“How Texas HB 700 and New York’s Judgment Reforms Protect Small Businesses from Predatory Merchant Cash Advances”

States are tightening the rules around merchant cash advances, foreign judgments, and bank levies because these tools can quietly wreck a small business if no one checks how they’re used. Texas’s new HB 700 and reforms in New York both grew out of years of MCA abuses and aggressive judgment enforcement that hit out‑of‑state businesses and bank accounts.

Why Merchant Cash Advances Drew New Laws

Merchant cash advances are marketed as “sales‑based financing” that buy a slice of future receivables instead of making a loan, which helped many providers dodge traditional lending rules and usury caps. In practice, regulators and courts saw MCA contracts with sky‑high effective costs, dense fee schedules, daily ACH pulls, and confessions of judgment that let funders get fast default judgments in New York against businesses scattered across the country.

HB 700 in Texas responds to exactly that pattern. It amends the Texas Finance Code to cover “commercial sales‑based financing,” including MCAs under $1 million to Texas recipients, and forces providers and brokers to register with the Office of Consumer Credit Commissioner and deliver clear written disclosures before closing a deal. Those disclosures must spell out the total financing amount, disbursement amount, finance charge, total repayment amount, how payments are calculated, other fees, and any collateral or security interests, so an owner can see the real cost and risks up front instead of discovering them when cash‑flow collapses or a lawsuit hits.

What Texas HB 700 Actually Does

HB 700 creates a structured framework for MCAs rather than banning them outright, but it narrows key tactics that made them dangerous. The statute requires:

Registration of providers and brokers with the state, with civil penalties (often up to $10,000 per violation) for non‑compliance, which gives regulators a way to police bad actors.
Standardized disclosures for eligible transactions, signed by the recipient, covering core cost and repayment terms, plus any security interests or double‑dipping of fees in renewal deals.
Limits on contract provisions such as confessions of judgment and certain waivers that regulators consider abusive, making those terms void or unenforceable under Texas law.
Industry sources note that HB 700 faced substantial pushback because it restricts automatic debits and requires transparency that undercuts some MCA business models, but it ultimately passed and becomes effective September 1, 2025. For a Texas business that once signed MCA papers in a rush, HB 700 is important because future contracts must be clearer, and unregistered or non‑compliant providers put themselves on the wrong side of state enforcement.

Why States Require Domestication of Foreign Judgments

A New York judgment is not supposed to reach directly into a Texas bank account by itself. Under the Full Faith and Credit Clause, states must respect each other’s final judgments, but they are allowed to require a domestic “check‑in” process before local enforcement. That process is usually governed by the Uniform Enforcement of Foreign Judgments Act (UEFJA), which 48 states have adopted in some form.

Domestication serves several purposes:

It verifies that the out‑of‑state judgment is final, authentic, and within the issuing court’s jurisdiction, instead of being the product of bad service or a defective process.
It gives the local court and the debtor a chance to apply home‑state protections—such as exemptions, notice rules, or bankruptcy‑related limits—before bank accounts, wages, or equipment are seized.
It keeps enforcement orderly. A creditor must file the judgment in the state where assets are located, open a local cause number, and use local writs and levies, rather than bypassing the state’s own procedures.
For small‑business owners, that domestication step is not just a formality; it’s often the only real notice they get before a distant judgment is used to hit their local operating account.

New York’s Own Limits to Protect Out‑of‑State Debtors

New York became ground zero for MCA litigation because many contracts choose New York law, New York courts, and, historically, New York confessions of judgment. After investigative reporting showed thousands of small businesses around the country losing funds to confessed judgments filed in New York, the legislature amended CPLR 3218 in 2019 to stop creditors from filing confessions of judgment against non‑residents who had no business in the state.

The updated statute now allows confessions of judgment only where the debtor resides or has a place of business in New York, closing the door on the practice of using a New York confession to leap directly to bank levies against out‑of‑state owners. At the same time, New York’s rules on restraining notices under CPLR 5222 and the “separate entity rule” limit how far a restraining notice served on a New York branch of a bank can reach, especially for accounts in other states or foreign branches. Those decisions prevent a creditor from exploiting a bank’s New York presence to freeze every account that customer holds nationwide or overseas with no regard for other states’ laws.

For a Texas owner dealing with a New York MCA judgment, these New York reforms matter because they show that even New York courts recognize the risk of overreach against out‑of‑state debtors and bank accounts.

Why All of This Protection Matters in Real Cases

Put together, HB 700, domestication rules, and New York’s own reforms are all attempts to balance two realities: creditors should be able to collect legitimate debts, but judgment enforcement should not be a backdoor for predatory MCA contracts or defective lawsuits to jump state lines and silently drain business accounts. When a bank honors an out‑of‑state judgment that has never been domesticated, or an MCA provider relies on opaque “sale of receivables” language and old confession‑of‑judgment tactics, all of those protections are bypassed, and the small‑business owner pays the price first.

Understanding these laws gives you concrete questions to raise: Was the MCA provider registered and properly disclosing terms under HB 700? Has the foreign judgment been domesticated in your state under UEFJA? Do New York’s post‑2019 limits on confessions of judgment and restraining notices apply to your case? Those are the pressure points that often decide whether a legal order debit is a lawful collection step—or a wrongful seizure dressed up in paperwork.