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MCA Laws in Texas: What Business Owners Need to Know

MCA Laws in Texas: What Business Owners Need to Know

Bar Alezrah
10 min read
March 27, 2026
Reviewed for accuracy. Based on real experience.

Texas has a large and active MCA market, but the state has taken a hands-off approach to regulating merchant cash advances. There is no state-specific MCA disclosure law, no licensing requirement for MCA providers, and limited regulatory oversight of the industry. For Texas business owners, this means you are largely on your own when it comes to protecting yourself from predatory MCA practices.

This guide explains the current regulatory landscape in Texas and what you can do to protect your business.

Current MCA Regulations in Texas

Texas does not have any laws specifically targeting merchant cash advances. The state's business-friendly regulatory environment extends to commercial financing, where the general philosophy is that businesses should be free to enter into whatever agreements they choose.

Because MCAs are structured as purchases of future receivables rather than loans, they fall outside the scope of the Texas Finance Code, which regulates traditional lending. This means:

  • MCA companies do not need a Texas lending license to operate in the state
  • Texas usury laws (which cap interest at 18% for commercial loans without a written agreement, or 28% with certain agreements) do not apply to MCAs
  • There are no state-mandated disclosure requirements specific to MCAs
  • The Texas Department of Banking does not oversee MCA transactions

This lack of regulation does not mean MCAs are unregulated entirely. Federal laws like the FTC Act still prohibit deceptive business practices, and general contract law principles still apply. But compared to states like New York and California, Texas offers significantly fewer protections.

Confession of Judgment Rules

Here is some good news for Texas business owners: Texas does not recognize confessions of judgment. Under Texas law, cognovit notes (the legal basis for COJs) have been void and unenforceable since 1925 under the Texas Constitution, Article 16, Section 11.

This means:

  • An MCA company cannot file a confession of judgment in a Texas court
  • If an MCA company obtains a COJ judgment in another state (like New York), Texas courts will generally refuse to domesticate (enforce) that judgment
  • Texas courts view COJs as contrary to the state's strong public policy in favor of due process

This is one of the strongest protections Texas business owners have. However, be aware that if you signed an MCA agreement with a choice-of-law provision selecting another state's law (like New York), the MCA company may still try to pursue legal action in that state. The key is that enforcing any judgment in Texas will be difficult without going through proper Texas court procedures.

UCC Filing Rules

MCA companies file UCC-1 financing statements in Texas through the Texas Secretary of State. These filings are standard practice and create a lien on your business assets and future receivables.

Key points about UCC filings in Texas:

  • UCC filings can be searched through the Texas Secretary of State website
  • Texas UCC filings are effective for five years
  • When you satisfy your MCA obligation, the funder must file a termination statement within 20 days of receiving an authenticated demand from you
  • Under Texas Business and Commerce Code Section 9.625, you can recover damages if an MCA company fails to terminate a UCC filing after your obligation is satisfied
  • Multiple UCC filings will show up on your business credit and can prevent you from getting traditional financing

Consumer Protection Laws That Apply

While Texas lacks MCA-specific laws, several general business protection statutes can apply to MCA transactions.

Texas Deceptive Trade Practices Act (DTPA)

The DTPA (Texas Business and Commerce Code Chapter 17) prohibits false, misleading, or deceptive acts in trade or commerce. While it primarily applies to consumer transactions, some courts have applied it to business-to-business transactions when the business is in a position similar to a consumer.

If an MCA company made false representations about the terms, cost, or structure of the advance, the DTPA may provide a legal avenue for relief. Potential claims include:

  • Misrepresenting the total cost of the MCA
  • Failing to disclose material terms
  • Making misleading statements about how daily debits would be calculated

Common Law Fraud and Unconscionability

Texas courts can refuse to enforce contracts that are unconscionable or that were procured through fraud. If an MCA agreement has terms so one-sided that no reasonable business owner would agree to them with full understanding, a Texas court may void the agreement or specific provisions.

Recent Developments

While Texas has not passed any MCA-specific legislation, there are some notable developments:

  • Growing awareness. The Texas legislature has become more aware of MCA issues as the market has grown. Several lawmakers have proposed studying the impact of MCAs on Texas small businesses.
  • Federal regulation. The Federal Trade Commission has increased its scrutiny of MCA practices nationwide, which impacts MCA companies operating in Texas.
  • Industry growth. Texas is one of the largest MCA markets in the country due to its large small business population and lack of regulation. This growth has brought increased attention from consumer advocates and the media.
  • Attorney General activity. While the Texas Attorney General has not brought MCA-specific enforcement actions, the office has investigated complaints related to deceptive commercial financing practices.

Business owners should monitor the Texas Legislature for any proposed MCA-related legislation.

What Texas Business Owners Should Watch Out For

Because Texas provides minimal MCA regulation, you need to be especially careful. Here are the biggest risks:

  1. No mandatory disclosures. Unlike California or New York, MCA companies are not required to show you the APR or total cost in a standardized format. Always ask for these numbers in writing before signing.
  2. Choice-of-law clauses. Many MCA agreements require disputes to be resolved under New York law or in New York courts. Read the fine print and understand what jurisdiction you are agreeing to.
  3. Personal guarantees. Most MCA agreements include personal guarantees that make you personally liable for the full amount. In Texas, your homestead is protected under the Texas Constitution, but other personal assets may not be.
  4. Stacking. Without regulatory oversight, multiple MCA companies may fund the same business simultaneously, creating unsustainable payment obligations. This is called stacking and it is a serious risk in unregulated markets.

What Texas Business Owners Should Do

  1. Calculate the true cost yourself. Since there are no mandatory disclosures, ask the MCA company for the total payback amount and the expected term. Then calculate the effective APR. If the company will not give you clear numbers, do not take the advance.
  2. Have an attorney review the agreement. This is especially important in Texas where you do not have the safety net of mandatory disclosures. A business attorney can identify problematic terms.
  3. Search your UCC filings. Check the Texas Secretary of State for existing liens before taking on additional MCA debt.
  4. Know your COJ protection. If an MCA company threatens a confession of judgment, know that Texas does not recognize them. Do not be intimidated.
  5. Consider alternatives first. The SBA Dallas/Fort Worth District Office and Texas Small Business Development Centers can help you explore lower-cost financing options.

Helpful Resources

Frequently Asked Questions

Does Texas have any laws specifically regulating merchant cash advances?

No. Texas does not have any MCA-specific laws. MCAs are not classified as loans under Texas law, so they are not subject to usury limits, licensing requirements, or mandatory disclosures. General contract law and deceptive trade practice laws still apply.

Can an MCA company enforce a confession of judgment in Texas?

No. Texas has banned confessions of judgment since 1925 under the Texas Constitution. A COJ judgment obtained in another state will generally not be enforced by Texas courts. This is one of the strongest protections available to Texas business owners.

Are MCA companies required to disclose the APR in Texas?

No. Unlike California and New York, Texas does not require MCA companies to provide APR or standardized cost disclosures. You should always ask for the total payback amount and calculate the effective cost yourself before signing any MCA agreement.

What should I do if I am having problems with an MCA in Texas?

Contact an attorney who handles commercial financing disputes. You can also file a complaint with the Texas Attorney General at texasattorneygeneral.gov. If the MCA company made false or misleading representations, you may have claims under the Texas Deceptive Trade Practices Act.

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