They gave her business a lifeline, then froze all her money

Key Points:

• Jane, a small business owner in Indiana, had all her bank accounts frozen without warning due to a merchant cash advance (MCA) lender's directive, exploiting a rare legal power in Connecticut to freeze funds pre-judgment.
• MCAs, a fast-growing but largely unregulated funding source for small businesses, allow lenders to withdraw daily payments directly from accounts, often with high fees and no legal limits, as they are technically not loans but purchases of future sales.
• Connecticut law permits MCA lenders to include a prejudgment remedy waiver in contracts, enabling them to freeze borrowers' accounts swiftly without court approval, a tactic increasingly used after New York tightened its regulations in 2019.
• Connecticut lawmakers are considering legislation to ban prejudgment remedy waivers for MCAs and require lenders to disclose fees more transparently, aiming to protect small business owners from predatory practices.
• The proposed bill has gained bipartisan support, though it faces opposition from some lenders concerned about reduced security for funders, while some industry groups support banning prejudgment remedies as a fairer approach.