Houston MCA Defense Attorney
A merchant cash advance or MCA is a form of business financing where a business sells a percentage of its future business income to a company. Many MCA agreements will say that the business will repay the MCA by automatic withdrawal from the business bank account on a daily or weekly basis. Most MCA agreements say that New York Law and New York Courts apply. A Houston business owner may need a Houston MCA defense attorney if the MCA agreement is challenged in Houston. A New York licensed attorney will be needed if the MCA funder files suit in New York. Texas attorneys will be needed if the MCA funder filed a New York judgement in Harris County. Texas attorneys will be needed if the MCA funder is withdrawing from a Houston bank account. Texas attorneys will be needed if the business owner is filing for bankruptcy.
Texas Finance Code Chapter 398
Texas’s merchant cash advance disclosure law is now in effect. Texas House Bill 700 was signed into law on June 20, 2025 and the law took effect on September 1, 2025. Texas HB 700 created Texas Finance Code Chapter 398. Texas HB 700 requires merchant cash advance providers and brokers that do business with Texas business entities within Texas to provide signed, written disclosure on all merchant cash advances under $1 million. The disclosure must include funded amount, finance charge amount, total amount to be paid, estimated term, payment schedule and fees. Texas HB 700 applies to merchant cash advance funders that do not have a physical presence in Texas. Merchant cash advance providers and brokers are now required to register with the Texas Office of Consumer Credit Commissioner.
Existing merchant cash advance providers and brokers have until December 31, 2026 to register. Texas Finance Code Chapter 398 doesn’t have any rate caps on merchant cash advance providers. In fact, Chapter 398 explicitly prohibits Texas regulators from imposing rate caps on merchant cash advances. Merchants don’t have a right to sue under this law. This law is only enforceable by the state through a civil penalty of $10,000 per violation.
No cap on rates. But, there are two sections of the law which are of the most interest to Houston merchants in disputes with their funders. Chapter 398 Section 398.056. A provider of sales-based financing may not arrange for a merchant account to be automatically debited by the provider of the sales-based financing unless the provider has a perfected security interest in the account in priority to any other security interest in the account. So, maybe there are Houston merchants out there having ACHs pulled from accounts which have loans with the bank or some other senior creditor having a first lien on the account. This would be against the law and could be a good deal of leverage for a Houston merchant in a negotiation and a complaint to the state. Chapter 398 Section 398.004.
Sales based financing is not an “account purchase transaction” for purposes of Texas Finance Code Section 306.103. Texas Finance Code Section 306.103 is about “account purchase transactions” and they for some reason are not considered loans and this new law removes one of the arguments that can be made by funders that their deals should be left out of the usury laws in Texas.
The usury law in the state of Texas only imposes the penalties on an advance if the advance is a loan and only upon a court determination. Section 305.001 of the Finance Code provides: a person who has contracted for or has accepted more than the maximum rate of interest under this chapter in a commercial transaction is liable to the borrower in an amount equal to three times the amount by which the interest contracted for or accepted exceeds the maximum rate of interest. Section 305.005 of the Finance Code provides: a lender shall pay to the borrower the borrower’s attorney’s fees. In American Pearl Group v. National Payment Systems (May 23, 2025), the Texas Supreme Court determined that the maximum rate of interest under the usury law is determined by using the declining balance under the actuarial method. The actuarial method results in a lower maximum rate of interest than some Texas courts had used (the equal parts method).
Advances can be thought of as ‘disguised loans’. The concept has been studied by the Houston bankruptcy court. In re Anadrill Directional Services, Sommers v. Global Merchant Cash is a case in United States Bankruptcy court, heard on 28 January 2026 by Chief Bankruptcy Judge Eduardo V. Rodriguez. It is about a Merchant Cash Advance to an oil and gas drilling services company. The company received an advance of $650,145.18 from the funders. The company paid the funder $21,166.67 a week for $1,016,000.
The court allowed the Chapter 7 trustee’s fraudulent transfer claims to proceed, as the court found a colorable claim that the transaction was a criminally usurious loan, void under New York law, irrespective of the form of the contract. The court made similar rulings against other funders in the same case in February 2026. In March 2026, in Dallas Bankruptcy Court case Denali Construction Services v. Cloudfund, the court voided two advances with annualized interest rates of 427.9 and 348.3%. Confessions are generally dead for Houston merchants. Section 30.001 of Texas Civil Practice and Remedies Code has outlawed the ability for anyone to confess judgment in any instrument signed before the commencement of an action for decades. Texas Chapter 398 takes it one step further and explicitly declares that any agreement based on sales based financing with a confession of judgment included will be void and unenforceable.
Confession of Judgment
August 30, 2019. New York closed its own door on August 30, 2019, when it amended CPLR 3218. Henceforth, a confession of judgment must be filed in the New York county where defendant resided when they executed the confession of judgment. The new statute prevents the filing of judgments against out-of-state merchants. The amendments were prospective. They did not apply to previously executed confession of judgments. But that was a statute of the state, and the confessions having been signed before the passage of the law, it was carried into effect as it stood when signed.
Without a confession of judgment, an MCA funder, who is trying to collect from a business in Houston, is likely going to have to sue. Most MCA contracts have a forum selection clause that will require this lawsuit to be filed in a state court in New York. The business that is sued in New York will retain a New York licensed lawyer to respond to the lawsuit, challenge service of process, jurisdiction, and make an argument that the advance was in fact a loan, under New York state law.
This argument can also be made in Houston. Civil lawsuits are heard in the District Courts of Harris County for large civil suits. Small civil suits are heard in the Civil Courts at Law in Harris County. Both the District Courts and the Civil Courts are located at 201 Caroline downtown. Federal court cases are heard in the United States District Court for the Southern District of Texas, Houston Division at the Bob Casey Courthouse on Rusk. The Houston division of the court has jurisdiction over Harris, Fort Bend, Montgomery, Waller and nine other counties.
Chapter 35, Civil Practice and Remedies Code
One (statutory) way for a New York judgment to be effective against a Houston firm, is by the provisions of Chapter 35, Civil Practice and Remedies Code, which provides that a duly authenticated copy of a judgment should be filed with a Texas court clerk and that an affidavit setting forth the last known address of the debtor should be filed and that notice of the filing should be given. After the filing, a judgment “has the same effect and may be enforced in the same manner as any other judgment.” It may be set aside or vacated, or stayed in the same manner.
In Walnut Equipment Leasing v. Wu (1996) the Texas Supreme Court held that a filing of a Pennsylvania judgment in Harris County was the equivalent to the filing of a suit and the final judgment in the suit, and that the 30 days to object to the judgment began on the day of the filing and not when the notice was received. Chapter 35, section 35.006 requires a stay be granted if the debtor can show an appeal was pending in New York and if the security for the appeal was properly posted.
Texas Exemptions
And, all that really matters at the end of the day is the Texas exemptions, once the New York judgment is domesticated in Texas. It is the Houston lawyer’s knowledge of the exemptions that will dictate what exactly the fund can collect from someone who signed a personal guaranty. Section 41.002 of the Texas Property Code exempts 10 acres of “urban homestead,” with no ceiling on its value. Section 42.001 of the Texas Property Code exempts certain types of personal property up to $100,000 (family) or $50,000 (single adult), while current wages are entirely exempt. The exemptions mentioned here are for individuals rather than their operating company. This is a personal exemption for the individual who owns the company, and once the judgment is domesticated in Harris County, the company’s accounts and assets are fair game.
Call a Bankruptcy Attorney
If you have multiple advances, and can’t pay them, call a bankruptcy attorney instead. A business bankruptcy in Houston is filed with the Bankruptcy Court for the Southern District of Texas, Houston Division. There are five bankruptcy judges. The Anadrill decisions confirm that a trustee may sue to recover payments made on MCAs that look like loans. A settlement attorney, or settlement negotiator, may be enough to handle disputes where there is no lawsuit, such as when a funder that lacks a first position is running their account in violation of Section 398.056. If your Houston business is sued in New York, you need a New York lawyer more than a local Houston lawyer. If a judgment has just been filed against your Houston business in Harris County, you need a Texas lawyer within the 30 days that Walnut Equipment Leasing have given you.
