After several attempts in the Missouri legislature, last week Governor Mike Parson signed a Commercial Financing Disclosure Law. This legislation requires certain disclosures to be made by providers of commercial purpose closed-end and open-end loans, and sales-based financing transactions. The law will take effect six months after the Division of Finance finalizes promulgating rules or on February 28, 2025, if the Division does not intend to promulgate rules.
The law applies to a “provider” who consummates more than five “commercial financing transactions” to businesses located in Missouri in any calendar year. Although certain entities such as banks are exempt, the term “provider” includes certain bank partners who arrange for extensions of commercial financing by the bank via an online lending platform administered by the partner.
The new law defines a “commercial financing transaction” as any commercial loan, accounts receivable purchase transaction, commercial open-end credit plan or each to the extent the transaction is a business purpose transaction. Providers of such transactions must disclose the following information at or before the consummation of a transaction:
- Total Amount of Funds Provided: The total amount of funds made available to the business.
- Total Amount of Funds Disbursed: If different from the total funds provided, the actual amount disbursed, accounting for any fees deducted or amounts paid to third parties.
- Total of Payments: The aggregate amount the business is obligated to pay under the agreement.
- Total Dollar Cost of Financing: The overall cost of the financing, derived by subtracting the total amount of funds provided from the total of payments.
- Payments: The manner, frequency, and amount of each payment. If payments may vary, an estimated initial payment and the methodology for calculating variable payments must be disclosed.
- Prepayment: Whether there are any costs or discounts associated with prepayment, including a reference to the relevant contractual terms.
Transactions exceeding $500,000 are exempt from these disclosure requirements, as are mortgages, leases, certain purchase money obligations, and certain floor plan financing for auto dealers.
Brokers involved in commercial financing transactions must register with the Division of Finance and file surety bonds. The registration process includes an initial fee of $100 and an annual renewal fee of $50. These requirements do not extend to providers.
Our Take:
Missouri’s new disclosure law furthers the nationwide consumerization of small business finance. The proliferation of state disclosure laws, increased regulatory scrutiny of small business finance, and the CFPB completing the 1071 rulemaking process has greatly increased compliance complexity for small business finance providers. As these laws move from novel to well-established, the risk of enforcement actions continues to grow.