Is a Confession of Judgment Enforceable in Texas? 5 Rules for 2026

A confession of judgment signed for Texas commercial sales-based financing after September 1, 2025 promises more than the law of that state permits the paper to deliver. Before that date, before the new chapter took effect, a funder could present the clause as routine protection. The statute answers that presentation with voidness.

Whether courts will read the voidness clause as broadly as its words suggest is a question counsel must answer on real facts. The text below follows the enrolled version of the law and leaves close questions where the law leaves them.

The Voidness Rule for Covered Contracts

“A commercial sales-based financing contract that contains a confession of judgment provision or any similar provision is void and unenforceable.” The sentence comes first because the argument rests on it. Everything a funder asserts about waiver, negotiation, or commercial sophistication must pass through that single provision of the enrolled text of House Bill 700.

Coverage turns on definitions rather than labels. Sales-based financing means repayment as a percentage of sales or revenue, or repayment through a fixed mechanism with a reconciliation process that adjusts payment to such a percentage. Proceeds intended primarily for personal, family, or household purposes sit outside the chapter. A contract inside those terms is covered whatever the parties call the transaction.

The statute took effect September 1, 2025. Transactions closed after that date face the new regime in full.

Disclosure Duties for Offers Under $1 Million

A provider extending a specific offer of covered financing under $1 million must disclose the total amount, the disbursement amount, the finance charge, and the total repayment amount, with the estimated payment period, payment descriptions including average projected monthly payments for variable schedules, all other potential fees, early payoff costs, collateral terms, and broker compensation where the provider pays it.

The provider (who may have priced the transaction months before any disclosure form existed for it) must obtain the recipient signature on these disclosures before finalizing the application. That signature creates the paper record on which later disputes about cost and consent will turn. We review the terms, identify the deficiencies, and construct a response that addresses both the contractual claims and the practical realities of the business.

Renewal carries its own accounting. Where new financing retires existing covered financing as a funding condition, the provider must disclose the portion of the new advance consumed by prepayment charges and unforgiven charges, plus the dollar reduction in the disbursement amount. An owner should ensure every figure appears before signing.

One paragraph in this section deserves plain treatment. The disclosure list is long. Most recipients will skim it. Counsel will not.

Whether the Finance Commission will treat a missing broker compensation line as a disclosure failure or a registration matter remains to be seen.

Registration With the Consumer Credit Commissioner

But the registration duty is the provision funders are most likely to have missed. No person may operate as a covered provider or broker for compensation in Texas without prior registration with the Office of Consumer Credit Commissioner, renewed each January 31 and updated within 90 days after any change.

The registration, if we are being precise, is not an endorsement. The form requires business names, office and agent details, and a history of fraud-related judgments, orders, and convictions. Registration is not permission. It is notice.

Existing operators receive a transition to December 31, 2026. The statute is not entirely clear on how that transition treats renewals signed mid-year, which is part of the problem. Most debt buyers know exactly what they are purchasing. They prefer not to examine it too closely.

The Debit Restriction Most Contracts Ignore

Rarely does a statute aim so directly at the collection mechanism itself. A provider or broker may not establish automatic debits from a recipient deposit account unless the provider or broker holds a validly perfected security interest in that account under Chapter 9 of the Business and Commerce Code, with first priority against the claims of all other persons.

Bring the debit printout first. The contract language can wait until counsel sees the dates.

The contract authorized the debit. The statute forbade the mechanism. That pair decides more than any debate about labels, which is why an owner should preserve every debit record from the first withdrawal forward. Any communication with the funder about payment mechanics, even casually, can alter later review. Resist the urge to negotiate the debit schedule by telephone before counsel has read the security provisions.

Remedies Belong to the State, Not the Signer

Violation carries a civil penalty of $10,000 for each violation, assessed through enforcement actions brought by the Office of Consumer Credit Commissioner for rule violations, missing disclosures, or missing registration. The chapter creates no private right of action, which means a merchant cannot sue for damages under the chapter itself and a regulatory complaint does not itself vacate any judgment.

Exemptions remove banks and affiliates, technology providers without any interest in the financing, Farm Credit lenders, real property secured transactions, true leases, large dealer transactions, and financing tied to products the provider or its affiliate supplies. Internet providers serving Texas recipients sit inside the chapter without any local office. Simply bring the agreement, the disclosures, and the debit records to the first conference, and ask what the documents disclose, or withhold, about coverage.

New York practice offers an extremely useful contrast. A confession there still may be entered without any action on a sworn affidavit stating the sum, the authorization, the county of residence, and the facts of the debt, under the confession procedure of CPLR 3218. Texas chose voidness where New York chose procedure.

Most owners call counsel after the judgment is entered. The delay is understandable. Delancey Street is a settlement company, not a law firm, and it offers a free confidential initial review of MCA and business debt accounts while independently licensed counsel handles legal questions. Consultation is where this conversation begins. The objective is to ensure no statement is made without counsel present. A single statute cannot protect a business whose owner keeps signing, and the peculiar mercy of a voidness rule is that it rewards the owner who stops, reads, and asks.