Alternative Commercial Finance Monthly | April 2025

The month in review

Texas Introduces Legislation to Regulate Sales-Based Commercial Financing

In February, we examined the increasing number of states implementing disclosure laws for commercial, non-real estate secured transactions—providing an overview of current legislation and suggesting that this trend may persist. Since then, Texas state legislators introduced two bills, S.B. No. 2677 and H.B. No. 700, aimed at regulating sales-based commercial financing and establishing new requirements for brokers operating in this space. If passed, Texas will join the growing list of states that have enacted similar laws. 

The proposed legislation introduces a new chapter, Chapter 398, to Title 5 of the Texas Finance Code. This new chapter addresses “sales-based financings,” which are defined as transactions that are repaid by the recipient to the provider either as: (A) a percentage of sales or revenue; or (B) through a fixed payment mechanism with a reconciliation process, adjusting payments to reflect a percentage of sales or revenue (i.e Merchant Cash Advances). Due to its specific application to sales-based financings, this statute is more limited in scope compared to some other commercial financing disclosure laws.

The key aspects of this legislation include:

1. Broker registration: Any person engaged in business as a commercial sales-based financing broker must register with the Texas Department of Banking before January 1, 2025. Brokers also must file a renewal registration annually on or before January 31.
   • Commercial sales-based financing is defined under the legislation as an extension of sales-based financing to a recipient who does not intend to use the proceeds for personal, family, or household purposes.
2. Updating registration statements: A commercial sales-based financing broker is obligated to update information contained in the registration statement within 90 days after the information changes. 
3. Disclosure requirements: Providers offering commercial sales-based financing of more than $500,000 must disclose detailed information to recipients, including: (1) the total financing amount, disbursement amount, and finance charges; (2) the total repayment amount and estimated payment periods; (3) payment schedules; (4) additional fees, such as late payment or prepayment charges; and (5) collateral or security requirements, if applicable. The provider must also obtain the recipient’s signature on the disclosures before finalizing the application.
4. Application of usury law: Fees and charges paid or charged under a sales-based financing transaction are considered interest for usury purposes under Texas law, regardless of the principal amount of the advance.
5. Exemptions: The proposed legislation exempts certain entities from the provisions of the new chapter. These entities include: (1) banks, credit unions, and their subsidiaries or affiliates; (2) lenders regulated under the Farm Credit Act of 1971; (3) technology service providers offering services to exempt entities as part of the entity’s commercial sales-based financing program, provided that the technology service provider has no interest in or connection with the program; and (4) individuals or entities who broker leases, commercial sales-based financing transactions secured by a purchase money transaction or real property, or commercial sales-based financing transactions to specific entities.
6. Enforcement and penalties: Violations of the act carry a civil penalty of up to $10,000 per violation, capped at $100,000 for aggregated violations. Additionally, noncompliance is considered a deceptive trade practice under Texas law and is actionable under that chapter. However, the bill does not create a private right of action for individuals to sue based on noncompliance.

If enacted, the legislation will take effect September 1, 2025.

Recent Developments in CFPB Rulemaking

• CFPB to rescind BNPL guidance: The CFPB has announced its plan to withdraw its May 2024 interpretive rule that subjects buy-now, pay-later providers to TILA and Regulation Z. In a March 26 court filing, the CFPB stated that it is planning on revoking the IR and requested a stay from litigation regarding the rule until revocation.
• CFPB will not enforce payday lending rule: On March 28, the CFPB indicated that it will not prioritize enforcement or supervision of the provisions of the 2017 Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule that became effective on March 30. The CFPB noted that it was contemplating a new rulemaking to narrow the rule.
• CFPB to initiate new Section 1071 rulemaking: On April 3, the CFPB filed a response motion in one of the pending lawsuits challenging the 1071 Final Rule where the agency stated that the “CFPB’s new leadership has directed staff to initiate a new Section 1071 rulemaking [and] anticipates issuing a Notice of Proposed Rulemaking as expeditiously as reasonably possible” which the CFPB believes may moot or otherwise resolve the litigation. Additionally, on April 2 the House Financial Services Committee approved H.R. 976, which would repeal Section 1071.
• Credit card late fee rule vacated: Following a joint motion for entry of consent judgment, a federal judge recently struck down the CFPB’s credit card late fee rule, which capped late fees at $8 and eliminated inflation adjustments.
• CFPB will not enforce nonbank registry rule: On April 11, the CFPB announced that it will not prioritize the supervision or enforcement of entities that do not meet the registration deadlines under the nonbank registry rule. It also stated that it is “considering issuing a notice of proposed rulemaking to rescind the regulation or narrow its scope.”
• President Trump to rescind digital payments and overdraft rules: On April 9, the House passed Senate Resolutions (S.J. Res. 28 & S.J. Res. 18) to rescind the Digital Payments and Overdraft Rules, sending the measure to the president. President Trump is expected to sign the legislation, which would repeal the rules and prevent the CFPB from ever promulgating a substantially similar rule.

New and upcoming laws and regulations

• California Rosenthal Act
  • Effective date: July 1, 2025
  • California will now subject certain commercial finance transactions to the Rosenthal Act, which governs debt collection activities in California. Specifically, the new law expands the act to include commercial debt where the total debt owed to the creditor is no more than $500,000. Commercial finance companies who are subject to the Rosenthal Act will have to comply with substantial debt collection requirements for certain California transactions.
• Dodd-Frank 1071
  • Key dates:
    • July 18, 2025: Tier 1 Covered Financial Institutions (i.e. those originating at least 2,500 covered credit transactions in both 2022 and 2023) must begin collecting data.
    • June 1, 2026: Filing deadline Tier 1 Covered Financial Institutions
  • This federal law requires covered finance companies to collect and report data related to certain commercial finance applications and originations. The new law aims to assist regulators in detecting purported disparate impact discrimination claims by commercial finance companies under the Equal Credit Opportunity Act. Note also that smaller Covered Financial Institutions will have to begin collecting data under Section 1071 in 2026.
  • NOTE: As discussed above, the CFPB filed a motion in a pending lawsuit, stating that the agency’s “new leadership has directed staff to initiate a new Section 1071 rulemaking [and] anticipates issuing a Notice of Proposed Rulemaking as expeditiously as reasonably possible.”

Critical insights from Husch Blackwell

Husch Blackwell’s Christopher Friedman and Alex McFall to discuss regulatory issues at the International Factoring Association’s 2025 Annual Meeting in Palm Desert, California

Husch Blackwell Partner Christopher Friedman and Senior Counsel Alex McFall, as well as industry legal veteran Cindy Medina Vega of Raistone Capital, will present a panel at the IFA’s Annual Meeting—the industry’s premier gathering of commercial factors and other alternative commercial finance companies. The panel will focus on key regulations in the commercial factoring space and will highlight ways regulatory trends and methods that alternative commercial finance companies can use to reduce risk. The conference will take place May 7-9, and registration information can be found here. If you’re going to be attending the IFA, please make sure to visit the Husch Blackwell team at our booth!

Other Consumer Finance Insights

• The State of the CFPB During a Fraught Transition Period: Part I
• The State of the CFPB During a Fraught Transition Period: Part II

Privacy Insights

• Proposed State Privacy Law Update: April 28, 2025
• Effective Dates Draw Near for Insurance Industry to Comply with NYDFS’s Cybersecurity Rules
• FAA Implements Section 803’s Data Privacy Provisions

Financial Services Insights

• Developments Regarding Federal and State Climate-Related Disclosure Requirements
• FinCEN Removes Beneficial Ownership Reporting Requirements for U.S. Companies and U.S. Persons Under the CTA

International Trade Insights

• New Maritime Executive Order Signals Robust Action on Domestic Shipbuilding

Healthcare Law Insights

• Massachusetts Codifies ‘Shield Law’ Protections for Physicians
• Colorado Legislature Proposes Heightened Protections for Healthcare Activity

News you can bank on

Interested in more updates on the financial services industry? Subscribe and receive Husch Blackwell consumer financial services insights in your inbox.