Concerned About The MCA Automatic Debit Law in Texas? This ACH Company Says There’s a Way

There may be no need to overcomplicate Merchant Cash Advance compliance in Texas. A key phrase in the MCA prohibition law that went into effect last year specifies that it’s a prohibition on “establishing a mechanism for automatically debiting a recipient’s account” unless a lot of other requirements are met.

One company looked closely at that piece of the language and came up with a simple solution.

“…our approach is to request the payment at each time and capture the authorization at the time of the transaction,” said John Innes, President of the Texas-based and aptly-named ACH Processing Company. “So instead of capturing an authorization at the beginning and embedding that into the documents where you’re going to do a recurring debit transaction to the merchant’s account, you are sending a request saying, ‘Okay, please authorize this payment.’ And so each payment is individually authorized so you don’t need that security interest [component] anymore.”

No automatic recurring debits. Instead there’s a Request For Payment that requires merchants to manually authorize debits on a debit-by-debit basis whether that be daily, weekly, or monthly, depending on whatever the agreed frequency is.

“I think this was maybe the intent of the law,” Innes continued. “It gives the merchant kind of that control over that debit and it fosters communication between the two parties.”

Innes said there’s various ways that this interaction can be conducted to reduce the friction of this process.

Other options proposed across the industry have focused on another piece of the language, that the prohibition is specifically meant for “commercial sales-based financing providers” and the proposed cure for that is to offer a non-sales-based financing product in the state instead. ACH Processing Company’s solution, however, allows an MCA funder to keep its product suite as-is.

“…you don’t have to break all that,” said Innes. “Continue with the same business plan. ”

Since the Texas law went into effect seven months ago, Innes says that numerous funders have still been in a holding pattern trying to figure out how to approach it. It’s their belief that this solution is a simple way to now get Texas turned back on if they’re ready.

Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.