Navigating Factoring’s Fast Lane Without a Regulatory Wreck
Written by: Alex McFall, Chris Friedman & Shelby Lomax
The factoring industry is experiencing rapid transformation. Fintech innovation, new partnerships, and evolving business models are expanding access to capital and reshaping how transactions are done. At the same time, a shift toward federal deregulation has cleared the way for even faster growth and new entrants to the market. But this wave of progress brings new complexities. State-level regulation, heightened enforcement, and the demands of data-driven platforms are creating a landscape where opportunity and risk are closely intertwined. This article explores the latest regulatory and operational challenges, and how factors can position themselves for sustainable growth in a shifting market.
State Activism in the Era of Federal Deregulation
With the new administration in Washington making its deregulatory stance clear, many in the commercial finance industry are understandably breathing a sigh of relief. After years of watching federal agencies ramp up oversight and data collection, the prospect of a lighter federal touch seems, at first glance, like a welcome change.
But after that initial sense of relief, the question quickly becomes whether this is truly the reprieve the industry has been hoping for, or whether it may actually deepen the compliance headaches that factors and other alternative commercial finance providers have faced in recent years. When the federal government signals a major shift in regulatory philosophy like this, it often prompts a response from states, particularly those that do not share the administration’s priorities or politics.
We’re already seeing this dynamic elsewhere in financial services, especially in consumer protection. In ongoing litigation over the Consumer Financial Protection Bureau (CFPB), twenty-three state attorneys general filed an amicus brief earlier this year, making clear that many are watching federal cutbacks and are ready to act if national oversight weakens. Pennsylvania’s governor recently launched a centralized consumer protection initiative, explicitly citing reduced federal enforcement as the reason. In New York, the attorney general is advancing the FAIR Act to strengthen consumer protection laws and expand enforcement authority, with the office stating the legislation was introduced in direct response to federal cuts and the weakening of national agencies. These moves indicate that, when Washington steps back, states are prepared to fill the void with their own brand of aggressive oversight, and their efforts are rarely uniform.
The resulting patchwork approach is exactly what industry organizations like the American Factoring Association have tried to avoid by supporting and working to advance the CASH Act. This legislation, which would establish a uniform federal disclosure standard and preempt conflicting state regimes, has broad support among providers who value clarity and predictability. For most, the issue is not with disclosure itself, but with the operational and legal burden of navigating dozens of inconsistent state laws – many of which dictate disclosures that do not accurately reflect the terms of the transaction.
As state regulators and attorneys general threaten to expand their authority and enforcement reach, the risks for commercial finance providers grow. Compliance becomes more complicated and costly, and the threat of litigation or regulatory action increases, particularly for those operating
across multiple jurisdictions. In this new era, the absence of federal regulation does not mean less oversight. Instead, it means more fragmented and unpredictable enforcement—a reality that the industry will need to navigate with even greater care.
Compliance Challenges in Fintech Partnerships
Fintech has revolutionized alternative commercial finance, allowing factors and lenders to onboard clients, assess credit, and fund transactions in record time and with less friction. Automated underwriting and digital platforms have become standard, and embedded finance partnerships are reshaping how small businesses access working capital.
Yet as technology transforms the industry, new compliance challenges are emerging. Many digital platforms and embedded finance solutions now play a role in processing payments, making credit decisions, and handling client onboarding. When a platform is involved in moving funds between businesses, it may be considered a “money transmitter” under state law. This designation often means the platform must obtain special licenses in each state where it operates, meet financial and bonding requirements, and follow strict rules to prevent money laundering and fraud. Even if a fintech provider describes itself as just a software company, regulators may expect them (and their partners) to comply with these rules if they are facilitating the transfer of funds.
For factors, partnering with fintechs or relying on automated platforms requires careful diligence. It is important to confirm that any technology partner has the necessary licenses for every state where your clients are located. Factors should also ensure that platforms have strong programs in place to verify customer identities and monitor transactions for suspicious activity, as required by anti-money laundering (AML) and know-your-customer (KYC) regulations. As more states implement their own commercial finance disclosure laws, factors must make sure their digital platforms provide clear, compliant information about rates, fees, and terms.
Data privacy and cybersecurity are also critical. Digital platforms handle sensitive financial and business information, and expectations for protecting this data are rising. Factors should review how their fintech partners secure information and respond to potential breaches, and make sure responsibilities are clearly set out in any service agreements.
Finally, the use of artificial intelligence and machine learning in credit assessments and fraud prevention is attracting more regulatory attention. Factors should understand how these tools make decisions and be prepared to address concerns about fairness, transparency, and accuracy.
Fintech offers powerful tools for growth in the factoring industry, but it also raises the stakes for compliance. Success in this environment means asking the right questions of technology partners and building controls that keep pace with rapid innovation.
The Role of Contracts in Managing Risk
With regulatory expectations evolving and technology partnerships becoming more complex, contracts have never been more important in factoring and commercial finance. Product contracts, participation agreements, intercreditor agreements, and technology vendor contracts all shape the risk and compliance profile of a transaction. When state laws diverge and fintech partnerships
introduce new responsibilities, these documents are often the first place regulators and counterparties look to determine who is accountable.
Generic or outdated forms rarely address the realities of today’s market. Contract language should be reviewed regularly to ensure it reflects current law, business practices, and the specific risks that come with digital platforms, data sharing, and multi-state operations. This is especially true when working with fintech providers, who may be subject to licensing, AML, and disclosure requirements that affect the entire relationship.
Finance companies and their vendor partners should also keep in mind that their contracts often contain obligations related to state and federal regulatory regimes. Diligence requirements, audits, policy mandates and other similar provisions still govern transactions even in the face of a less-aggressive federal regulatory environment.
Attention to detail in contracts helps clarify obligations around compliance, data protection, and dispute resolution. In an environment where enforcement and litigation risks are rising, clear and current agreements provide a foundation for managing those exposures. As the industry adapts to new challenges, investing in strong contracts supports both day-to-day operations and long-term stability.
Compliance as a Driver of Sustainable Growth
The landscape for factoring and alternative commercial finance is full of opportunity, but also heightened risk. Factors that approach compliance as an integral part of their strategy are better equipped to build trust with partners, attract investment, and sustain growth. As regulations shift and technology evolves, staying attentive to both contracts and compliance programs will help organizations navigate change with confidence.
About the Authors:
Alex McFall Senior Counsel, Husch Blackwell
Alex has built a reputation for delivering comprehensive and sophisticated representation to a diverse range of clients, including banks, credit unions, fintechs, mortgage companies, and commercial and consumer finance companies. With a multifaceted skill set encompassing regulatory compliance, licensing, and litigation, Alex consistently achieves exceptional outcomes in high-stakes disputes and provides strategic counsel on intricate regulatory matters.
Alex is a trusted advisor to financial services clients operating in a heavily regulated landscape. She possesses a deep understanding of the industry’s complexities, allowing her to guide clients through various challenges, particularly in areas such as new product launches, money transmission, commercial finance, unsecured consumer lending, retail installment sales, and comprehensive regulatory compliance and licensing issues.
One of Alex’s areas of knowledge lies in advising alternative commercial finance companies, offering invaluable guidance on successfully navigating the ever-evolving disclosure and licensing regulations. Her knowledge of these intricate frameworks empowers clients to stay on top of regulatory changes, mitigating risks and ensuring compliance while minimizing the burden on their operations.
What distinguishes Alex is her unique perspective, forged by her experience in both regulatory compliance/licensing and litigation. This dual proficiency enables her to provide clients with holistic and forward-thinking strategies, anticipating potential challenges and proactively mitigating them before they escalate into costly legal disputes. Alex’s ability to think creatively and offer innovative solutions is highly regarded by clients who value her sophisticated approach to problem-solving.
Chris Friedman Partner, Husch Blackwell
Chris is a nationally recognized thought leader in fintech, consumer finance, and alternative commercial finance, serving a go-to legal advisor for companies navigating the complexities of the financial services industry. His insights into the financial services industry and regulatory trends have been featured in Bloomberg, National Mortgage News, Dodd-Frank Update, RESPA News, and other leading publications. Chris is a frequent speaker for the International Factoring Association, the Online Lender’s Alliance, the American Bar Association, and the Conference on Consumer Finance Law, among other trade groups. He also brings a wealth of experience addressing litigation risk and is the co-author of the “Settlement” chapter of the American Bar Association’s Class Action Strategy and Practice Guide, as well as the former co-editor-in-chief of the ABA’s Class Action and Derivative Suits Newsletter.
Chris represents a diverse range of clients, including fintech-based small business finance companies, commercial factors, reverse factors, supply chain finance companies, purchase-order finance companies, and embedded finance companies. He also represents consumer fintech companies, buy-now-pay-later companies, bank and non-bank consumer lenders, and service providers. With deep industry knowledge and a business-first approach, Chris helps clients—from startups to established institutions—structure and scale their operations while ensuring compliance with a quickly-evolving state and federal legal landscape.
Clients turn to Chris not just for legal counsel, but for strategic guidance in building and growing their businesses. He excels at assembling multi-disciplinary teams tailored to address each client’s unique needs, from regulatory compliance and licensing to transactional diligence and deal structuring. His ability to bridge the gap between legal and business objectives makes him an invaluable partner to companies operating in highly regulated financial markets. Chris regularly represents fintechs and traditional lenders in Banking-as-a-Service (BaaS) and Software-as-a-Service (SaaS) deals, ensuring partnerships are structured for long-term success. He regularly conducts regulatory diligence for M&A transactions involving fintechs, mortgage companies, banks, and other financial services firms, helping clients navigate the complex web of state and federal financial regulations.
Chris also advises financial services companies on debt and equity transactions, providing the legal foundation for capital raising and growth. In addition, his practice includes consumer and commercial finance state licensing as well as preparing loan documents, compliance management systems, and policies and procedures to ensure regulatory alignment. He works closely with businesses to develop innovative financial products that comply with the industry’s evolving legal landscape. Chris is also a key advisor on small business loan disclosures and compliance with Dodd-Frank Section 1071.
Chris’s ability to distill complex regulatory frameworks into actionable strategies makes him an essential resource for financial services companies operating at the intersection of innovation and compliance. Chris understands that legal decisions in financial services must be carefully calibrated to the realities of the industry, and he prides himself on providing practical, business-aligned solutions that allow clients to move forward with confidence.
Shelby Lomax Associate, Husch Blackwell
Prior to attending law school, Shelby had a successful career as a banker, serving both consumer and commercial clients. She managed several bank branches in Nashville before accepting a role as a commercial relationship manager. Shelby was particularly passionate about advising clients on complex financial products and providing easily understandable solutions to meet their financial needs. Because of her passion for helping others navigate complex issues, Shelby enrolled in law school with the intent of helping financial institutions navigate emerging and complex regulations.
At Husch Blackwell, Shelby helps banks, nonbank lenders, and other financial clients navigate regulatory compliance matters, including those inherent in the development of new products, marketing initiatives, and compensation plans; expansion into new jurisdictions; and regulatory audits. She is extensively familiar with issues related to the Truth-In-Lending Act (TILA), the TILA-RESPA Integrated Disclosure Rule (TRID), the Real Estate Settlement Procedures Act (RESPA), the Fair Debt Collection Practices Act (FDCPA), and the Fair Credit Reporting Act (FCRA). Shelby is also experienced with alternative finance, small business lending, merchant cash advance transactions, and money transmission licensing. In addition, she maintains a robust Bank Secrecy Act/Anti-Money Laundering (BSA/AML) practice.
Shelby’s years as a banker mean that she understands the lending industry from the inside, and she’s familiar with bank operations and the practical implications of regulatory requirements. She knows firsthand that any legal advice from outside counsel needs to be advice that can realistically be implemented, and she understands the internal risk assessments inherent in implementation. Clients value Shelby’s ability to think not only like an attorney, but also like a banker, lender, or business owner.
The views expressed in the Commercial Factor website are those of the authors and do not necessarily represent the views of, and should not be attributed to, the International Factoring Association.