7 Disclosure Violations That Void or Weaken an MCA in Texas

What a Texas Disclosure Defect Buys You, and What It Does Not

There is a version of this article written by people selling hope, and it says a missing disclosure cancels your advance. In Texas it does not. Tex. Fin. Code §398.102 states that the chapter does not create a private right of action against any person based on compliance or noncompliance with it, and that sentence is not ambiguous. No Texas appellate decision has yet construed any part of Chapter 398, so nobody can honestly tell you a court has read it more generously.

What the chapter does create is a regulator with teeth and a funder with something to lose. The OCCC administers the chapter under §398.005(a), can bring enforcement actions for failures to disclose under §398.005(b)(1)(B), and can assess civil penalties. Section 398.101 sets the penalty at $10,000 for each violation. The adopted rule at 7 TAC §86.321(b) lets the agency issue an injunction that includes an order to take affirmative action and, at (b)(2), an order to provide restitution to an identifiable person. That last clause is the one worth reading twice.

So the honest frame is this. A disclosure defect is a fact you put on the table in a negotiation, alongside a complaint the OCCC can act on, alongside whatever contract and usury arguments your paperwork supports. It is one of several pressure points rather than a trapdoor. Below are the seven that actually appear in Texas files, drawn from §398.051, the disclosure rule at 7 TAC §86.310, and the fifteen practices the Finance Commission listed at 7 TAC §86.312(b).

1. Nothing Handed Over on an Offer the Statute Covers

Coverage is the first question and it is answered by three numbers and a list. Under Tex. Fin. Code §398.051(a), the duty attaches when a provider extends a specific offer of commercial sales-based financing of less than $1 million to a recipient in this state. Section 398.001(9) defines a specific offer as the specific terms, including a price or amount quoted based on information obtained from or about you that would bind the provider if you accepted it. A term sheet with your numbers on it is a specific offer. A generic rate card is not.

The product has to fit too. Section 398.001(8) defines sales-based financing as a transaction repaid as a percentage of sales or revenue, with the payment moving up and down with volume, or under a fixed payment mechanism that provides for a reconciliation process adjusting the payment to a percentage of sales or revenue. Nearly every daily and weekly remittance product on the market is written to fall inside one of those two clauses, because the second one was drafted with fixed-payment advances specifically in mind.

Then check the exemptions at §398.003, because they are the funder’s first move. Banks, out-of-state banks, bank holding companies, credit unions and their subsidiaries and affiliates are outside the chapter entirely, as are Farm Credit Act lenders, deals secured by real property, article 2A leases, certain dealer and vehicle rental transactions of $50,000 or more, and vendor financing of products the funder or its affiliate manufactures or distributes. Where none of those applies and you received nothing, 7 TAC §86.312(b)(4) treats the failure to make accurate disclosures as an unfair, deceptive or abusive act in itself.

2. A Finance Charge or Total That Does Not Match the Deal

Section 398.051(a) requires eleven items, and the money items are the first four: the total amount of the financing, the disbursement amount, the finance charge, and the total repayment amount. Section 398.001(3) defines the disbursement amount as the amounts paid to you or on your behalf, expressly excluding finance charges deducted or withheld at disbursement. Section 398.001(4) defines the finance charge as the cost of the financing expressed as a dollar amount, including any charge payable directly or indirectly by you that the provider imposes as an incident to or a condition of the financing. Section 398.001(10) makes the total repayment amount the sum of the other two.

Those definitions are the audit. Take the wire that actually hit your account, add every dollar the funder held back at closing, and compare the result to the disbursement figure on the disclosure. Then take the total you are contracted to remit and subtract the disbursement amount, and compare that to the stated finance charge. The two most common mismatches in Texas files are an origination or underwriting fee netted out of the wire but excluded from the finance charge, and a total repayment figure computed from a factor rate that does not survive contact with the payment schedule.

The rule adds an accuracy duty rather than a good-faith standard. Under 7 TAC §86.310(b), all terms and dollar amounts disclosed under §398.051 must accurately reflect the terms of the provider’s specific offer. And 7 TAC §86.312(b)(1) lists false, misleading or inaccurate statements in advertisements, solicitations, disclosures, contracts or communications as a prohibited practice, including at (b)(1)(B) claiming a legal right to take an action the person does not have the authority to take.

3. A Payment Line That Does Not Describe Your Actual Debits

Section 398.051(a)(5) requires disclosure of the estimated period for the periodic payments to equal the total repayment amount, and (a)(6) governs the payments themselves. Where the payment amounts are fixed, the provider must disclose the amounts and the frequency. Where they are variable, the provider must disclose a payment schedule or a description of the method used to calculate the amounts and frequency, and separately the amount of the average projected payments per month.

That last requirement is the one funders handle worst. An advance sold as a percentage of daily receipts is variable by construction, so the disclosure needs both a stated calculation method and a monthly average projection. What shows up instead is frequently a single daily figure with no method and no monthly number, which describes a fixed payment product while the contract elsewhere describes a percentage of revenue. A disclosure that contradicts the agreement it accompanies is exactly what §86.310(b) forbids.

The reason to care goes well past the disclosure. A fixed payment mechanism qualifies as sales-based financing under §398.001(8)(B) only where it provides for a reconciliation process adjusting the payment toward a percentage of sales or revenue. So the payment line and the reconciliation clause have to tell the same story, and where they do not, you have both a disclosure problem and the beginning of an argument about what the transaction actually is.

4. Fees That Appeared After You Signed

Three of the eleven required items deal with fees, and each covers a different moment. Section 398.051(a)(7) requires a description of all other potential fees and charges not included in the finance charge, expressly including draw fees, late payment fees and returned payment fees. Section 398.051(a)(8) requires disclosure of any finance charge you will owe if you pay off or refinance early, and (a)(9) requires disclosure of any additional fees, outside the finance charge, that early payoff or refinancing will trigger.

Line those up against the fee schedule you have actually been charged. NSF and returned payment fees applied per attempt rather than per day, a default or breach fee that appears nowhere in the disclosure, a UCC filing fee, a servicing charge that starts in month two, an early payoff computed on the full purchased amount rather than a discounted balance: each of those is either disclosed or it is not, and the statute names most of them by category so the omission is easy to identify.

The Finance Commission wrote a rule specifically for this. Under 7 TAC §86.312(b)(3), charging fees or other amounts that were not specifically disclosed and contracted for is an unlawful, unfair, deceptive or abusive act. That is a cleaner theory than arguing about a disclosure form, because it turns on the funder’s conduct after closing, which is documented in your own bank statements. Pull ninety days of debits and label every one that is not a scheduled remittance.

5. The Broker Compensation Line Nobody Filled In

Section 398.051(a)(11) requires a statement outlining whether the provider will pay compensation directly to a commercial sales-based financing broker in connection with the specific offer and, if so, the amount of that compensation. It is the eleventh of eleven items, it is the one most often left blank or answered with boilerplate, and it is the one merchants most want the answer to, because the broker who called you every day for a week was being paid by the other side.

Brokers are separately regulated here. Section 398.001(2) defines a commercial sales-based financing broker as a person who, for compensation or the expectation of it, obtains or offers to obtain commercial sales-based financing for a recipient from a provider. Section 398.053(a) prohibits engaging in business as a broker for compensation in Texas without registering with the OCCC before conducting business, and 7 TAC §86.311(c) requires a broker to maintain a transaction file containing any disclosures it provided and any agreement it entered with you.

Two of the fifteen listed practices bear directly on broker conduct. Section 86.312(b)(1)(C) makes a statement that there is no personal guarantee an unfair, deceptive or abusive act where that statement is inaccurate, which describes a great many broker phone calls. And §86.312(b)(1)(A) covers inaccurate descriptions of contracted-for services. Where the promises that got you to sign came from a broker rather than the funder, those subsections are where the argument lives.

6. The Payoff Page on a Renewal or Consolidation

Section 398.051(b) is a separate disclosure duty that applies whenever the provider requires you, as a condition of the new financing, to pay off the outstanding balance of an existing advance. It exists because renewals are where the real money is made and where merchants are least able to see it. This is the subsection to read if your funder has refinanced you two or three times.

It requires two specific figures. Under (b)(1), the provider must disclose the amount of the new financing used to pay off the portion of the existing outstanding balance consisting of prepayment charges required to be paid, at (A), and any unpaid interest expense or finance charges that were not forgiven at the time of renewal, at (B). Under (b)(2), where the disbursement amount will be reduced to pay down any unpaid portion of the outstanding balance, the provider must disclose the actual dollar amount of that reduction.

The economics that subsection is aimed at are worth spelling out. On a renewal, the unearned finance charge on the old advance is frequently rolled into the new one rather than forgiven, so you are paying a cost of money twice on the same dollars while receiving new funds that are a fraction of the stated financing amount. Section 398.051(b)(1)(B) forces that figure onto the page. If your renewal paperwork does not contain it, you have a discrete omission and a very concrete number to ask about.

7. Timing, Signature, and the Notice Block That Has to Be There

The rules the Finance Commission adopted effective July 9, 2026 added three requirements that have nothing to do with the numbers. Under 7 TAC §86.310(a), a provider must give you the §398.051 disclosures in writing at or before the time it extends the specific offer. A disclosure produced at closing, alongside the signature packet, is not a disclosure delivered at or before the offer, and the sequence is usually provable from the email timestamps you already have.

Section 398.052 adds a signature requirement: the provider must obtain your signature on the §398.051 disclosures before finalizing the application for the transaction. And 7 TAC §86.310(c) creates a continuing obligation, requiring a provider who later learns that any information on the disclosures was inaccurate or did not correctly reflect the terms at closing to promptly notify you and promptly provide revised, accurate disclosures. A funder that discovered a mistake and said nothing has violated that subsection independently of the original error.

Then look for the box. Under 7 TAC §86.310(d), a contract for services under Chapter 398 must contain a specified statement as a separate section or otherwise conspicuously set out from the surrounding material, telling you that the OCCC enforces certain laws that apply to the contract, that you can contact the agency to file a complaint if it cannot be resolved with the provider, and giving the address at 2601 N. Lamar Blvd., Austin, Texas 78705, the phone number (800) 538-1579, and the website. It is the easiest defect in this article to check, and it takes about eight seconds.

What a Defect Is Worth When There Is No Lawsuit

Since §398.102 closes the courthouse door on a direct claim, the value of everything above runs through two channels, and both are real. The first is the OCCC. Under 7 TAC §86.320(b), on receipt of a written complaint or other reasonable cause to believe a person is violating the chapter, the agency may require the person to furnish information about the specific transaction and may investigate, and under (c) the person under investigation must allow the OCCC access to its place of business, its transactions and its records, and must allow copies to be made.

That access requirement is more painful for a funder than the penalty, because of what §86.311 requires it to have kept. A provider must maintain a transaction file for each recipient containing a complete copy of the written agreement, each disclosure made including those under §398.051, each additional document or authorization you signed, documentation showing attachment, perfection or release of a lien, an account history showing the application of each payment you made, and any written documentation of collection, repossession, foreclosure or litigation against you. Those files are kept for the later of four years from the transaction or two years from the final entry on the account.

The second channel is the negotiation itself, and it is where most files actually resolve. A funder facing $10,000 per violation under §398.101, an administrative penalty of up to $1,000 per day of violation capped at $10,000 per violation under 7 TAC §86.321(c), suspension or revocation of its registration under §86.321(d), and an injunction that can order restitution to an identifiable person under §86.321(b)(2), is a funder with a reason to make a number go away quietly. In the files we work, the leverage from a documented defect shows up in the settlement figure rather than in a courtroom.

Paper Signed Before September 1, 2025 Needs a Different Argument

Chapter 398 took effect September 1, 2025, and Tex. Gov’t Code §311.022 presumes a statute is prospective unless expressly made retrospective. Nothing in H.B. 700 reaches back. So if your advance predates that date, none of the seven defects above is available to you, and this is where a lot of Texas merchants get sold an argument that does not exist.

The route on older paper runs through the usury chapters, and it is harder than it is in other states for one specific reason. Tex. Fin. Code §306.103(b) provides that the parties’ characterization of an account purchase transaction as a purchase is conclusive that it is not a transaction for the use, forbearance or detention of money. Section 398.004 removed that shelter for sales-based financing going forward, but §398.004 is prospective too, so on a 2023 or 2024 agreement the shelter is still standing.

Which means the older-paper argument has to attack the premise rather than the label. Section 306.001(1) defines an account purchase transaction as an agreement under which a person engaged in a commercial enterprise sells accounts, instruments, documents or chattel paper at a discount. Whether an advance against revenue that has not yet been earned is a sale of anything within that definition is a genuine question, and it is the question that decides whether §302.001(b) and the treble penalty at §305.001(a-1) come into play. Alongside it sit the ordinary theories: breach of the reconciliation promise, common law fraud on a four-year clock under Tex. Civ. Prac. & Rem. Code §16.004(a)(4), and whatever the collection conduct will support.

The Two Defects That Do More Than the Disclosures

Two provisions of Chapter 398 carry consequences the disclosure sections do not, and both belong in the same review. The first is §398.055, which makes a commercial sales-based financing contract containing a confession of judgment provision, or any similar provision, void and unenforceable. That is the only place in the chapter where the word void appears, and it attaches to the contract rather than to the clause. We take that section apart, including what happens to older agreements and to judgments imported from other states, on the Texas confession of judgment page.

The second is §398.056, which conditions a provider’s ability to establish a mechanism for automatically debiting your deposit account on holding a validly perfected, first-priority security interest. The rule at 7 TAC §86.313(c) resolves what that means: the interest must cover all accounts receivable of the recipient, and under (d) perfection generally requires a UCC-1 filed under Tex. Bus. & Com. Code §9.310(a), with priority determined by time of filing under §9.322(a)(1). A funder in second or third position behind another filer does not hold it. The mechanics, including why §86.313(b) treats a stack of prewritten checks as an automatic debit mechanism, are set out at our page on the Texas ACH provision.

If you are comparing states because your funder operates in several, the survey of which jurisdictions actually have a commercial financing disclosure statute and what each one requires is at our fifty-state disclosure page. Texas is one of eleven, and the differences between them are larger than the similarities.

Who Should You Call? Our Top-Rated Business Debt Firms

One firm on this list works the entire lifecycle of a business debt file, from stopping the daily debits through attorney-led negotiation, UCC lien removal, and a signed release. The other two cover broader debt categories that often sit alongside the advances. Choose accordingly.