Texas HB 700: The MCA Compliance Law Every Broker and Funder Needs to Understand

Texas just rewrote the rules for merchant cash advance and sales-based financing — and the clock is ticking for funders and brokers to get compliant. House Bill 700, signed into law in June 2025 and effective September 1, 2025, is the most sweeping MCA-specific legislation any U.S. state has passed to date. If you're funding Texas merchants or brokering deals in the state, here's everything you need to understand — including what the law actually says, not the panicked rumors that circulated when it first passed.

What Is Texas HB 700?

Texas HB 700, officially titled the Commercial Sales-Based Financing Act, regulates providers and brokers of "sales-based financing" — a category that captures merchant cash advances, revenue-based financing, and similar products where repayments fluctuate based on a merchant's sales volume.

The law was passed during the 89th Texas Legislative Session and signed by Governor Greg Abbott in June 2025. It establishes three major compliance pillars for the MCA industry:

• ACH auto-debit restrictions tied to security interest requirements
• Mandatory disclosure requirements for transactions under $1 million
• Registration with the Texas Office of Consumer Credit Commissioner (OCCC)

When the bill first gained attention, some in the industry feared it effectively banned MCAs in Texas. That's not accurate — but the operational impact is significant and widely underestimated by brokers and smaller funders alike. Texas is the second-largest state economy in the country. This law cannot be ignored.

The ACH Auto-Debit Prohibition: The Most Disruptive Provision

The headline change in HB 700 is a near-total ban on automatic ACH debits from a merchant's deposit account — unless the funder holds a first-priority perfected security interest in that account under Chapter 9 of the Texas Business & Commerce Code (the Texas version of UCC Article 9).

In plain language: if you want to pull daily or weekly ACH payments from a Texas merchant's bank account, you need to have a perfected first-lien position on that account. No other funder, lender, or creditor can have a superior claim on those funds.

This is where the practical problem hits hard. In the MCA industry, merchants frequently have multiple positions — second, third, or fourth position advances stacked on top of each other. Achieving a first-priority perfected UCC position on a bank deposit account requires filing a UCC-1 financing statement and, critically, either obtaining a control agreement with the merchant's bank or having the bank acknowledge the security interest through a Deposit Account Control Agreement (DACA). That's a process most MCA funders have never undertaken at scale.

The bottom line for most deals: ACH-based collection on Texas merchant bank accounts is effectively off the table unless significant structural changes are made to how deals are documented and secured.

What "First Priority" Actually Requires

To achieve the first-priority perfected security interest the law demands, a funder needs to:

• File a UCC-1 financing statement with the Texas Secretary of State covering the deposit account as collateral
• Obtain a Deposit Account Control Agreement (DACA) with the merchant's bank — or become the bank of deposit itself
• Confirm no prior UCC filings exist that would give another party a superior interest in the same account
• Verify the merchant has no existing liens or prior security interests that could take priority

Control agreements require the merchant's bank to cooperate — which many retail and community banks are reluctant to do for MCA transactions. Fintech-forward banks and neo-banks tend to be more accommodating, which is why a handful of large funders are already exploring bank partnerships to make first-position security workable at scale.

For stacked positions — an everyday reality in the MCA world — achieving first-priority is structurally impossible unless all other funders subordinate their interests or are paid off entirely. This effectively turns the Texas market into a first-position-only environment for any funder that wants to use ACH collection.

Registration with the OCCC: Deadline December 31, 2026

Both providers (funders) and brokers who originate sales-based financing transactions with Texas merchants must register with the Texas Office of Consumer Credit Commissioner. The deadline is December 31, 2026.

The OCCC is currently developing registration forms and fee structure, with formal rules to be finalized by September 1, 2026 under the Finance Commission of Texas's rulemaking timeline. Registration applications will require:

• Company legal name and any DBA names used in Texas transactions
• Principal office address
• Designated agent contact information for Texas regulatory correspondence
• Disclosure of any judgments, cease and desist orders, memoranda of understanding, or criminal convictions related to fraud, breach of trust, or money laundering against the company or its principals, directors, officers, or controlling persons

The December 2026 deadline may feel distant, but funders and brokers with significant Texas volume should start assembling compliance documentation now. The OCCC will be actively monitoring the industry, and the $10,000-per-violation penalty structure means non-compliance can escalate quickly.

Disclosure Requirements: What You Must Tell Texas Merchants

For any offer of commercial sales-based financing under $1 million to a Texas merchant, providers must deliver specific disclosures before the transaction closes. Required disclosures include:

• Total amount of financing — the gross funded amount
• Disbursement amount — what the merchant actually receives after fees are deducted
• Finance charge — the total cost of the advance expressed as a dollar amount
• Total repayment amount — the full payback amount (funded amount multiplied by the factor rate)
• Payment amounts — the projected daily, weekly, or monthly payment based on the remittance schedule
• Description of all other fees — origination fees, underwriting fees, administrative fees, and any other charges
• Description of collateral requirements — including any security interests or UCC liens being taken against the merchant's assets

These requirements are similar in spirit to commercial financing disclosure laws already in effect in New York, California, Virginia, and Utah — but Texas layers the ACH restriction on top, making the operational compliance more complex than any of those states.

Funders that have already built disclosure infrastructure for New York's Commercial Finance Disclosure Law (CFDL) will find the Texas requirements familiar and adaptable. Those who haven't will need to build or acquire a compliant disclosure workflow before the rules are finalized.

Penalties: Up to $10,000 Per Violation

The OCCC can seek civil penalties of up to $10,000 per violation. Each transaction with a non-compliant disclosure, each unauthorized ACH debit, and each instance of operating without registration is a potential separate violation.

For a funder running 50 Texas deals a month without compliant documentation, potential monthly exposure could reach $500,000. That's not a theoretical number — it's the penalty structure embedded in the statute. The Texas legislature built this law with real teeth, and the OCCC has indicated it intends to use them.

What This Means for MCA Brokers Specifically

Brokers are explicitly covered by HB 700. If you're brokering MCA deals to Texas merchants, you are a regulated party — not a mere intermediary. Here is your compliance checklist:

• Mark December 31, 2026 on your calendar. That's your OCCC registration deadline. Start assembling the required documentation now — company information, principal disclosures, any regulatory history your principals have.
• Know which funders you're submitting Texas deals to. If your funder partners are not HB 700 compliant, you may face shared liability for non-compliant transactions. Vet your funder panel specifically for Texas compliance posture before submitting deals.
• Don't misrepresent collection mechanics to merchants. If you tell a Texas merchant their payments will be pulled via ACH and the funder doesn't have first-position security, you have exposure independent of the funder.
• Clarify disclosure responsibility with each funder. In some deal structures, the broker bears responsibility for delivering the pre-funding disclosure, not just the funder. Get this in writing in your broker agreements before problems arise.
• Monitor OCCC rule finalization through September 2026. The final rules may include safe harbor provisions or interpretive guidance. Subscribe to OCCC updates at occc.texas.gov and have legal counsel review the final rules when published.

The broader industry conversation around broker legal liability is intensifying in 2026 — legal practitioners at events like Broker Fair 2026 are specifically spotlighting broker exposure as a growing concern. Texas HB 700 is a leading reason why. Brokers who treat this as a funder-only compliance issue are significantly misjudging their own risk.

How Funders Are Adapting

Larger, well-capitalized funders have several viable paths to maintain ACH-based collection in Texas while complying with HB 700:

• Bank partnerships and neo-bank relationships. Some fintech-friendly banks will execute Deposit Account Control Agreements as part of the funding relationship, making first-position security interest achievable without requiring the merchant's primary bank to cooperate. This is the most practical path for high-volume funders.
• Lockbox and split-funding structures. Routing merchant revenue through a funder-controlled or escrowed account before it reaches the merchant's operating account is an alternative collection mechanism that sidesteps the deposit account debit restriction entirely.
• Consent-based remittance models. Having the merchant initiate payments themselves — rather than the funder pulling them via ACH — is a potential compliance path. The law's scope on this is still being interpreted, so legal counsel should be involved before relying on this approach.
• Third-party ACH compliance processors. Several MCA-focused payment infrastructure companies have positioned themselves as HB 700 compliance solutions. Due diligence is essential — the final OCCC enforcement rules won't be published until September 2026, and early "compliance solutions" vary in how well they'll hold up to regulatory scrutiny.

The Bigger Picture: Texas Is Not Alone

Texas joins New York, California, Virginia, Utah, and Florida in enacting state-level commercial financing regulations that materially affect the MCA industry. The trend is unmistakable: the era of operating merchant cash advances as an entirely unregulated product is ending, one state at a time.

For brokers and funders who have been deferring compliance infrastructure investment, Texas HB 700 is another confirmation that the deferral is no longer viable. The states that have enacted disclosure and registration requirements collectively represent the majority of U.S. small business activity. Operating across all of them without a structured compliance program carries growing legal and financial risk.

Funders that build scalable compliance infrastructure now — CRM-integrated disclosure delivery, systematic UCC filing, multi-state registration tracking — will have a durable competitive advantage as the regulatory environment continues to tighten. The cost of building compliance infrastructure today is a fraction of the cost of $10,000-per-violation penalties tomorrow.

Practical Takeaway

Texas HB 700 didn't ban merchant cash advances — but it did fundamentally change how they can be collected in the state. For brokers and funders active in the Texas market, compliance requires three concrete actions:

1. Register with the OCCC before December 31, 2026. This is non-negotiable for continued Texas operations. Both funders and brokers must register separately.
2. Audit your disclosure workflow for sub-$1 million Texas deals before the final rules are published in September 2026. Use the statutory requirements as your baseline now and adjust when the OCCC finalizes guidance.
3. Solve the first-position problem before relying on ACH collection from Texas merchant accounts. Whether through a bank partnership, lockbox structure, or consent-based remittance model, this is the operational challenge that will define who can profitably operate in Texas going forward.

The MCA industry has been navigating state-level regulation for several years. Texas is a large enough market — and the penalties steep enough — that this is one regulatory development you cannot afford to put on the back burner. Get ahead of the December 2026 deadline, vet your funder partners, and make sure your Texas deals are built on a compliant foundation from day one.