Texas HB 700: The New Frontier for Commercial Sales‑Based Financing
The Texas Legislature has just rolled out a sweeping new framework that will redefine how commercial sales‑based financing—particularly merchant cash advances (MCAs)—operates in the state. House Bill 700, which went into effect on September 1, 2026, introduces mandatory registration with the Office of Consumer Credit Commissioner (OCCC), detailed disclosure requirements for deals under $1 million, and a host of prohibitions aimed at curbing predatory practices.
For lenders who have long relied on embedded payment platforms or direct merchant integrations, these changes mean a new layer of compliance that cannot be ignored. Below we break down the key provisions, explain what they mean for everyday operations, and outline the steps needed to stay on the right side of the law.
1. Registration: A New Gatekeeper for MCAs
Under HB 700, every MCA provider or broker that originates a loan under $1 million must register with the OCCC by December 31, 2026. The registration will likely be conducted through the National Mortgage Licensing System (NMLS), mirroring the process used by traditional banks and credit unions.
Registration is more than just paperwork; it signals that the provider has met baseline capital, insurance, and background check requirements. Failure to register can trigger civil penalties of up to $10 000 per violation—an amount that will quickly add up for high‑volume lenders.
- What counts as a “provider”? Any entity offering an MCA or acting as a broker for one, regardless of whether it is a fintech startup, a bank subsidiary, or an independent merchant platform.
- Who is exempt? Banks, credit unions, and certain technology providers that already fall under OCCC’s existing regulatory umbrella are not required to register again. However, they must still comply with the new disclosure and reporting rules.
To help lenders navigate this transition, the OCCC has released a preliminary rulebook that outlines registration procedures, fee structures, and ongoing compliance obligations. The final rule is slated for formal proposal in February 2026, with full adoption expected by August 2026.
2. Disclosure Requirements: Transparency Becomes Mandatory
The heart of HB 700 lies in its disclosure mandate. Every MCA deal below $1 million must feature a standardized set of information displayed to the borrower before signing:
| Disclosure Element | Description |
|---|---|
| Total Financing Amount | The full amount the lender is providing. |
| Disbursement Amount | The net cash the borrower receives after fees. |
| Finance Charge | The interest or fee charged over the life of the loan. |
| Total Repayment Amount | The sum the borrower will repay, including all charges. |
| Exact amounts and dates of each repayment. | |
| Any additional costs such as late fees or prepayment penalties. | |
| Description of any assets secured against the loan. |
These disclosures must be prominently displayed on a separate page, not buried in fine print. The goal is to give merchants a clear picture of what they’re signing up for—essentially turning opaque “quick‑cash” offers into transparent financial products.
Lenders who fail to provide the required information face stiff penalties and may be subject to OCCC investigations. In practice, this means updating website templates, onboarding flows, and loan agreements to incorporate these disclosures before the deadline.
3. New Prohibitions: Cutting Out the “Predatory” Playbook
HB 700 introduces several prohibitive clauses designed to curb abusive practices:
- Automatic Debit Restrictions: The law bars lenders from setting up automatic debit mechanisms on a merchant’s deposit account unless the lender holds a validly perfected security interest in that account. This requirement forces lenders to secure control agreements with both the merchant and their bank.
- No Unauthorized Debiting: Lenders must obtain explicit borrower consent before debiting any account, and they cannot debit accounts that lack a proper authorization form.
- Exemption Clarifications: The law explicitly exempts certain entities—such as banks, credit unions, and specific technology providers—from the new rules. However, it also notes that these exempt entities must still adhere to OCCC’s reporting and compliance mandates if they engage in MCA activities.
These provisions aim to protect merchants from surprise debits and hidden fees while ensuring that lenders maintain a legitimate security interest over any funds they draw. For fintechs that have integrated their services into payment platforms, this means re‑evaluating the architecture of their debit flows and possibly negotiating new control agreements with partner banks.
4. Recordkeeping & Reporting: A New Layer of Accountability
Beyond registration and disclosures, HB 700 requires MCAs to maintain comprehensive records:
- Transaction Logs: Detailed logs of each loan origination, disbursement, and repayment.
- Compliance Reports: Quarterly or annual reports summarizing all activities under the OCCC’s purview.
- Audit Trails: Secure, tamper‑evident records that can be handed over during OCCC investigations.
These requirements are designed to create a clear audit trail for regulators and provide merchants with an avenue for recourse if something goes awry. Lenders will need robust data management systems—preferably cloud‑based—to handle the volume and sensitivity of these records.
5. Industry Response: A Mixed Bag of Optimism and Caution
The financial technology community has reacted with a mix of enthusiasm for clearer rules and concern over increased compliance costs. Some firms view HB 700 as an opportunity to differentiate themselves by offering truly transparent products, while others fear that the new paperwork will stifle innovation.
According to a recent survey published by Consumer Financial Services Law Monitor, 68% of respondents said they plan to update their onboarding processes, and 54% indicated that the rule will influence their product roadmap.
Meanwhile, JD Supra notes that the law is already being cited in pending OCCC enforcement actions, underscoring the seriousness with which regulators are treating non‑compliance.
Key Takeaways for Lenders and Merchants
- Register early: Start the NMLS registration process now to avoid last‑minute scrambling.
- Update disclosures: Ensure all marketing materials, loan agreements, and digital interfaces feature the mandated information.
- Secure proper debiting rights: Negotiate control agreements with merchant banks before setting up any debit flows.
- Invest in data infrastructure: Build or upgrade systems to capture detailed transaction logs and compliance reports.
By proactively addressing these areas, lenders can not only comply with HB 700 but also position themselves as trustworthy partners in a rapidly evolving marketplace.
For those navigating this new regulatory landscape, texasloanstoday.com offers a wealth of resources—from compliance checklists to expert commentary—helping businesses stay ahead of the curve.