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

The registration date is the smallest thing Chapter 398 did. Two sections already changed Texas files: Section 398.055 voids a confession of judgment in a sales-based financing contract, and Section 398.056 bars daily ACH debits unless the funder holds a perfected first priority interest in that account. Registration opens September 1, 2026. Existing providers have until December 31, 2026.

• Registration applications open through NMLS on September 1, 2026. A provider already in business must register by December 31, 2026.
• A Texas sales-based financing contract carrying a confession of judgment is void and unenforceable under Finance Code § 398.055.
• Section § 398.004 removed the conclusive purchase label that § 306.103(b) used to give funders. It applies to advances funded on or after September 1, 2025.
• Chapter 398 sets no rate cap and creates no private right of action. Violations carry a $10,000 civil penalty enforced by the OCCC.

Texas House Bill 700 created Finance Code Chapter 398 and took effect September 1, 2025. The Office of Consumer Credit Commissioner opens registration applications through NMLS on September 1, 2026, and a provider already funding here has until December 31, 2026 to be on the list. That calendar is what the trade press covers. It is not what will change your file.

Three operative sections did that a year ago, and most owners still carrying a Texas advance have never read them. One voids a clause funders spent a decade relying on. One makes the daily debit conditional on a security interest most funders never properly perfected. One takes away the sentence that used to end the usury conversation before it started. Read them against your own funding date.

September 1 opens a list, December 31 closes the grace period

Section 398.053 requires a provider or a broker of commercial sales-based financing to register with the Office of Consumer Credit Commissioner. The OCCC identifies the product plainly on its own site: commercial sales-based financing is the merchant cash advance.

H.B. 700 gave the agency a schedule. Initial rules and registration fees were due by September 1, 2026. A person already in the business must register not later than December 31, 2026. Applications run through NMLS, the same system state-licensed lenders already use.

What that buys you is thin, and worth being honest about. Registration is not licensing. There is no fitness test in the statute, no bond named in it, no rate to be approved. What it buys is a name and an address on a public list, attached to an agency with an enforcement docket. Before this, a funder wiring money into Texas from a Delaware LLC answered to nobody in Austin.

So check the list after September 1. A funder pressing you for a settlement while unregistered after December 31 has a problem it would rather you did not raise in writing.

A confession of judgment in a Texas advance is already void

Section 398.055 is one sentence. A commercial sales-based financing contract that contains a confession of judgment provision or any similar provision is void and unenforceable. That has been the law since September 1, 2025.

Read the phrase "or any similar provision." Funders renamed these clauses for years. Stipulated judgment. Consent judgment. Affidavit of confession. Power of attorney to appear and confess. The statute reaches the function, not the caption.

Outside Chapter 398, Texas never made this easy either. Rule 314 of the Texas Rules of Civil Procedure allows a confessed judgment only against a person against whom a cause of action already exists, who appears in person or by attorney in open court, on a filed petition with the justness of the debt sworn to. A stack of signature pages collected at closing in New York is not that.

If a judgment is already signed against you, the clock is short. Rule 329b(a) gives 30 days after signing to move for new trial, and the trial court holds plenary power for those 30 days. After that the only door is a bill of review, which is harder and slower. A foreign judgment domesticated here is attacked through Texas post-judgment procedure under Civil Practice and Remedies Code Section 35.003(c).

The daily ACH debit now requires a perfected first priority security interest

Section 398.056 is the provision nobody talks about and the one that touches your bank balance. A provider or broker may not establish a mechanism for automatically debiting the recipient's deposit account unless it holds a validly perfected first priority security interest in that account under Chapter 9 of the Business and Commerce Code.

Perfection in a deposit account means control, not a UCC-1. That usually requires a control agreement with your bank or the funder being the depository bank itself. Neither is how most advances are papered. The authorization form you signed at closing is not a security interest, and a blanket lien filed with the Secretary of State does not perfect anything in your checking account.

First priority is the second obstacle. On a stacked file, three funders cannot each hold first priority in the same account. At most one can, and usually none of them can prove it.

So pull the funding package and look for a deposit account control agreement. If there is not one, the funder's daily draw is running on a clause the Texas Legislature conditioned in 2025.

Section 398.004 took away the sentence that used to end the argument

For years, Texas was the state where MCA recharacterization went to die, and the reason was Finance Code Section 306.103(b). A discount charged in an account purchase transaction is not interest, and the parties' own characterization of the deal as a purchase was conclusive that it was not a transaction for the use, forbearance or detention of money. Your contract called itself a purchase, so the usury question never opened.

Section 398.004 reverses that for this product. A sales-based financing transaction is not a form of an account purchase transaction for purposes of Section 306.103, regardless of the principal amount of the advance. The label stops deciding. A court decides.

That makes one line in your file worth more than the rest of it: the funding date. Money that landed before September 1, 2025 was funded under the old rule. Money that landed on or after that date was not.

Whether Sections 398.004 and 398.055 reach a contract signed before September 1, 2025 is unsettled. H.B. 700 contains no savings clause and no opened Texas authority resolves it. Anyone who tells you the answer with confidence is guessing at your expense.

The offer sheet now has to say what the money costs

Sections 398.051 and 398.052 apply to any specific offer of commercial sales-based financing under $1 million. The provider has to give an itemized written disclosure and the recipient has to sign it before the application is finalized.

Four items on that sheet do the work. The finance charge. The total repayment amount. Any prepayment charge, which is where the factor rate quietly reveals that paying early saves you nothing. And broker compensation, which is the number brokers have never volunteered and which comes out of your advance before the wire hits.

Compare that to how a stack usually gets built. A broker calls with a renewal, quotes a payment rather than a cost, and the $100,000 on the cover page arrives as $87,500 after fees. Chapter 398 does not stop that deal. It makes the pieces of it appear on a page you signed, which is exactly what you want in front of a court later.

Keep every disclosure. On a file funded after September 1, 2025, the gap between what the sheet says and what your bank statements show is evidence, not a grievance.

No rate cap, no private right of action, and a usury remedy that is a discount

Chapter 398 says out loud what it will not do. Section 398.005(d) bars the Finance Commission from adopting a maximum annual percentage rate, finance charge or fee for these transactions. Section 398.101 sets a $10,000 civil penalty per violation, and Section 398.102 gives you no private right of action. Enforcement is the OCCC's, not yours.

The usury route is separate and smaller than the New York version. Finance Code Section 303.009(c) caps the ceiling on business and commercial credit at 28 percent a year, and interest is spread across the stated term under Section 306.004 before anyone compares it to that ceiling. Break the ceiling and the funder owes three times the excess interest under Section 305.001(a-1), plus your attorney's fees under Section 305.005.

It does not owe you the principal. The forfeit-everything remedy in Section 305.002 is consumer only, and Section 305.007 says the Chapter 305 penalties are the only penalties there are. Section 305.006 gives you four years.

Texas also has no criminal usury number for a business advance. Section 305.008 reaches personal, family or household transactions and caps out at a $1,000 misdemeanor fine. A firm that converts your factor rate and calls the result a felony is reading New York's statute in a Texas file.

How we evaluated this

Twelve firms were scored against the weighted criteria at left. Attorney involvement carries the most weight on this page because everything Chapter 398 added is enforced in a courtroom or not at all: Section 398.055 voids a clause, Section 398.056 conditions a debit, and Section 398.101 gives the penalty to the state rather than to you.

Texas knowledge was scored on the funding-date question. A firm that leads a Texas file with criminal usury is quoting New York. Section 305.008 has no commercial application, the civil ceiling is 28 percent under Section 303.009(c), and before September 1, 2025 the purchase label in Section 306.103(b) was conclusive.

Fee basis, published minimums, timelines, BBB standing and CFPB records were taken from company disclosures and the platforms themselves as of the updated date above.

Questions owners ask

What happens on September 1, 2026 in Texas?

The Office of Consumer Credit Commissioner opens registration applications for commercial sales-based financing providers and brokers through NMLS. Under H.B. 700, initial rules and registration fees were due by that date, and a provider already funding in Texas must complete registration by December 31, 2026. Registration is a public list with a regulator attached, not a license and not a rate approval.

Is a confession of judgment enforceable in a Texas MCA contract?

No. Finance Code Section 398.055, effective September 1, 2025, makes a commercial sales-based financing contract containing a confession of judgment provision or any similar provision void and unenforceable. Outside that chapter, Rule 314 of the Texas Rules of Civil Procedure allows a confessed judgment only where a cause of action already exists and the party appears in open court on a sworn petition.

Does Chapter 398 cap what a funder can charge?

No, and it says so. Section 398.005(d) bars the Finance Commission from adopting a maximum annual percentage rate, finance charge or fee for these transactions. The only rate limit in play is the general commercial ceiling of 28 percent a year under Finance Code Section 303.009(c), and reaching it requires a court to treat the advance as a loan first.

Can I sue my funder for violating Chapter 398?

Not under Chapter 398. Section 398.102 creates no private right of action, and Section 398.101 gives a $10,000 civil penalty per violation to the state through the OCCC. A violation still matters to your file. It is a fact you put in front of the funder in a negotiation, and in front of a judge alongside the arguments that do belong to you.

Does Chapter 398 apply to an advance I took in 2024?

Unsettled. H.B. 700 took effect September 1, 2025 with no savings clause for outstanding transactions, and no opened Texas authority decides whether Sections 398.004 and 398.055 reach earlier contracts. That is a live argument, not a settled answer. Pull your funding date before anyone tells you which side of the line you are on.

What is a deposit account control agreement and why does it matter now?

It is how a secured party perfects an interest in a bank account under Chapter 9 of the Business and Commerce Code, usually a three-party agreement with your bank. Section 398.056 bars a funder from setting up automatic debits unless it holds a validly perfected first priority interest in that account. Most funding packages contain an ACH authorization and no control agreement.

Can I raise criminal usury against a Texas MCA?

No. Finance Code Section 305.008 is the only criminal usury provision in the code and by its terms reaches transactions for personal, family or household use, punishable by a fine of not more than $1,000. Texas has no criminal usury threshold for a business advance. New York's 25 percent felony line has no Texas counterpart.

What is my usury claim actually worth in Texas?

Three times the excess interest above the lawful ceiling under Section 305.001(a-1), plus reasonable attorney's fees under Section 305.005. Not the principal. The remedy that forfeits principal and all charges in Section 305.002 applies only to personal, family or household transactions, and Section 305.007 says these are the only penalties available. You have four years under Section 305.006.

The bottom line

Registration opening September 1 is a list. Section 398.055 is a clause that no longer works, and Section 398.056 is a daily debit that may be running without the perfected first priority interest the statute requires. Find your funding date, find your deposit account control agreement, and have both read this week.

A free contract review costs nothing and takes a day or two. Call (888) 837-7053, or send the agreements to Delancey Street for a straight read on your options.