Texas Begins Registering MCA Providers on September 1: What Chapter 398 Changes

The 2025 legislative session of Texas saw House Bill 700, codified as Chapter 398 of the Texas Finance Code, introduce compliance and registration requirements for entities engaging in merchant cash advance (MCA) business with small and midsized companies in Texas. The law targets providers of sales-based commercial financing programs, including MCAs, that base payment obligations on the recipient company's sales or revenue.

Texas MCA providers have until December 31, 2026, to submit their registration paperwork to the Texas Office of Consumer Credit Commissioner (OCCC) through the Nationwide Multistate Licensing System (NMLS). Providers may find that they cannot continue their operations unless registered.

Disclosures and Other Mandates

All businesses receiving commercial sales-based financing under $1 million must be given written disclosure of financing details by the provider, signed by the business, before closing the transaction. These disclosures must identify the total financing amount, the disbursement amount (the actual amount the business receives after fees), the finance charge, total repayment, the payment schedule and amounts, and collateral requirements. A lack of clear financing terms is often the principal complaint about MCAs; providers in Texas will now be expected to address this via formal disclosures.

Chapter 398 also restricts MCA providers from automatically debiting a recipient business's bank account unless the provider holds a valid, perfected security interest in the account. The statute requires a first-priority security interest against all other claims in the business's account - which can pose a problem if there are pre-existing UCC filings against that account.

Registration Process

Registration applications are processed through the NMLS online system starting September 1, 2026. Existing or new NMLS accounts can be used to submit the application. After the required fees are paid, the registration becomes effective and lasts for one year. Fees for initial registration and each renewal are $1,000. Failure to renew by December 31 can trigger termination after a grace period through February 28.

Chapter 398 requires not only MCA providers to register with the OCCC but sales-based financing brokers as well. Providers and brokers who do business in Texas but lack a physical presence in the state - as is typical for many MCA funders who lend remotely - must still register, which might necessitate changes to remote lending models.

Who is Exempt?

Parties exempt from Chapter 398 registration include banks, bank holding companies, bank subsidiaries and affiliates, credit unions, federal credit unions, technology service providers, some self-financing sellers (when sales-based financing is made by a seller in connection with the sale of its goods or services), and certain motor vehicle transactions and commercial leasing arrangements.

What to Take Away from Chapter 398

Chapter 398 suggests that Texas wants more oversight of the industry and how it extends capital to smaller companies. Texas wants to ensure that businesses receive material information about financial offers so they know how their obligations might change. The wording also signals that Texas is targeting one specific area of business finance with the new registration mandate: merchant cash advances. Most other companies doing business lending to Texas companies are already registered under pre-existing lending laws.

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