State Legislative/Regulatory Update
Texas HB 700 Rulemaking Finalized
The Texas Office of Consumer Credit Commissioner (“OCCC”) recently issued its final rule implementing HB 700. HB 700 was enacted by the Texas Legislature during the 2025 legislative session and established a regulatory framework for commercial sales-based financing (a/k/a merchant cash advances). It required the OCCC to adopt implementing regulations no later than September 2026. The OCCC issued a proposed rule in March 2026 and sought comments from stakeholders.
The following provides an overview of the final rule:
The rule applies to any person engaged as a provider or broker of merchant cash advances to businesses in Texas (subject to certain exceptions).
The rule establishes the process by which MCAs and brokers must register to do business in Texas. Applications will be filed through the Nationwide Multistate Licensing System. The rule sets forth the information that must be included in the application, including, among other things, a business plan and disclosure of prior enforcement actions. The rule also establishes parameters for the annual registration renewal process.
HB 700 requires an MCA provider to provide disclosures to applicants at the time of extending an offer. The rule provides that in addition to the statutorily required disclosures, an MCA must include contact information for the OCCC and a statement that the recipient can file a complaint against the MCA with the OCCC if any issues arise.
The rule establishes recordkeeping requirements for MCAs and brokers and they must make such records available to the OCCC for investigation purposes.
HB 700 required the OCCC to establish standards prohibiting unfair, deceptive, and abusive acts and practices by MCAs. The final rule identifies 15 of such practices, including (i) providing false, misleading or inaccurate statements in advertisements, solicitations, disclosures or communications; (ii) charging fees or other amounts that were not specifically disclosed and contracted for, (iii) failure to make accurate disclosures, (iv) establishing an automatic debit mechanism in violation of HB 700’s requirements, (v) filing a lien on a debtor’s property without a proper security agreement, (vi) debiting amounts from a person’s deposit account without authorization, (vii) instructing a recipient or their customer to redirect payment amounts to the MCA, where the amounts were previously scheduled to be paid to another person (e.g. a creditor or factor), (viii) an MCA’s violation of an intercreditor agreement to which they are a party, and (ix) any device or subterfuge to evade statutory requirements.
HB 700 included a prohibition on an MCA establishing a mechanism for automatically debiting a recipient’s deposit account unless it has a perfected first priority security interest. The final rule provides further clarity about the manner in which this restriction applies. During the rulemaking process, it was debated as to whether the first lien security interest had to be on the deposit account or the recipient’s accounts receivable. The final rule makes clear that the MCA must have a perfected first lien on all of the recipient’s accounts receivable. The final rule elaborates on the definition of an automatic debit and states “debits are automatic if they are authorized in advance to occur more than one time or on a recurring basis. A mechanism for automatically debiting a deposit account includes a situation in which a recipient provides more than one prewritten check to a provider in advance for payments under a commercial sales-based financing transaction.” The final rule also includes the following provision to prevent an MCA from utilizing a third-party to evade the automatic debit restriction: “A provider or broker may not accept payment of a debit in violation of this section and may not direct a third party to complete a debit that violates this section.”
The final rule establishes the process by which the OCCC may receive and investigate complaints regarding MCA transactions as well as its enforcement mechanisms (including authority to issue injunctions, require restitution, impose civil money penalties, or suspend or revoke registrations).
The effective date of the final rule is July 9, 2026.
Vermont Enacts Disclosure Legislation Impacting Factors
The Vermont state legislature recently enacted legislation (HB 648) imposing disclosure and registration requirements on factors and merchant cash advance companies doing business in Vermont. This action was taken in the form of a late session amendment to a larger banking/insurance/securities bill. It is our understanding that the last minute amendment was partly driven by a segment on the show “Last Week Tonight” (hosted by John Oliver) which was extremely critical of structured settlement purchasers (i.e. a product in which a company pays a lump sum to a consumer to purchase a structured settlement which resulted from a personal injury). Mr. Oliver erroneously referred to the businesses behind structured settlement purchases (such as JG Wentworth) as “factoring companies” multiple times.
The following is a brief summary of the Vermont law as it applies to factors (please note these same restrictions apply to MCAs):
A factor must obtain a lender license before engaging in factoring business in Vermont.
A factor must provide certain disclosures to recipients at the time of extending an offer, including the finance charge and the estimated APR.
A factor may not establish a mechanism for automatically debiting a recipient’s deposit account unless it holds a validly perfected first priority security interest in the recipient’s account under Title 9A of Vermont law.
The bill prohibits confessions of judgment.
The bill authorizes the Commissioner of Financial Regulation to adopt implementing regulations.
These requirements become effective July 1, 2027, and apply to factoring contracts entered into, modified, amended, or restructured on or after July 1, 2027.
California Enacts Legislation Prohibiting Factoring of Certain Medical Lien Debt
California enacted Senate Bill (SB) 623 on June 25, 2026. The bill represented a legislative compromise between Uber and the Consumer Attorneys of California which had pending competing ballot initiatives regarding rideshare accident liability, medical lien practices and personal injury recoveries, among other things. Essentially, in order for each side to agree to withdraw their ballot initiative, the parties worked on this compromise legislation that was much narrower in scope.
The bill covers several areas affecting rideshare and rideshare-related lawsuits but there is a provision within the bill that essentially prohibits a specific type of factoring. It relates to medical providers (referred to in the bill as lien-based providers) that provide healthcare to injury victims of car wrecks and instead of getting paid immediately, the provider agrees to get paid from lawsuit proceeds. These medical lien providers may sell these receivables to a factor. The legislation ends this practice by providing that the entity that purchases the medical lien debt (i.e. the factor) can only get repaid the amount that they paid the medical lien provider for the debt (thus, they don’t get paid any type of fee or compensation related to the purchase of the debt). This would only apply to medical lien debt associated with lawsuits involving Uber and similar rideshare companies.
The bill provides that its restrictions shall not apply to medical services rendered, liens created, receivables assigned, or contractual rights or obligations arising before January 1, 2027