Relating to disclosures for certain commercial sales-based financing transactions, the effect of certain commercial sales-based financing contract provisions, and the registration of commercial sales-based financing brokers and providers; authorizing a fee and providing a civil penalty.

89(R) HB 700 - Enrolled version - Bill Text

H.B. No. 700

AN ACT

relating to disclosures for certain commercial sales-based

financing transactions, the effect of certain commercial

sales-based financing contract provisions, and the registration of

commercial sales-based financing brokers and providers;

authorizing a fee and providing a civil penalty.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Title 5, Finance Code, is amended by adding

Chapter 398 to read as follows:

CHAPTER 398. COMMERCIAL SALES-BASED FINANCING

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 398.001. DEFINITIONS. In this chapter:

(1)

"Commercial sales-based financing" or "commercial

sales-based financing transaction" means an extension of

sales-based financing to a recipient by a provider, the proceeds of

which the recipient does not intend to use primarily for personal,

family, or household purposes.

(2)

"Commercial sales-based financing broker" means a

person who, for compensation or the expectation of compensation,

obtains commercial sales-based financing for a recipient or offers

to obtain commercial sales-based

financing for a recipient from a

provider.

(3)

"Disbursement amount" means the amounts paid to

the recipient or on the recipient's behalf. The term does not

include any finance charges that are deducted or withheld at

disbursement.

(4)

"Finance charge" means the cost of commercial

sales-based financing expressed as a dollar amount. The term

includes a charge payable, directly or indirectly, by the recipient

that is imposed, directly or indirectly, by the provider of the

financing as an incident to, or a condition of, the extension of

financing.

(5)

"Person" means an individual, corporation,

partnership, limited liability company, joint venture,

association, joint stock company, trust, sole proprietorship or

other unincorporated organization, or other similar entity.

(6)

"Provider" means a person who provides or will

provide commercial sales-based financing to a recipient or who

extends a specific offer of commercial sales-based financing to a

person applying for that financing or the person's authorized

representative.

(7)

"Recipient" means a person, or the authorized

representative of a person, who applies for commercial sales-based

financing and is made a specific offer of commercial sales-based

financing by a provider. The term does not include a person acting

as a commercial sales-based financing broker.

(8)

"Sales-based financing" means a transaction that

is repaid by the recipient to the provider of the financing:

(A)

as a percentage of sales or revenue, in which

the payment amount may increase or decrease according to the volume

of sales made or revenue received by the recipient; or

(B)

according to a fixed payment mechanism that

provides for a reconciliation process that adjusts the payment to

an amount that is a percentage of sales or revenue.

(9)

"Specific offer" means the specific terms of

commercial sales-based financing. The term includes a price or

amount quoted to a recipient by a person providing the financing

based on information obtained from or about the recipient that, if

accepted by the recipient, would be binding on the provider,

subject to specific requirements in the financing terms.

(10)

"Total repayment amount" means the sum of the

disbursement amount and finance charge.

Sec.

398.002.

APPLICABILITY OF CHAPTER. This chapter

applies to a provider or a commercial sales-based financing broker

who offers, obtains, or provides commercial sales-based financing

services over the Internet to or for a recipient of this state,

regardless of whether the provider or broker maintains a physical

presence in this state.

Sec.

398.003.

EXEMPTIONS. This chapter does not apply to a

provider or broker that is:

(1)

a bank, out-of-state bank, bank holding company,

credit union, federal credit union, out-of-state credit union, or

any subsidiary or affiliate of those financial institutions;

(2)

a person acting in the capacity of a technology

services provider to an entity exempt under this section as part of

the exempt entity's commercial sales-based financing program if the

person has no interest, arrangement, or agreement to purchase any

interest in the commercial sales-based financing extended in

connection with the program;

(3)

a lender regulated under the Farm Credit Act of

1971 (12 U.S.C. Section 2001 et seq.); or

(4) a person who extends or brokers:

(A)

a commercial sales-based financing

transaction secured by real property;

(B)

a lease, as defined by Section 2A.103,

Business & Commerce Code;

(C)

a commercial sales-based financing

transaction entered into under a commercial sales-based financing

agreement or commercial open-end credit plan of $50,000 or more in

which the recipient is:

(i)

a dealer, as defined by Section

503.001, Transportation Code; or

(ii)

a motor vehicle rental company or an

affiliate of a motor vehicle rental company; or

(D)

a commercial sales-based financing

transaction in connection with the sale of products or services

that:

(i)

the person manufactures, licenses, or

distributes; or

(ii)

a parent company, subsidiary, or

affiliate of the person described by Subparagraph (i) manufactures,

licenses, or distributes.

Sec.

398.004.

APPLICATION OF OTHER LAW. 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.

Sec.

398.005.

ADMINISTRATION OF CHAPTER; RULEMAKING. (a)

The Office of Consumer Credit Commissioner shall administer,

implement, and enforce this chapter.

(b)

Except as provided by Subsection (d), the Office of

Consumer Credit Commissioner may:

(1) bring enforcement actions for:

(A)

violations of rules adopted under Subsection

(c);

(B)

failures to make disclosures required by

Section 398.051; or

(C)

failures to register as required by Section

398.053;

(2) terminate or suspend registrations; and

(3) assess civil penalties.

(c)

The Finance Commission of Texas shall adopt rules

applicable to providers and commercial sales-based financing

brokers that identify unlawful, unfair, deceptive, or abusive acts

or practices related to a transaction subject to this chapter.

Rules adopted under this subsection must identify and prohibit

specific acts or practices by providers or brokers that:

(1) the commission considers unfair because:

(A)

the act or practice causes or is likely to

cause substantial injury to a recipient that the recipient cannot

reasonably avoid; and

(B)

the injury outweighs the benefits to

recipients or to market competition;

(2)

are material acts or practices that will or likely

will mislead a recipient who, given the circumstances, has a

reasonable interpretation of the act or practice;

(3)

materially interfere with a recipient's ability to

understand a term or condition of a commercial sales-based

financing transaction; or

(4) take unreasonable advantage of:

(A)

a recipient's lack of understanding of the

material risks, costs, or conditions of the commercial sales-based

financing transaction; or

(B)

a recipient's inability to protect the

recipient's interest in selecting or using a commercial sales-based

financing product.

(d)

The Finance Commission of Texas may not adopt a maximum

annual percentage rate, finance charge, or fee for commercial

sales-based financing transactions.

SUBCHAPTER B. REGULATION AND DISCLOSURE REQUIREMENTS

Sec.

398.051.

DISCLOSURES. (a) If a provider extends a

specific offer of commercial sales-based financing of less than $1

million to a recipient in this state, the provider shall disclose to

the recipient:

(1) the total amount of the financing;

(2) the disbursement amount;

(3) the finance charge;

(4) the total repayment amount;

(5)

the estimated period for the periodic payments to

equal the total repayment amount under the terms of the financing;

(6) the payment amounts as follows:

(A)

if the payment amounts are fixed, the amounts

and the frequency of payments; or

(B) if the payment amounts are variable:

(i)

a payment schedule or a description of

the method used to calculate the amounts and frequency of payments;

and

(ii)

the amount of the average projected

payments per month;

(7)

a description of all other potential fees and

charges not included in the finance charge, including draw fees,

late payment fees, and returned payment fees;

(8)

any finance charge the recipient will be required

to pay if the recipient pays off or refinances the commercial

sales-based financing before the transaction is scheduled to be

repaid in full;

(9)

any additional fees, not included in the finance

charge, the recipient will be required to pay if the recipient pays

off or refinances the commercial sales-based financing before the

transaction is scheduled to be repaid in full;

(10)

a description of collateral requirements or

security interests, if applicable; and

(11)

a statement outlining whether the provider will

pay compensation directly to a commercial sales-based financing

broker in connection with the specific offer of sales-based

financing and, if applicable, the amount of the compensation.

(b)

If, as a condition of obtaining commercial sales-based

financing, the provider requires the recipient to pay off the

outstanding balance of an existing commercial sales-based

financing, the provider shall disclose to the recipient:

(1)

the amount of the new commercial sales-based

financing used to pay off the portion of the outstanding balance of

the existing commercial sales-based financing that consists of:

(A) prepayment charges required to be paid; and

(B)

any unpaid interest expense or finance

charges that were not forgiven at the time of renewal of the

transaction; and

(2)

if the disbursement amount will be reduced to pay

down any unpaid portion of the outstanding balance, the actual

dollar amount by which the disbursement amount will be reduced.

Sec.

398.052.

SIGNATURE. The provider shall obtain the

recipient's signature on the disclosures required by Section

398.051 before finalizing the application for the commercial

sales-based financing transaction.

Sec.

398.053.

PROVIDER AND BROKER REGISTRATION. (a) A

person may not engage in business as a provider or a commercial

sales-based financing broker for compensation in this state unless,

before conducting business, the person registers with the Office of

Consumer Credit Commissioner. The registration is effective on

receipt by the commissioner of a completed registration form as

provided by Subsection (d) and the required registration fee and

remains effective until renewal or termination by the Office of

Consumer Credit Commissioner.

(b)

On or before January 31 of each year after filing an

initial registration, a provider or broker shall file a renewal

registration form with the required renewal registration fee.

(c)

The provider or broker shall pay a registration fee on

filing an initial registration and a renewal registration fee on

filing a renewal registration.

(d)

The registration or renewal registration form must

include:

(1) the name of the provider or broker;

(2)

the name under which the provider or broker

transacts business, if different from the name of the provider or

broker;

(3)

the address of the provider's or broker's

principal office, which may be outside this state;

(4)

the name and address in this state of a designated

agent for service of process; and

(5)

any judgment, memorandum of understanding, cease

and desist order, or conviction against the provider or broker, or

any person that otherwise controls the provider or broker or a

director or officer of the provider or broker, related to a

violation of law, act of fraud, breach of trust, or money

laundering.

(e) The Office of Consumer Credit Commissioner shall:

(1)

by rule set the registration fee and registration

renewal fee in amounts sufficient to cover the registration costs;

and

(2)

adopt a form to be used for a registration or

renewal registration under this section.

Sec.

398.054.

UPDATE OF REGISTRATION STATEMENT. A provider

or commercial sales-based financing broker shall update

information contained in the registration statement not later than

the 90th day after the date on which the information changes.

Sec.

398.055.

UNENFORCEABILITY OF CERTAIN CONTRACT

PROVISIONS. A commercial sales-based financing contract that

contains a confession of judgment provision or any similar

provision is void and unenforceable.

Sec.

398.056.

CERTAIN AUTOMATIC DEBITS PROHIBITED.

A

provider or commercial sales-based financing broker may not

establish a mechanism for automatically debiting a recipient's

deposit account unless the provider or broker holds a validly

perfected security interest in the recipient's account under

Chapter 9, Business & Commerce Code, with a first priority against

the claims of all other persons.

SUBCHAPTER C. ENFORCEMENT

Sec.

398.101.

CIVIL PENALTY. A person who violates this

chapter is subject to a civil penalty of $10,000 for each violation.

Sec.

398.102.

PRIVATE RIGHT OF ACTION NOT AUTHORIZED. This

chapter does not create a private right of action against any person

based on compliance or noncompliance with this chapter.

SECTION 2. (a) Not later than December 31, 2026, a person

engaging in business as a commercial sales-based financing broker

or provider on the effective date of this Act must register under

Section 398.053, Finance Code, as added by this Act.

(b) Not later than September 1, 2026:

(1) the Finance Commission of Texas shall adopt

initial rules under Section 398.005(c), Finance Code, as added by

this Act; and

(2) the Office of Consumer Credit Commissioner shall

adopt rules setting the registration and registration renewal fees

and adopting a form for the registration of providers and

commercial sales-based financing brokers as required under Section

398.053, Finance Code, as added by this Act.

SECTION 3. This Act takes effect September 1, 2025.

______________________________

______________________________

President of the Senate

Speaker of the House

I certify that H.B. No. 700 was passed by the House on May 12,

2025, by the following vote: Yeas 116, Nays 28, 1 present, not

voting; and that the House concurred in Senate amendments to H.B.

No. 700 on May 28, 2025, by the following vote: Yeas 98, Nays 23, 3

present, not voting.

______________________________

Chief Clerk of the House

I certify that H.B. No. 700 was passed by the Senate, with

amendments, on May 26, 2025, by the following vote: Yeas 31, Nays

0.

______________________________

Secretary of the Senate

APPROVED: __________________

Date

__________________

Governor