Major Win For Small Businesses In Texas
July 07, 2025 - The American Factoring Association (AFA) and a group of Texas-based factors led the way in passing landmark legislation (HB 700) in Texas regulating the Merchant Cash Advance (MCA) industry. The legislation is modeled on similar legislation in Virginia and Connecticut but goes further in reigning in certain MCA practices to protect small businesses in Texas. The legislation was signed by the Governor on June 20, 2025. The bill sponsors were Rep. John McQueeney and Sen. Charles Perry. The following provides an overview of the key provisions.
It requires MCAs to provide disclosures of key terms of the financing to applicants if the amount of the sales-based financing is less than $1 million, including (i) total amount of the financing, (ii) total amount disbursed after deducting fees, (iii) total finance charge, (iv) total repayment amount, (v) estimated time for full repayment to occur, (vi) payment amounts, (vii) description of all fees that could be charged, (viii) amount owed if paid off before scheduled repayment, (ix) any compensation paid to brokers, and (x) description of any collateral requirements. If a new financing will pay off an existing financing, it requires disclosure of the amount of the new financing used to pay off the existing financing and the amount that will actually be disbursed to the applicant.
It requires MCAs and their brokers to register with the Texas Office of Consumer Credit Commissioner and to annually renew their registration.
The provision that offers the most protection for small businesses provides that an MCA may not establish a mechanism for automatically debiting a small business’s deposit account unless the MCA holds a validly perfected first priority security interest in the account.
It requires the Finance Commission of Texas to adopt rules applicable to MCAs to prohibit unlawful, unfair, deceptive, or abusive acts or practices. It further provides that the Texas Office of Consumer Credit Commissioner shall be responsible for administering and enforcing the rules, including authority to bring enforcement actions, assess civil money penalties, and terminate or suspend registrations. Together, this establishes a regulatory supervision regime to ensure bad actors are identified and properly punished.
It provides that an MCA contract with a confession of judgment provision is unenforceable and void.
The Act takes effect on September 1, 2025, and the Finance Commission of Texas must adopt rules by September 1, 2026.
The full bill can be accessed here: 89(R) HB 700 - Enrolled version
The AFA was a key supporter of this legislative effort and worked closely with a group of Texas-based factors in shaping the legislation and working to have it enacted. A special thanks to Brady Campbell, Cole Harmonson and Brandon Chase for their exceptional efforts in getting this legislation across the finish line.
This effort could not have been possible without the support of the AFA. This is an example of the success that can be achieved when the factoring industry comes together and pools its resources and evidences why all factors should join and support the AFA.