New York, Florida, Utah, and Virginia have enacted their own commercial financing disclosure laws with varying requirements. New York's law, which includes APR-style disclosures, has been in effect since 2023. Utah enacted disclosure requirements in 2023 as well.

The pattern is consistent: California tests the strictest version first, other states adopt modified versions, and federal regulators watch to see whether national standardization makes sense. The CFPB in early 2026 moved to remove MCAs from the Section 1071 small business data collection mandate — a sign that federal regulators recognize MCA's unique structure — but state-level disclosure requirements continue to expand.

Brokers who build California-compliant processes today are likely building the process they will need industry-wide within the next two to three years. Getting there early reduces cost and risk compared to retrofitting compliance after more states enact similar laws.

Practical Takeaway

SB 362 changed the cadence of every California MCA deal. The one-time disclosure at the offer stage was always achievable with the right paperwork. The new requirement — re-stating the APR every time pricing comes up — means compliance is now a communication habit, not a document you generate and file away.

The brokers who handle this well will not just avoid penalties. They will build merchant trust faster, because a client who understands their true cost of capital before they sign is far less likely to become a problem account after funding. Transparent pricing conversations, backed by a compliant disclosure workflow, are one of the cleanest competitive differentiators available in the MCA market right now — and California is forcing the issue whether the industry is ready or not.