- 1HB 700 prohibits automatic debits unless the provider holds a validly perfected first-priority security interest.
- 2It applies to Texas merchants regardless of where the funder is located; banks and credit unions are exempt.
- 3The law takes effect September 1, 2025.
Texas Governor Greg Abbott has signed HB 700, which prohibits sales-based financing providers from automatically debiting a merchant's account unless they hold a perfected first-position security interest. The law takes effect September 1, 2025.
What the debit rule requires
The prohibition is not limited to being the first MCA in line. A provider would need first priority ahead of any other claim at all. The rule turns on where the merchant is, not the funder: a funder located out of state is covered if the merchant is in Texas.
In substance, the statute bars a provider or commercial sales-based financing broker from setting up a mechanism to automatically debit a recipient's deposit account unless it holds a validly perfected security interest in that account under Chapter 9 of the Business & Commerce Code, with first priority against all other persons.
Who is covered, and who is exempt
The law reaches purchase transactions, meaning MCAs, as well as loans whose payments rise and fall with sales, such as revenue-based finance loans.
Companies with a special bank relationship are exempt: banks, out-of-state banks, bank holding companies, credit unions, federal credit unions and out-of-state credit unions, along with any subsidiary or affiliate of those institutions.
The legislation goes further than the ACH restriction. Its full text sets out the remaining provisions.
Source reporting: deBanked.
