Texas does not have a usury statute that applies to most commercial transactions. That does not mean Texas business owners have no options. It means the strategy is different.
Texas is one of the largest markets for merchant cash advances. The state’s economy is driven by small businesses in energy, construction, hospitality, healthcare, and professional services, industries where cash flow gaps are common and the demand for fast funding is high. MCA companies target Texas businesses aggressively, and the stacking of multiple advances is widespread.
The legal landscape in Texas differs from states like New York and California in significant ways. Texas’s usury framework provides broad exemptions for commercial transactions, and the state’s courts have not yet developed the body of MCA recharacterization case law that exists in New York. But the absence of a direct usury path does not mean the absence of legal options.
The Legal Landscape in Texas
Texas Finance Code Chapter 306 sets usury limits, but Section 306.001 exempts most commercial loans with a principal amount above $5,000 from the general interest rate cap. This exemption is why MCA companies include Texas choice-of-law clauses in some agreements, the state’s usury framework is less restrictive for commercial transactions than New York’s or California’s.
However, Texas’s Deceptive Trade Practices Act, codified in Business and Commerce Code Chapter 17, provides a powerful cause of action for businesses harmed by false, misleading, or deceptive acts. The DTPA applies to the marketing, solicitation, and servicing of MCA products. If the broker or funder misrepresented the cost, the terms, the reconciliation rights, or the nature of the product, the misrepresentation is actionable under the DTPA. The statute provides for actual damages, treble damages in some circumstances, and attorney’s fees.
Texas also restricts the enforcement of out-of-state judgments, including confessions of judgment entered in New York. A New York confession of judgment must be domesticated in Texas before it can be enforced against Texas assets, and the domestication process provides an opportunity to challenge the judgment on jurisdictional and substantive grounds.
Recharacterization and Usury
While Texas courts have not developed the same body of MCA recharacterization case law as New York, the analytical framework is the same. A Texas court examining whether an MCA is a loan would ask the same question: did the funder bear genuine risk? If the answer is no, the transaction is a loan regardless of its label.
The practical significance of recharacterization in Texas is different because the usury exemption for commercial transactions above $5,000 means the rate itself may not be the basis for voidness. However, an unlicensed lender making loans in Texas may still face regulatory consequences, and the recharacterization supports other claims, including DTPA claims based on the misrepresentation that the transaction was a purchase when it was, in substance, a loan.
