89R8940 BCH-D
By: McQueeney H.B. No. 700
A BILL TO BE ENTITLED
AN ACT
relating to disclosures for certain commercial sales-based
financing transactions and the registration of commercial
sales-based financing brokers; 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, other than a financer, who, for compensation or the
expectation of compensation, offers commercial sales-based
financing to 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) "Financer" means a person who provides or will
provide commercial sales-based financing to a recipient.
(6) "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.
(7) "Provider" means a person who extends a specific
offer of commercial sales-based financing to a person applying for
that financing or the person's authorized representative. The term
includes a commercial sales-based financing broker.
(8) "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 financing by a
provider. The term does not include a person acting as a commercial
sales-based financing broker.
(9) "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.
(10) "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.
(11) "Total repayment amount" means the sum of the
disbursement amount and finance charge.
Sec. 398.002. EXEMPTIONS. This chapter does not apply to a
provider 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 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 purchase-money obligation, as defined by
Section 9.103, Business & Commerce Code;
(D) 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
(E) 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. 398.003. APPLICATION OF OTHER LAW. (a) 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.
(b) Fees and charges paid, or charged under, a sales-based
financing transaction are considered interest for usury purposes
under state law, regardless of the principal amount of the advance.
Sec. 398.004. ADMINISTRATION OF CHAPTER; RULEMAKING. (a)
The Texas Department of Banking shall administer, implement, and
enforce this chapter.
(b) The Finance Commission of Texas shall adopt rules as
necessary to administer and implement this chapter.
SUBCHAPTER B. REGULATION AND DISCLOSURE REQUIREMENTS
Sec. 398.051. DISCLOSURES. (a) If a provider extends a
specific offer of commercial sales-based financing of more than
$500,000 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 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 repaid in full; and
(10) a description of collateral requirements or
security interests, if applicable.
(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 from the same provider, 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 that was 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. BROKER REGISTRATION. (a) A person may not
engage in business as a commercial sales-based financing broker for
compensation in this state unless, before conducting business, the
person registers with the Texas Department of Banking. The
registration is effective on receipt by the department of a
completed registration form as provided by Subsection (d) and the
required registration fee and remains effective until renewal.
(b) On or before January 31 of each year after filing an
initial registration, a broker shall file a renewal registration
form with the required renewal registration fee.
(c) The 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 broker;
(2) the name under which the broker transacts
business, if different from the name of the broker;
(3) the address of the broker's principal office,
which may be outside this state; and
(4) the name and address in this state of a designated
agent for service of process.
(e) The Finance Commission of Texas 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
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.
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,
not to exceed $100,000 for all aggregated violations.
Sec. 398.102. DECEPTIVE TRADE PRACTICE. A violation of
this chapter is considered a deceptive trade practice under
Subchapter E, Chapter 17, Business & Commerce Code, and is
actionable under that chapter.
Sec. 398.103. 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 January 1, 2026, a person
engaging in business as a commercial sales-based financing broker
on the effective date of this Act must register under Section
398.053, Finance Code, as added by this Act.
(b) Not later than December 1, 2025, the Finance Commission
of Texas shall adopt rules setting the registration and
registration renewal fees and adopting a form for the registration
of 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.