What Happened?
As we have previously apprised you, California, New York, Utah, Virginia, Georgia, Florida, Connecticut, and Kansas have enacted laws that require certain commercial financing “providers” to furnish certain consumer-like disclosures prior to the consummation of commercial financing transactions. Now, Missouri has joined this state hit parade of laws requiring cumbersome commercial disclosures to businesses who will likely ignore them. On July 11, 2024, Governor Mike Parson signed Missouri Senate Bill 1359 into law, which includes notable provisions for commercial lending disclosures as well as a registration requirement for brokers. This new Missouri law becomes effective six months after the Missouri Division of Finance (the “Division”) finalizes promulgating rules or, if the Division does not intend to promulgate such rules, on February 28, 2025.
Why it is Important?
The Missouri law requires “providers” to furnish several disclosures to business purpose borrowers at or before consummation of certain types of commercial financing transactions. The statute defines “provider” as a “person who consummates more than five commercial financings” to a business located in Missouri–or to entities that who arrange those transactions through online platforms– in any twelve-month period.
“Commercial financing transactions” include any unsecured and secured commercial loan, accounts receivable purchase transaction, commercial open-end credit plan or each to the extent the transaction is a business purpose transaction. Significantly, the law includes in its scope marketplace lending arrangements pursuant to which non-banks partner with banks to provide financial products.
Exemptions from the Statute:
Exemptions from the Missouri law include the following entities and transactions: a depository institution or a subsidiary or affiliate; a service corporation to a depository institution that is owned and controlled by same and regulated by a federal banking agency; a lender regulated by the Federal Farm Credit Act; real estate-secured loans; a lease; a licensed money transmitter; loans exceeding $500,000; and certain purchase money transactions.
Required Disclosures:
At or prior to the consummation of a transaction, a provider must disclose to the business purpose borrower: (a) the total sum being financed; (b) the total amount of funds disbursed after deducting any fees or withholdings; (c) the total amount the business will repay; (d) the total cost of the financing in dollar; (e) the payment terms, frequency, and amounts; and (f) any costs or discounts associated with prepaying the financing.
Broker Registration:
This law also contains a registration requirement for brokers, which involves registering with the Division and maintaining a $10,000 surety bond. The Missouri law defines a “broker” as a person who “for compensation” or the “expectation of compensation” obtains a binding offer for a loan from a third party and communicates that offer to a business located in Missouri.
Penalties for Non-Compliance:
The Missouri law authorizes the Missouri Attorney General to bring civil actions against providers and brokers who violate the law, with initial violations punishable by fines of $500 per incident with a total aggregated limit of $20,000, with additional fines for violations after notice from the Attorney General. Notably, violations of the law do not impair the enforceability of the loans or give borrowers a private right of action against a provider or broker.
What To Do Now?
Missouri becomes the ninth state to impose nettlesome disclosure requirements on providers of commercial non-real estate secured financings in amounts less than $500,000, and, like the laws enacted in Utah and Virginia, includes a “registration” component. While the Missouri law excludes banks from its scope, it specifically covers marketplace lending arrangements. We expect other states to enact similar types of laws which will create a patchwork of compliance challenges for small balance commercial loan lenders.
