Texas Governor Signs HB 700 Into Law; What Funders and Brokers Must Do Next

On Saturday, June 21, 2025, Texas Governor Greg Abbott signed House Bill 700 into law, setting the stage for a significant regulatory shift in how sales-based financing, including merchant cash advances (MCAs), can be offered in the state.

Effective September 1, 2025, the new law adds Chapter 398 to the Texas Finance Code and applies to any provider or broker offering commercial sales-based financing to Texas businesses. The move places Texas among the growing list of states introducing legislation to bring transparency, oversight, and consumer protection to alternative financing models that have long operated in legal gray areas.

Key Provisions of HB 700

Under the new law, funders and brokers must comply with a series of disclosure, registration, and practice restrictions for funding amounts below $1 million.

Required Actions for Funders & Brokers:

• Register with the Office of Consumer Credit Commissioner (OCCC) by December 31, 2026

• Provide standardized disclosures including:

  • Total financing amount

  • Amount disbursed

  • Finance charges

  • Total repayment obligation

  • Payment structure (fixed or variable)

  • Repayment term

  • Estimated monthly payments

  • Any applicable fees

  • Broker compensation

  • Prepayment penalties or incentives

• Obtain a signed disclosure acknowledgment from the recipient

• Prohibited clauses:

  • No confessions of judgment

  • No automatic account debits with few exceptions

EXEMPTIONS

From the law:

"This chapter does not apply to a provider or broker that is:

(1) a bank, out-of-state bank, bank holding company, credit union, federal credit union, out-of-state credit union, or any subsidiary or affiliate of those financial institutions";

Violators face civil penalties up to $10,000 per violation, with enforcement powers held by the Texas OCCC.

Auto-Debits and the Security Interest Challenge

Among HB 700’s most significant, and potentially disruptive, features is its restriction on automated debiting of a business’s bank account unless the funder holds a first-priority, perfected security interest in the account. This condition goes far beyond a simple UCC filing. In practice, securing such a position is rare, complex, and may even be resisted by borrowers or financial institutions.

What Counts as a “Validly Perfected Security Interest”?

A generic UCC-1 filing likely won’t suffice. To meet this standard, funders may need:

• A specific security agreement naming the business deposit account

• A control agreement (DACA) with the bank holding the account

• UCC filing aligned with Article 9 standards for perfection by control

Without these, auto-debiting is prohibited, effectively banning one of the industry’s most common repayment methods unless providers restructure their collateral practices.

What Comes Next: Navigating Legal Workarounds

HB 700 doesn’t outlaw revenue-based financing; it regulates how it's structured and disclosed. That leaves room for compliant innovation.

Strategic Options for Funders:

• Collateralize receivables or equipment to maintain a secured status without needing control of deposit accounts

• Shift to invoice factoring or other loan models, which are explicitly exempt under HB 700

• Move toward manual payment systems, even if less efficient

• Explore lockbox-style arrangements with banking partners, where permissible

• Partner with traditional lenders and banks to develop hybrid solutions meeting regulatory thresholds

Bottom Line

Texas HB 700 isn't just a regulatory update, it's a redefinition of how sales-based financing must be conducted in one of the country’s largest markets. For brokers and funders, the message is clear: disclose, register, and restructure. This will take significant resources.

The coming months will be critical. Those who begin compliance planning early, especially around security interests and payment systems, will not only avoid penalties but may also position themselves as trustworthy players in a newly regulated landscape.

Some Current State Regulation Comparisons

Feature	Texas (HB 700)	New York (S5470B)	California (SB 1235)	Connecticut (SB 1032)	Virginia (HB 1027)
Effective Date	Sept 1, 2025	Jan 1, 2022	Jan 1, 2023	July 1, 2024	July 1, 2022
Disclosure Threshold	< $1M	< $2.5 M	< $500K	< $250K	All sales-based financing
Broker Compensation Disclosure	Required	Required	Required	Required	Required
Registration Required	✅ Yes (OCCC)	❌ Not required	❌ Not required	✅ Yes	✅ Yes
Confession of Judgment Ban	✅ Yes	✅ Yes	✅ Yes	✅ Yes	✅ Yes
Auto-Debit Restrictions	✅ Conditional	❌ Not addressed	❌ Not addressed	❌ Not addressed	❌ Not addressed
Enforcement	OCCC, $10K per violation	NY DFS, varies	CA DFPI, varies	CT Banking Dept	VA SCC, $1,000 initial + $500 annual fines
Private Right of Action	❌ None	✅ Yes	❌ None	✅ Yes	❌ None
Rulemaking Authority	TX Finance Commission	NY DFS	CA DFPI	CT Banking Dept	VA SCC