In 2025, Texas Governor signed House Bill 700 into law, creating the state's first comprehensive regulation of commercial sales-based financing — including merchant cash advances. For Texas business owners facing aggressive MCA collections, HB 700 provides powerful new legal tools that did not exist before.
This article explains what HB 700 does, how it protects your business, and how our firm uses it to defend against MCA funders.
What HB 700 Covers
HB 700 applies to "commercial financing" transactions, which explicitly includes merchant cash advances, business loans, and factoring arrangements. The law targets the most abusive practices that MCA funders have used against Texas small businesses for years.
The law applies to contracts executed on or after September 1, 2025. If your MCA agreement was signed before that date, some provisions may still support your defense as evidence of Texas public policy.
Key Protections Under HB 700
Confession of Judgment Clauses Are Void
HB 700 makes confession of judgment (COJ) clauses in commercial financing contracts unenforceable as a matter of Texas law. A COJ is a pre-signed document that allows the funder to obtain a court judgment against you without filing a lawsuit, without giving you notice, and without letting you defend yourself.
Before HB 700, MCA funders routinely used COJs to get quick judgments in New York courts and then domesticate those judgments in Texas to freeze bank accounts and seize assets. Now:
- Any COJ clause in a post-September 2025 contract is void
- Including a COJ clause may void the entire contract under Texas law
- Any judgment obtained through a void COJ is subject to challenge in Texas courts
Even for pre-2025 contracts, New York banned COJs against out-of-state defendants in 2019 (CPLR 3218 amendment). So if you are a Texas business that signed a COJ for a New York MCA, it was likely unenforceable even before HB 700.
ACH Debit Restrictions
One of the most devastating MCA collection tactics is daily ACH debits — automated withdrawals from your business bank account that drain operating cash and prevent you from making payroll or paying suppliers.
Under HB 700, a commercial financing provider cannot initiate ACH debits from your bank account unless it holds a first-priority security interest in your assets. Most MCA funders do not have a first-priority lien — they typically file UCC-1 financing statements that are junior to existing bank lines of credit or SBA loans.
This means: - If the MCA funder's UCC lien is not first in priority, their ACH debits are unlawful under Texas law - You can seek an injunction to stop the debits - The unauthorized debits strengthen your defense and counterclaims
Registration Requirements
HB 700 requires commercial financing companies to register with the state of Texas before conducting business. If your MCA funder is not registered:
- Their failure to comply with Texas law undermines their credibility and legal standing
- It may give you grounds to challenge the enforceability of the contract
- It supports claims that the funder is operating illegally in Texas
Disclosure Requirements
The law mandates that funders provide clear, written disclosures before a merchant signs the agreement, including:
- Total amount of financing
- Total cost of the financing (the "purchased amount" minus the advance)
- Payment amounts and frequency
- Any fees or charges
If these disclosures were not provided, the funder has violated Texas law — giving you additional defense angles and counterclaim ammunition.
How HB 700 Strengthens Existing Defenses
Combined with Recharacterization
If the MCA is recharacterized as a loan (because of fixed payments, no reconciliation, personal guarantee, etc.), HB 700's registration and disclosure requirements apply with even greater force. An unregistered, undisclosed high-interest loan violates multiple Texas statutes simultaneously.
Combined with UEFJA Defense
When an MCA funder tries to domesticate a New York judgment in Texas, HB 700 strengthens the public policy defense. Texas courts can refuse to enforce a foreign judgment when doing so would contravene Texas public policy — and HB 700 makes Texas's policy against predatory MCA practices crystal clear.
Combined with TRO Applications
When seeking an emergency TRO to stop collections, HB 700 violations (unlawful ACH debits, void COJ enforcement) provide strong grounds for showing that the funder's conduct has no lawful basis — a key element for injunctive relief.
What HB 700 Does Not Do
HB 700 does not: - Create a private right of action (you cannot sue directly under HB 700 for damages) - Apply retroactively to contracts signed before September 1, 2025 - Cap interest rates or factor rates on MCAs - Require funders to offer reconciliation
However, the law's provisions can be used defensively — as grounds to void contract clauses, block enforcement, and support related claims under the DTPA, usury statutes, and equity.
Using HB 700 in Your Defense
Our firm integrates HB 700 into MCA defense strategies in several ways:
- Demand letters: We cite HB 700 to put funders on notice that their contract provisions are void and their collection tactics are unlawful in Texas
- Motions to stay enforcement: We argue that enforcing a foreign judgment based on a contract with void provisions (COJ, unauthorized ACH) violates Texas public policy
- TRO applications: We use HB 700 violations as evidence of unlawful conduct justifying emergency relief
- Counterclaims: HB 700 violations support DTPA claims for unconscionable and deceptive business practices
- Settlement leverage: Funders know that litigating in a state with explicit anti-MCA legislation is risky and expensive
Frequently Asked Questions
Does HB 700 apply to my existing MCA?
If your MCA was signed before September 1, 2025, HB 700's specific provisions do not directly apply. However, its passage reflects Texas public policy, which courts can consider when deciding whether to enforce MCA provisions or domesticate foreign judgments.
Can I stop ACH debits from my bank account?
Yes. You can revoke ACH authorization directly with your bank. Under HB 700, if the funder does not hold a first-priority lien, the debits are unlawful. We can also seek a TRO to prevent further unauthorized withdrawals.
What if the funder threatens to file a COJ?
For post-September 2025 contracts, the COJ clause is void and they cannot lawfully use it. For older contracts, New York law already prohibits COJs against out-of-state defendants. Either way, we can defend against any judgment entered through a COJ.
This article is part of the MCA Defense Guide. Call (469) 607-8552 for a free consultation.