The Legal Ground You’re Standing On
Texas MCA law: the three facts that shape every option
Every resolution strategy — renegotiation, settlement, defense, refinancing — plays out differently depending on these three pieces of Texas law. A firm that can’t speak to them isn’t the best firm for a Texas file.
1Usury limits & the recharacterization question
Texas commercial loans are subject to rate ceilings under Finance Code chapters 302–306, with usury on a commercial loan computed by spreading all interest across the stated term and civil penalties under chapter 305. For years MCAs enjoyed a powerful statutory safe harbor: Fin. Code § 306.103 made the parties' characterization of an "account purchase transaction" as a purchase conclusive that it was not a loan. That changed with HB 700 (2025): new Fin. Code § 398.004 provides that sales-based financing is not an account purchase transaction under § 306.103 regardless of amount — stripping MCAs of the conclusive presumption and reopening loan-recharacterization and usury arguments for Texas merchants that simply did not exist before September 1, 2025.
Sources: Tex. Fin. Code § 306.103 (account purchase safe harbor) · HB 700 (2025) bill analysis — § 398.004 removes MCA safe harbor · Mayer Brown — Texas commercial financing law analysis
2Confessions of judgment in Texas
Void in MCA contracts (2025) Texas has long made pre-dispute confessions of judgment impractical — Rule of Civil Procedure 314 requires the debtor to appear and confess in open court on a sworn petition. HB 700 (2025) went further for MCAs specifically: Fin. Code § 398.055 provides that a commercial sales-based financing contract containing a confession of judgment provision "or any similar provision" is void and unenforceable. Funders instead take judgments in friendlier forums and domesticate them — though New York, the traditional venue, banned COJs against out-of-state defendants in 2019.
Sources: HB 700 bill analysis — § 398.055 voids COJ provisions · Herrin Law — Texas MCA defense guide (COJ and NY judgment practice) · Tex. R. Civ. P. 314 (confession in open court)
3Texas HB 700 — Commercial Sales-Based Financing (Fin. Code ch. 398): what funders must tell you
Effective September 1, 2025, Texas Finance Code chapter 398 regulates commercial sales-based financing — merchant cash advances — directly. For specific offers under $1 million, providers must give signed pre-closing disclosures: total amount financed, disbursement amount, finance charge, total repayment amount, estimated payment amounts and period, all fees, prepayment charges, collateral, and broker compensation (no APR mandate, unlike California and New York). Providers and brokers must register with the Office of Consumer Credit Commissioner — existing providers by December 31, 2026, with OCCC implementing rules effective July 9, 2026. The OCCC enforces with civil penalties up to $10,000 per violation. The same law voids COJ clauses (§ 398.055) and removes the § 306.103 safe harbor (§ 398.004) — making Texas one of the most consequential recent shifts in MCA law nationwide.
Sources: HB 700 bill analysis (Texas Legislature) · Holland & Knight — Texas commercial sales-based financing law signed · OCCC — implementing rules effective July 9, 2026
How funders actually enforce here: Because MCA contracts usually select out-of-state forums, funders typically take a judgment (often in New York) and domesticate it in Texas under the Uniform Enforcement of Foreign Judgments Act (Civ. Prac. & Rem. Code ch. 35) — an authenticated foreign judgment filed with a Texas clerk has the same effect as a Texas judgment, subject to the same defenses. Funders also file blanket UCC-1 liens on business assets and receivables, send lien notices to the merchant's customers, and use ACH debits and bank-account freezes as the primary collection pressure points. Tex. Civ. Prac. & Rem. Code § 35.003 (foreign judgment domestication) · Herrin Law — Texas MCA defense guide (domestication, UCC liens, ACH sweeps)
