Texas HB 700: 8 Ways the New Debit and Disclosure Rules Change Restructuring Talks

Texas did not ban the automatic debit. It conditioned the mechanism, voided the confession, priced the disclosure, and left enforcement to the state. An owner who reads the new chapter as a shield misunderstands it. An owner who reads it as a map holds something useful.

House Bill 700, effective September 1, 2025, wrote chapter 398 of the Finance Code for commercial sales based financing. The eight sections below follow the enrolled text, in the enrolled version of the law, with implementing rules adopted in July 2026 explaining several provisions. Coverage, timing, and remedies belong to counsel on real facts.

Coverage Turns on Definitions, Not Labels

Sales based financing means repayment as a percentage of sales or revenue, or repayment through a fixed mechanism with a reconciliation process adjusting 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, and a contract outside them gains nothing from the chapter.

Before the effective date, before any disclosure form existed for these transactions, funders priced and papered deals the statute would later regulate. Transactions closed after September 1, 2025 face the regime in full. Owners sometimes assume older agreements were grandfathered into safety or swept into coverage. Neither assumption appears in the text.

Disclosure Duties for Offers Under $1 Million

And the disclosure package is the provision owners will handle themselves. 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, all other potential fees, early payoff costs, collateral terms, and broker compensation where the provider pays it.

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

Renewal Accounting for Retired Financing

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. The rule targets the stack disguised as a renewal.

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

The Confession That Became Void

A commercial sales based financing contract containing a confession of judgment provision or any similar provision is void and unenforceable. The sentence comes first in negotiation because everything a funder asserts about waiver or commercial sophistication must pass through it. The rule is transactional rather than universal: it reaches covered contracts, not every commercial agreement in the state.

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

The Debit Restriction Behind the Headlines

No provision of the chapter reaches so far into daily operations as the debit restriction, and none is so widely misdescribed. A provider or broker may not establish automatic debits from a recipient deposit account unless holding a validly perfected security interest in that account under chapter 9, with first priority against the claims of all other persons. The adopted rules explain the requirement and address misleading statements, unauthorized debits, and undisclosed fees. A compliant first priority interest satisfies the condition, and the condition is extremely demanding for funders whose filings never attached to any deposit account.

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

The restriction is not a ban, if we are being precise, but a condition. An unperfected or junior claim fails it. That pair decides more than any debate about labels, which is why an owner preserves every debit record from the first withdrawal forward. Any communication with the funder about payment mechanics, even briefly, can alter later review. Resist the urge to negotiate the debit schedule by telephone before counsel has read the security provisions.

Registration With the Commissioner

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 ninety days after any change. The filing requires business names, office and agent details, and a history of fraud related judgments, orders, and convictions. Registration is notice rather than endorsement, and counsel checks the registry before treating any provider as compliant.

Existing operators received a transition to December 31, 2026. With that deadline approaching, unregistered activity carries a sharper question than it did at enactment. Most debt buyers know which regime their paper falls under.

Remedies Belong to the State

Violation carries a civil penalty of $10,000 for each violation, assessed through Commissioner enforcement actions 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. The absence of a private claim disappoints owners who expected a sword. The chapter supplies a ledger, not a weapon.

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.

What Negotiation Uses From the Chapter

A restructuring conversation informed by the chapter proceeds document by document. The disclosure package prices the transaction for comparison. The voidness rule removes one enforcement threat from covered positions. The debit condition supplies the question counsel asks about every automatic withdrawal. The registration file identifies the counterparty. None of these elements settles the debt. Together they change the posture in which settlement is discussed, which is the most any statute offers a private negotiation.

Delancey Street is a settlement company, not a law firm, and it offers a free confidential initial review of MCA and business debt positions 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. Statutes set the table. Preparation decides the seating, and the mercy of a disclosure regime is an extremely peculiar one: it rewards the owner who reads before signing.