Texas HB 700
5 Restructuring Considerations Behind the Automatic Debit Rule

Texas restricted the automatic debit. It did not ban it.

House Bill 700, effective September 1, 2025, created Finance Code Chapter 398 for covered commercial sales based financing, and the adopted rules implementing it run to a detailed preamble that rewards careful reading. Owners who treat the statute as a blanket prohibition will misstate their position from the first conversation. Counsel starts with coverage, then with the two operative restrictions, then with remedies.

What the Statute Covers and When It Applies

The enrolled text of HB 700 defines its own reach before imposing any duty. Specific offers under one million dollars carry the disclosure obligations, existing operators receive a registration transition ending December 31, 2026, and exemptions remove banks and certain transactions from the scheme. Internet providers serving Texas recipients fall inside even without a local office. Often we see Texas agreements assumed covered or assumed exempt without the analysis the exemptions demand. Counsel ensures the transaction falls inside Chapter 398 before anyone cites it.

Timing matters as much as geography: agreements predate the effective date, transition windows remain open, and rules adopted in 2026 interpret provisions that took effect in 2025, so an owner should date every document before asserting any right. This changes the file from a stack of grievances into a chronology a lawyer can use.

The Confession of Judgment Rule

A commercial sales based financing contract containing a confession of judgment provision or any similar provision is void and unenforceable under the statute. The text is extremely blunt: a covered confession provision is void from the start.

That bluntness has boundaries worth respecting (which critics of the statute call a paperwork technicality, though counsel paid attention). Coverage, timing, and exemptions still gate the rule, and remedies for a violation run through the state rather than through a private lawsuit, as the enforcement section below explains. Ask counsel whether the agreement qualifies before treating any clause as void.

The Automatic Debit Restriction Is Narrower Than a Ban

The adopted Texas rules for sales based financing explain the debit restriction at length, because the industry fought over every word. A provider or broker may not establish a mechanism for automatic debiting of a recipient deposit account unless it holds a perfected security interest with first priority against the claims of all other persons, and the rules read that interest against all accounts receivable of the recipient. Debits count as automatic where authorized in advance to recur, which changes negotiation without changing the balance.

But not every movement of money qualifies under that definition, and counsel should test each transfer type on its own facts. Preauthorization language survives in many forms in order to keep debits flowing without fresh consent, and a provider may not direct a third party to complete a debit the provider itself could not take (a construction the commission adopted after extended comment, with the preamble devoting most of its hundred odd pages to this subsection and its evasions, including arrangements routing around the rule through vendors, portals, and redirected payments). A mechanism for automatic debiting of an account also includes the situation where the recipient supplied more than one prewritten check in advance. The rule restricts the mechanism, not the debt, and it aligns with a distinction between account and deposit account under the business and commerce code that counsel must apply to the actual facts.

Disclosure Duties for Covered Offers

Covered offers require specified disclosures of cost, payment terms, security, and broker compensation before agreement, including the total amount, the disbursement amount, the finance charge, the total repayment amount, the estimated payment period, fixed or variable payment schedules with average projected monthly amounts, other fees, and any charge for early payoff or refinancing. The adopted rules require accurate disclosures and address misleading statements, unauthorized debits, and undisclosed fees.

Compare the packet against the agreement line by line, since the packet is long and every page deserves a reader. Keep the disclosure packet with the agreement for the life of the dispute.

Remedies, Registration, and the Restructuring Posture

The chapter creates no private right of action, so an owner cannot sue on the statute itself for compliance or noncompliance. Enforcement runs through civil penalties of $10,000 for each violation, pursued by the state. The complaint was filed. The debt remained. Registration is not endorsement, and a certificate on the wall impresses no judge. Most owners meet this statute in a sales pitch rather than in a law library. I understand the skepticism, because neither sellers nor collectors read statutes for comprehension.

Build the restructuring position from the verified pieces: counsel can review and analyze coverage, the confession provision, the debit mechanism, and the disclosure packet as four separate inquiries, since a defect in one supplies no conclusion about the others. What the owner asserts, or concedes, in the first response shapes the posture for everything after. Raise the statute with the funder, even briefly, only through counsel. Resist the urge to cite chapter numbers in a letter drafted without advice. Counsel should ensure coverage analysis precedes any assertion of a violation.

Simply preserve the disclosure packet, the debit authorizations, and the security filings while counsel works. Delancey Street offers a free confidential initial review for MCA debt concerns, including Texas accounts. The company provides debt settlement services and coordinates legal questions with independently licensed counsel. Confirm eligible accounts, fees, and who communicates with the provider before anything moves.

A complaint to the regulator and a negotiation with the funder are separate instruments that play in different rooms. Owners who keep those rooms distinct preserve the value of each. The statute narrowed the collection toolkit without emptying it, and the restructuring conversation continues on the narrowed ground.