Texas Commercial Sales-Based Financing Bill Gets Last Minute ACH Ban Amendment

The Commercial Sales-Based Financing bill that passed through the Texas House of Representatives two weeks ago has now also passed through the Senate, but with a rather controversial amendment. In the Senate version, passed yesterday, and viewable on the right hand side of this document, sales-based financing providers would not be allowed to automatically debit a merchant’s account unless they have 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.” That means any sales-based funding (like an MCA or revenue-based financing loan) would be prohibited from debiting merchants automatically unless they were in true first position. And not just a first position MCA, but first position on all arrangements the merchant has altogether. AND it would have to be perfected in accordance with this statute.

The Senate Amendment:

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.

Since the main difference between what the Senate and House passed is that one sentence prohibiting automatic debits, they have until June 2nd to decide which version of the passed bill is final.

Sales-based financing is broad. While the term encompasses sales-based purchase transactions (MCAs), firms like Walmart and PayPal engage in loan-based sales-based financing. Both firms, for example, are registered sales-based financing providers in the state of Virginia.

The Texas Senate amendment language is new. It does not resemble anything passed in a state commercial financing disclosure law to date.

An estimated 10% of all sales-based financing in the US takes place with Texas-based businesses.